January 05, 2019 – Uganda is sliding towards debt unsustainability after public debt expanded by 22 per cent in the year to June 2018. Public debt rose from UGX 33.99 trillion($9.09 billion at current exchange rates) as at June 30, 2017, to UGX 41.51 trillion ($11.2 billion) at the end of June 2018, Auditor General John Muwanga reveals in a report he handed to Parliament Speaker Rebecca Kadaga on Friday.
That represents a 22 percent expansion in public debt in the space of just 12 months. Muwanga also revealed that retirements worth UGX 3.9 trillion, representing half of the debt he has so far been able to verify fall due in 2020. Meeting those obligations over the next financial year would require to commit 65pc of total revenue collections to debt service. That would tip the scales past the 40pc sustainability threshold.
Interest payments on domestic and external debt accounted for 17pc of total revenue during fiscal 2017/2018, two units above the Public Debt Management Framework, 2013 ceiling of 15 percent.
“Although Uganda’s current debt to GDP ratio of 41 per cent is still below the International Monetary Fund (IMF) risky threshold of 50 per cent and compares well with other East African countries, it is unfavorable when debt payment is contrasted against national revenue collection,” he said.
Using that measure, at 54pc Uganda is running the highest debt to revenue ratio of any country in East Africa, Muwanga notes in his report.
Productivity of some of the loans was also found to be suboptimal.
“Although absorption of external debt has improved compared to last financial year, I noted some loans with absorption levels as low as 10 per cent and below. An example is the USMID project with over Shs 95 billion (95 per cent) still on the various accounts of Municipal Councils by close of the year, despite various incomplete and abandoned works due to non-payment to contractors,” he observes.
Another project cited by the auditor general is the Mbarara-Nkenda and Tororo-Lira transmission lines, which, he said has delayed for almost 8 years – resulting into the cancellation of the loan by the funder with a disbursed loan amount of $6.5 million.
Muwanga also noted that significant value loans have stringent conditions such as waiver of sovereign immunity by the government over all its properties and itself from enforcement of any form of judgment, adoption of foreign laws in any proceedings to enforce agreements, requiring the government to pay all legal fees and insurance premiums on behalf of the creditor, which expose the country to risk.
Uganda was one the early beneficiaries of debt write-offs in the past decade but has seen its debt rise on the back of huge investments in road and energy infrastructure. The country is seeking additional debt to finance the construction of an oil refinery, a standard gauge railway and a crude export pipeline which could push debt over the limit.