Address drivers of rising national debt - experts

Peter 29th May, 2024 Economy Pedson Mumbere
Address drivers of rising national debt - experts

A tractor embarks on the construction of the Koboko-Yumbe-Moyo road in West Nile. The low absorption rate of borrowed funds means that interest is being paid back for loans that are not yet being utilised.

Uganda’s debt risks are becoming more pronounced both in the short to medium term, largely attributed to poor debt utilization as one of the key causes of the nation's mounting public debt stock.

This has to be addressed if the economy is to achieve its growth targets, according to analysts who talked to the Business Edge.

Christine Byiringiro, the program manager at the Uganda Debt Network, a non-governmental organisation, says paying back debt that was not well-utilised implies that the Government must divert crucial resources away from delivering social services, resulting in disproportionate spending on debt at the expense of vital sectors such as infrastructure, labour productivity, human capital development, and public health.

  • She adds that the government should pay attention to the several recommendations that have been put forward by the civil society players if the country is to scale the bludgeoning debt crisis.

“The recommended policies are geared toward the efficient use of borrowed funds because public debt used efficiently can leverage developments that have a high potential to unlock the production competences of the country and increase revenue collection efforts,’’ she added.

The government spent at least UGX8.3 trillion on debt servicing in the financial year ended June 2023, according to data from the Uganda Revenue Authority (URA). This, was an increase from UGX6.7 trillion spent in the financial year ended June 2022.

  • She warns that this trend is likely to continue if something is not done.
Address drivers of rising national debt - expertsUNRA clears a massive papyrus invasion from under the Pakwach bridge. Unplanned climate-change-related expenditure is one of the key drivers of Uganda’s debt dilemma.

Dr. John Sseruyange, an Economics lecturer at the Makerere University School of Economics, agrees. He says the government must strengthens its public expenditure models, should avoid poor utilization of borrowed funds and put more emphasis on the effects of climate change if it is to alleviate what he calls the ‘public debt dilemma.’

He says Uganda’s public debt was approximately 13% of GDP in 2009/2010; it is currently approximately 50% of GDP, with some of the borrowed money being used to address unplanned climate-related disasters.

“Working on the ongoing effects of climate change is crucial, government should not continue rebuilding washed-out roads on borrowed funds,” he says.

Parliament recently passed the national budget for the next financial year 2024/2025, approving a total expenditure of more than UGX72 trillion, reflecting a significant increase of Shs14 trillion from the initial budget proposal of UGX58 trillion.

  • From the above resource envelope, UGX3.1 trillion is to be allocated for external debt repayment and UGX9.1 trillion for domestic debt repayment through the Bank of Uganda.
  • However, the Uganda Debt Network is concerned that Uganda’s current budgeting process is focusing on short-term consumptive expenditure at the expense of long-term benefits for the economy.

‘’There is a need to focus on effective planning and implementation of the budget. To close the expenditure gap, the available fiscal space should not be used to cater for temporarily high government expenditures that are wasteful and unproductive. Having a clear direction for fiscal policy in adherence to the fiscal charter and Section 36 of the Public Finance Management Act (as amended) would benefit budget planning and execution,’’ says Byiringiro.

For the last three Financial Years (FYs), Uganda’s budgets highlight huge payments to debt interest rates. For instance, in the FY 2022/23, Statutory Interest Payments took UGX4.6 trillion (about 12% of the total budget (MoFPED, 2022).

According to the experts, it's essential for Uganda to balance its borrowing with in-vestments that foster long-term economic development, as excessive debt can strain the economy and limit future growth prospects. The government consequently needs to monitor its fiscal policies, debt management strategies, and overall economic perfor-mance so as to ensure the sustainability of the country’s public debt.

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