Uganda’s External Debt to Grow by U.S.$1.5 Billion

Uganda’s external debt will likely grow by Ush4.5trillion ($1.5billion) next financial year if parliament approves the draft budget proposals the Ministry of Finance submitted to it last week.

It will grow by another Ush1.5trillion ($0.5billion) which the government intends to borrow domestically. There will however be a reduction in domestic borrowing from the Ush2.7 trillion ($0.9billion) it borrowed locally this financial year according to the Ministry of Finance figures.

World Bank’s latest statistics of 2013 show Uganda’s External Debt was at $4.4billion. Some statistics have it that Uganda’s external and domestic debt is growing at 2 percentage points of the Gross Domestic Product every year.

But, when Maria Kiwanuka, the Former Finance Minister presented to Parliament in June 2013, she indicated that the debt exposure was $5.80 billion (Ush15 trillion), up from $2.4 billion (Ush6 trillion) as end of the financial year 20062007.

According to Patrick Ocailap, the Deputy Secretary to Treasury, the $1.5 billion and $0.5billion borrowing will support the construction of Karuma Dam, Isimba Dam and the commencement phase of the 60,000 barrels per day oil refinery in Kabaale, Western Uganda.

“This financing is aimed at kick starting the projects of Karuma, Isimba and the refinery,” said Ocailap.

Commenting on the borrowing both domestically and externally, Emmanuel Mutebile the Governor Bank of Uganda said increased government borrowing from the domestic market can lead increase or revising upwards of the interest rates by commercial banks since it’s less risky to lend to government than the private sector.

“Commercial Banks can target lending to the government since it’s less risky,” said Mutebile.

Financial analysts believe that the continuous upward growth in Uganda’s public debt could see the country falling into unsustainable debt burden in the long-run.

More than 70% of the borrowing is primarily going to be used for financing infrastructure and social service developments required to enhance productivity and to fight poverty.

The Finance Ministry Director for Budget Kenneth Mugambe said the debt is still sustainable since it falls in the 30-50% range of Uganda’s Gross Domestic Product.

Source : East African Business Week

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