Uganda: Financing Pressures to Push Up Debt to 48.8 Percent By June

The African Development Bank (AfDB) has said an increase in financing needs will drive Uganda’s public debt to 48.8 per cent by June 2021.

The debt, AfDB said in its country African Economic Outlook, is expected to surge further to above 50 per cent by June 2023.

AfDB is one of Uganda’s largest multilateral lenders, coming only below the World Bank. Currently, it has a commitment of about $1.8b to both government and the private sector.

Much of this is held in the transport sector, which accounts for at least 63 per cent of the bank’s portfolio.

Agriculture accounts for 15 per cent while water and sanitation accounts for 12 per cent. Energy accounts for 7 per cent while the social sector and ICT account for 2 per cent and 1 per cent respectively.

In its outlook, AfDB said the slowdown in the economy in 2020, had increased government’s financing needs, which is 2021projected to reach 11.4 per cent of Gross Domestic Product but was still within sustainable levels even as it exposes the country to adverse shocks.

The bank also noted that the increasing rate of interest payments, driven by growth in non-concessional borrowing was a challenge to the economy, advising that government must revert to concessional financing to avert the possibility of pushing debt to unsustainable levels.

This, the bank said must also be done together with strengthening domestic resource mobilisation as well as improving the business environment to attract both foreign and local investors.

“The authorities should cut spending to reduce the primary deficit, estimated at 4.5 per cent of GDP in 2021, to a sustainable level,” AfDB said.

Uganda’s economy, the bank noted, had been damaged by Covid-19 with real Gross Domestic Product declining by 0.5 per cent in 2020, after growing at 7.5 per cent in 2019.

Tourism and hospitality have been the worst hit sectors with other sectors, among them manufacturing, retail and wholesale trade and education struggling to navigate disruptions resulting from Covid-19.

The debt-to-gross domestic product ratio had by June 2020 stood at 40.8 per cent from 35.9 per cent a year earlier but had rapidly expanded due to increased borrowing to mitigate Covid-19 disruptions.

Government’s shift

While responding to AfDB’s concerns, Ms Maris Wanyera, the Ministry of Finance acting director debt and cash management, said going forward, government would ensure that all loans are going to be purely concessional.

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