Uganda opens debt ceiling as economy expands

October 28, 2019 in Business, Finance, Financial Services, Policy by Editor

Uganda’s debt to GDP Ratio has improved by 5pc following a rebasing of the economy by 11.6pc. The expansion in economic output was announced last week with the ministry of finance saying GDP now stood at UGX 122.7 trillion compared to the estimates that put it at UGX 109.9 trillion at the end of fiscal 2018-19.

The rebased output which translates into USD32.9 billion brings the Debt to GDP Ratio from 42.1pc to down to 37.2 pc. The additional output, attributed to the inclusion of gold and oil production in national accounts.

The Uganda Bureau of Statistics explained a decision to rebase was taken after it was discovered that growth for fiscal 2016/17 had been understated by 18.3.pc. The economy had been strained that year as the central bank adopted a tight monetary policy stance leading to reduced lending to the private sector.

It is believed that the rebase and subsequent appreciated in the DGDPR buys the country a critical margin for debt-financed growth and development. Lenders had become cautious towards Uganda’s growing appetite for credit as the country approached the critical 50pc debt to GDP threshold, threatening a number of planned infrastructure projects in the transport and energy sectors.

Uganda has recently opted for PPP’s to finance new road corridors aimed at easing the flow of traffic out of the capital, Kampala. The four lane Entebbe-Kampala Express way with a pavement length totalling 52 kilometres, was built at a cost of USD 570 million in contractor financed credit. Two other billion dollar corridors – the 30km Busega-Mpigi Expressway and the 74 km Jinja Kampala Expressway are at the procurement stage. The Jinja-Kampala Expressway which has been single-sourced to a Chinese contractor has been billed at engineer’s estimate of USD 1 billion. The cost for all three projects will be recovered through user tolls.