Gov't to Borrow to Finance Districts, Municipalities (allAfrica.com)

Government will have to borrow Shs 1.465 trillion to run the new districts next financial year, a move that is likely to worsen the country’s debt standing, Keith Muhakanizi, the secretary to the Treasury, has warned.

Muhakanizi told a meeting at Sheraton hotel on Monday during the release of the Africa Outlook report 2015 that he needed more voices from the private sector and civil society to protest against the creation of districts and municipalities. The report was done by African Development Bank (AfDB).

“We must fight this creation of districts and municipalities. And the private sector and civil society is complacent about it. We either create the underfunded things and put there or have to borrow and fund them,” Muhakanizi said.

Last week, local government minister Adolf Mwesige tabled a motion in parliament seeking to create 25 new districts beginning next financial year. This would shoot the number of districts from 112 to 137. Also, government has approved 19 new municipalities.

It is most likely that government will approve the districts as they are crucial to garnering votes for the president and other politicians in 2016. Uganda’s debt-to-GDP ratio is at 34 per cent, with experts saying government still had room to borrow because the country’s figure is below the 50 per cent threshold for East African countries.

The country’s debt stands at $7.6bn, with 60 per cent of this external. The country is set to borrow about Shs 5.9tn in 2015/16 from both the domestic and external sources to finance this year’s national budget.

Muhakanizi warns that with more districts and municipalities, government will have to borrow more money. In the domestic market, it will borrow Shs 1.4 trillion this financial year, equivalent to the money it needs next year to run the new districts.

“We need to reduce government borrowing. Part of the reason why interest rates are high is because of government borrowing. We need more industries than districts – that would be more helpful,” Muhakanizi said.

Meanwhile, Louis Kasekende, the Bank of Uganda deputy governor, said while most African countries, including Uganda, have been experiencing growth, it has been a jobless growth with unemployment rising continuously. ActionAid International estimates Uganda’s youth unemployment rate at 62 per cent.

Kasekende said Uganda should focus on manufacturing, which is the biggest employer. Agriculture still employs 66 per cent of Uganda’s population.

The AfDB’s Chief Economist Steve Kayizzi Mugerwa said Uganda’s manufacturing sector was still very low and the country needed deliberate interventions to boost it.

He said in the 1990s, Uganda was always mentioned among the key reformers in making the business environment better, but today, it is never mentioned. The World Bank’s doing business report ranks Uganda at 150 out of 189 countries with a friendly business environment.

Releated

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