NationalNews

Uganda’s Public debt projected to increase

BY DAVID MAFABI
KAMPALA

Uganda’s fiscal policy space has changed significantly because the government went on an expansionary fiscal policy driven by huge spending on infrastructural development.

Mr Robert Migadde, the vice chairperson of the parliamentary committee on National Economy said given the effects of Covid 19 pandemic and the war in Ukraine, the gross public debt is projected to increase drastically.

This was during two reports approved by parliament yesterday [31 August] on the state of indebtedness, grants, and guarantees and another one on the performance of the economy.

According to the reports, Uganda’s public debt stock increased by 22% from Shs 56.938 trillion in the financial year 2019/20 to Shs 69.513 trillion by end of the financial year 2020/21, and it is likely to increase further.

“The public debt is projected to increase over the medium term as the government continues to implement its investment program to boost economic recovery,” said Mr Migadde.

Public debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future and this includes debt liabilities in the form of SDR allocations, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable. Debt can be valued at the current market, nominal, or face values.

An increase in debt can stem from a rise in government expenditures, an increase in public investment, a reduction in tax revenues, or other fiscal changes, and understanding the impact of the resulting increase in debt on real GDP is essential to public debt sustainability assessments.

Mr Migadde said whereas the debt level is still sustainable, the debt service ratios point to elevated risks majorly due to the slower growth of export earnings.

He proposed that the government should support economic growth by boosting exports to enhance the country’s reserves among other things adding that having sound statistics on and analysis of the public finances are therefore crucial.

The committee called on government departments, agencies, and ministries to prioritise counterpart funds to ensure efficient, effective, and timely implementation of projects to maximise returns to borrowing and minimise deviations from fiscal plans.

“They include payments of taxes by the government on behalf of investors; payment of taxes on goods procured by organisations where the government is obliged by agreement and; on behalf of some religious, cultural and Non-Government Organisations (NGOs),” the report reads in part.

According to the report, in the 2020/21financial year alone, URA collected Shs18.3 trillion (12.4 % of GDP) and lost Shs7.7 trillion (5.2 % of GDP), implying that without the tax expenditures, the government could have collected Shs 26 trillion (17.6 %).

Mr Migadde said with 17.6 percent of tax revenues to GDP, the country’s budget deficit would significantly decline and reduce the borrowing need.

Parliament asked the government to develop mechanisms that will ensure the country returns to a low risk of debt distress.

Several MPs raised different concerns about the report with many proposing that the government focuses on agriculture and exports.

Uganda’s National Development Plan (NDP) Vision for 2040 clearly articulates that
fiscal policy would be expected to play a central role in influencing the pace at which the
the economy will grow and its capacity to deal with the key challenges that will arise over the
next several decades (NPC).

The Uganda Vision 2040 identifies the Government of Uganda’s development paths and strategies to operationalize the country’s vision statement of “A Transformed Ugandan Society from a Peasant to a Modern and Prosperous Country within 30 years”. Vision 2040 is conceptualized around strengthening the fundamentals of the national economy to harness the opportunities around the country. The key identified opportunities include Oil and gas, tourism, minerals, ICT business, abundant labor force, geographical location and trade, water resources, industrialization, and agriculture among others.

Ends

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