Uganda’s unsustainable public debt and the lower middle-income ambition

While President Museveni is rejecting World Bank data on Uganda not having attained lower middle-income status yet, the Minister of State for Finance Minister in charge of Planning, Hon. Amos Lugolobi, is expressing concerns about Uganda’s unsustainable public debt.

According to the World Bank, the $840 (UGX 3,159,041) Gross National Income (GNI) calculation contained in the 19th edition of the Uganda  Economic Update (UEU) is based on data from FY2020/2021, which is the same reference period for all member countries included in the current global income classification. The Bank insists that Uganda is still a low-income country.

Hon. Lugologi says Uganda’s public debt has grown to 54% with no signs of stopping, yet the threshold should be 50% and below. The cause for the growth of the public debt stock beyond the sustainable threshold is government of Uganda’s increased borrowing to finance infrastructure projects to mitigate challenges resulting from Covid-19 and other disasters such as locusts.

The secret known is that as of October 2021, according to data from the Central Bank, Uganda’s public debt had risen to UGX 73.8 trillion (19.94 billion) up from UGX 69 trillion ($18.6) in June 2021. Critics are asking the question: Can a middle-income country be highly indebted?

SecretsKnown understands that indeed, middle income countries are not immune from borrowing. Lower middle-income countries like Tanzania, Benin and Mauritius, have their public debt still rising as well. Debt servicing has become more expensive; and the proportion of countries that are vulnerable to a damaging debt crisis is high and rising.

According to the International Monetary Fund (IMF), the median public debt of low-income developing countries rose to 47% of GDP in 2017, up from 33% in 2013. This increased borrowing comes from both home and abroad, with both external and domestic debt on the rise. The difference between Uganda and other courtiers that are striving for middle-income status is that they have managed to keep their debt stock below 50%.

Borrowing, if used wisely, can make a major contribution to sustainable economic development. The IMF reports that in 2019 almost half of all low-income countries – most of which are in Sub-Saharan Africa – are either in ‘debt distress’, or at a ‘high risk’ of becoming so.