Ugandan Central Bank Governor Emmanuel Tumusiime Mutebile while releasing the Monetary policy statement last week cautioned that there may be little in fiscal support by government if the economy suffers more due to Covid-19 as debt to Gross Domestic Product ratio will be at 52 per cent by the end of FY2021/22. Public debt remains a public concern. Ms Christine Byiringiro, a public debt analyst at Uganda Debt Network told Prosper Magazine’s Ismail Musa Ladu why in the first month of the 2021/2022 financial year, the country’s public debt would be hovering beyond the 50 per cent threshold, beyond which signifies danger. Excerpts below….
There is some space for you to input into the National Budget before it is passed, so you must be content with the budget, right?
Look, even if that is the case it does not mean we look at things differently. You must realise that while Uganda Debt Network (UDN) and other partners have been part of the budget process/ cycle, it is imperative that we continue to dialogue with government on how best the country could tread on sustainable strategies for Uganda’s public debt, while increasing budget revenues to finance the country’s development needs and obligations over FY 2021/ 22, the medium-term and long-term.
Debt servicing takes up a lion’s share of the National Budget. Break down the numbers for us?
The total resource envelope for FY2021/22 is projected to comprise of the following; Domestic Revenues Shs22.4 trillion; Petroleum Fund Shs200 billion; Budget Support Shs3.5 trillion; Domestic Financing Shs2.9 trillion; Project Support (External Financing) Shs6.8 trillion; Domestic Debt Refinancing (Roll-over) Shs8.5 trillion; and Local Revenue by Local Governments Shs212 billion. So, debt servicing will take a lion’s share of the national budget resources at 34 per cent. This includes servicing: External debt repayments (Amortisation) Shs1.8 trillion; Interest payments 4.7 trillion, domestic debt refinancing (rollover) Shs8.5 trillion; Domestic Arrears Shs400 billion.
The numbers are frightening! How did we get there? Several reasons explain this situation. But the most immediate one is the constrained economic environment, thanks to Covid-19. In a period of one year, Uganda’s public debt increased by 35 per cent from Shs49 trillion in December 2019 to Shs65 trillion by December 2020. This sharp rise was on account of borrowing to respond to Covid-19 pandemic and other natural disasters like the locusts’ invasion, floods in some parts of the country and balance of payments. As a result, Uganda’s present total debt burden is currently around Shs68 trillion. In the first month of the financial year 2021/22, our threshold will be hovering between 50-51 per cent, and we believe this is not an ideal situation.
As such, anyone would be concerned about this rapid debt growth, against a Gross Domestic Product of $35 billion in 2020; and missed Middle Income Status targets in 2017 and 2020. The country must deal with key binding constraints, run-away corruption, execution issues and look to new strategies to sustainable debt for Uganda.
Then there is also the issue of domestic refinancing. If government continues borrowing domestically, chances of Small and Medium Enterprises (SMEs) who need that money to create wealth get slimmer. How can this be resolved?
On Domestic Debt Refinancing (Roll-over), Government must devise mechanisms where the monetary policy instruments support investment into production entities and opportunities in Uganda, rather than keep the offshore and domestic investors in securities (Treasury bills and Bonds) shift from “lazy/ passive investors” by simply awaiting Government payback at maturity of the securities to “active investors” who set up factories, services and actively participate in expansion of Uganda’s GDP. Government will require to tax more and scale down the profitability of securities so that Uganda significantly reduces the level of the otherwise passive investors, who will in near-term part with at least Shs8.5 trillion in FY 2021/22.
How do you solve the problem of debt especially those with harsh terms?
While China is the biggest bilateral lender to Uganda and Africa at large, as well as holds the biggest commercial debt portfolio, the country needs to find the road back to concessional borrowing, for instance, under the World Bank IDA terms rather than the mushrooming debt on commercial terms by bilateral lenders (e.g. Paris Club) and private creditors (e.g. London Club). The short maturity period for debt repayment under the private and bilateral creditors is not sustainable for Uganda’s economy that is struggling to recover from the adverse effects of Covid-19 pandemic and attaining Middle Income Status.
How does debt constraint service delivery?
The effect is immense. For example, the External Debt Repayments (Amortisation) Shs1.8 trillion in FY 2021/22 is equivalent to the Agro- industrialisation budget allocation of Shs1.6 trillion, otherwise foregone in the same financial year. The country can have better strategies against such hemorrhage of our resources that should primarily go to improving livelihood conditions, saving the children, having better school structures and better salaries for teachers and our armed forces that secure the country all time.
Government is looking to build road infrastructure beyond the country’s border. That will mean more borrowing. Are you in support of this venture?
I am not overly critical of that. In fact, Uganda Debt Network (UDN) implores Government to accelerate the joint Government-to- Government investments in Somalia, DR Congo, Chad and Central African Republic, Burundi and others. The important thing is that the three proposed road projects in DR Congo should highly be guarded against corruption so that the projects are delivered in time for business opportunities, increased security amongst Uganda trade partners.
Government should provide a financial facility that supports private sector actors into Somalia market, while discussions with Chad and Central African Republic should commence for railway, roads, Uganda Airlines and other inter-connectivity. Such opportunities will expand Uganda’s GDP, as well as the participating countries.
Are you concerned about the economic policy that the country has taken and does it explain in any way the debt situation the country finds itself in?
Learning from the full liberalisation policy and divestiture/ privatisation in 1990s to-date, Government of Uganda should reverse some elements of this policy and practice. For example, Uganda citizens should retain and revamp Uganda telecoms to participate and earn profit from the expanding telecoms market in Uganda and the Great Lakes region. We must be looking to becoming more self –sustaining and this cannot happen without some control over our key sectors of the economy.
But first, we must deal with corruption. With the meagre resources under the Shs44.7 trillion (equivalent to $12.5 billion going by the current exchange rate) for FY 2021/22, government should be more aggressive against run-away corruption. The time and cost overruns exhibited in some public investment projects should be squarely handled so that taxpayers have timely value for money. The shame of the 22Km Kampala Northern By-pass incomplete project (even if duo or multiple carriage) since commencement in 2004 continues to grossly undermine Uganda’s GDP growth, contributes to debt expansion and other economic opportunities foregone. Government should immediately institute a substantive IGG, who then should investigate the matters of such projects, beginning with the Kampala Northern By-pass and furnish the country on where the real problems (not excuses) and solutions lie.
Similarly, Government through Parliament should revisit the Traffic and Road Safety Act so that the elusive Police express penalty scheme with somewhat opaque accountability since 2004 should be managed by Uganda Revenue Authority. With expanded provision for other fines, this window of domestic revenue mobilisation would earn the country at least Shs1 trillion into the revenue basket over the next two financial years.
Little fiscal support
Bank of Uganda governor while releasing the monetary policy statement last week warned that government has limited room for more spending as it limits borrowing to manage debt.