State poised to raid domestic debt markets again – CSBAG

January 21, 2017 in Business, Finance, Policy by Editor

Kampala January 20- The state is likely to fall back to domestic debt markets to finance the 2017/18 budget warns the Civil Society Budget Action Group – CSBAG after analyzing the budget framework paper for the coming fiscal year.

That would exert additional pressure on lending rates, further starving private firms of credit and slowing the much touted march towards middle income status, the group says.

Citing the National Budget Framework Paper 2017/18, CSBAG notes that total resources inflows are projected to expand 20 percent to Ushs 30,231.54b in fiscal 2017/18. This compares with Ushs 25,688.7b in the current financial year. Domestic resources are expected to finance roughly 47 percent of the budget while aid and grants will contribute another 11 percent.

But with a foreign debt to GFDP ratio already inching towards 40 percent, the government action in domestic markets will increase to close the funding gap of 42 percent in the budget.

“This means that government will heavily rely on domestic financing for the FY 2017/18 and since domestic financing is not reliable, then government will have to resort to domestic borrowing and this is expected to increase to Ushs 1, 77.2bilion compared, a 35.4 percent increase from the fiscal 2016/17,” CSBAG Coordinator Julius Mukunda noted.

Were that to materialise, it would take the economy back to the era of low slow lending to the private sector, the very situation the Bank of Uganda has been trying to reverse through a relaxed monetary policy stance.

It is a situation Mukunda says will affect revenue targets because of the resultant impact on tax payable by businesses that will be experiencing a slowdown.

Juliet Akello, a policy officer at Uganda Debt Network says citizens should be keen and alert to monitor project performance to ensure that they are delivered on time since the burden resulting from failure to deliver the projects on time and any accrued interests from delayed payment of loans falls on the citizens.