Uganda is walking a tight rope given its soaring public debt.
Uganda’s public debt has soared to Ugx 80 trillion ($21.3 billion) rising by more than 23% from Ugx 69.5 trillion ($18.5 billion) at the end of FY 2020/21. For the last 5 years, Uganda’s debt portfolio has grown by more than 50 % from Ugx 37.9 trillion ($10.1 billion) in 2017, of which over Ugx 15 trillion ($4 billion) accounts for commercial loans.
China is the leading bilateral lender to Uganda with her debt amounting to over $ 2.55 billion followed by Japan and the United Kingdom. Stanbic and Standard Chartered Bank are the country’s top private creditors to the government contributing to the biggest bulk of domestic debt which now stands at Ugx 33 trillion ($8.8 billion) in contrast to the external debt of Ugx 47 trillion ($12.5 billion).
Chinese state banks like the Afreximbank, are the biggest source of infrastructure funding to Uganda in form of commercial loans. Commercial loans are known for having unfavorable terms with high-interest rates and shorter loan repayment period of less than 5 years.
Behind the curtains of these loan negotiations, Ugandans don’t know what has been staked as collateral given the predatory lending practices of commercial loans. Early in the year, Uganda was locked into negotiations over “aggressive” repayment terms on a $200 million loan to expand Uganda’s Entebbe international airport. There were fears that Uganda risked losing its only international airport to a top Chinese creditor.
Whereas economists within Ministry of Finance Planning and Economic Development, and Bank of Uganda assure Ugandans that our national debt is still sustainable at 50% of the Gross Domestic Product (GDP), there is more than what meets the eye. The SecretKnown is that our tax-to-GDP ratio averages 12 % being one of the lowest in Africa with implications on the country’s capacity to pay back its debt.
Revenue collection for the last 3 financial years has averaged Ugx 22 trillion ($5.8 billion) against the revenue target of Ugx 25 trillion ($6.6 billion). Out of the Ugx 22 to 23 trillion collected, Ugx 16 to 18 trillion has been used for interest and debt payment. Uganda’s revenue collections can only accommodate debt financing, and paying government workers salaries with a current wage bill of Ugx 5 trillion ($1.4 billion), leaving no resources to fund the development budget. This budget deficit has forced the financially indisciplined government to find itself in a debt trap.
In recent years, Uganda has largely borrowed to fund non-productive sectors. The Ugx 1.7 trillion ($453.4 million) commercial loan demonstrates a country that borrows for consumptive purposes. For instance, in four years to come, every Ugandan will be paying back a loan that was spent on constructing a Ugx 86.4 billion ($23 million) conference hall at Munyonyo Common Wealth Resort, pension arrears for UTL and Uganda Post Ltd employees amounting to Ugx 39 billion ($10.4) million, Statehouse classified expenditure of Ugx 155 billion ($41.4 million), Ugx 20 billion ($5.3 million) spent on Kiira Motors, and salary enhancements for UPDF senior officers worth Ugx 90.1 billion ($24 million).
SecretsKnown through its sources has established that the country’s hope is in the oil production projected to start in the year 2024 to get itself out of the current debt distress. In other words, minus oil, the country has no capacity to pay back its debts. Secretsknown has also established that Uganda is in negotiations with its creditors to extend the repayment period or consider debt forgiveness. In the early2000s, under the Highly Indebted Poor Countries (HIPC) initiative, Uganda was forgiven of her debt and by 2004 Uganda’s public debt had fallen considerably to at least $900 million.
Fast forward, Uganda finds itself even more highly indebted than before, but this time round it is marred with corruption and financial indiscipline.