In an effort to tackle the escalating public debt crisis, the government has announced four fiscal consolidation measures aimed at managing and reducing the nation’s debt level.
They include; controlling and reducing borrowing; contract more concessional loans as opposed to commercial; enhance revenue mobilisation through implementation of the domestic revenue mobilization strategy; and control and reduce government expenditure.
The measures were announced by the Minister of State for Finance in charge of General Duties, Henry Musasizi while appearing before the Parliamentary Committee on Presidential Affairs on Friday, July 7, 2023.
As of December 2022, Uganda’s public debt amounted to sh80.8 trillion, with sh47.9 trillion being external debt and sh33 trillion being domestic debt.
By June, 2023, the country’s public debt stood at sh86 trillion, equivalent to around 48% of the GDP.
However, while reading the budget for the 2023/24 financial year in mid-June, the Minister of Finance, Matia Kasaija said Uganda’s public debt was projected to further increase to 88.9 trillion shillings by June 30, 2023.
This growing appetite for borrowing places the country in a precarious position, as it becomes increasingly challenging to maintain the debt at sustainable levels.
According to Musasizi, the country’s debt remains within sustainable levels.
“The nominal value of public debt as a percentage of GDP stood at 48.4% as at June 2022, compared with 49.7% in December 2022. So, you can see we are still below the 50% threshold,” Musasizi told the Parliamentary Committee on Presidential Affairs last Friday.
Musasizi, emphasised the importance of controlling borrowing.
“We have made a deliberate decision as guided by the President that borrowing should be for specific areas which contribute to the growth of the economy. And the areas are in irrigation, electricity, transport, especially roads and railways and ICT,” he said.
To achieve this goal, government has shifted its focus towards securing more concessional loans rather than commercial loans.
“Contracting concessional loans allows us to minimise the strain on our finances and create a healthier borrowing environment. It is a crucial step in managing our debt effectively,” Musasizi told the Committee.
In addition, the government aims to curb domestic borrowing, with the ultimate target being to bring it below 1% of the GDP over the medium term, which the Minister said is essential to ensure the stability of the domestic economy.
To enhance revenue mobilisation, government will enhance the implementation of its Domestic Revenue Mobilisation Strategy.
According to Musasizi, the Government has also embarked on control and reducing government expenditure.
MUSEVENI TO APPROVE ALL LOANS HIMSELF
Due to the country’s escalating debt which necessitated a significant portion of the 2023/24 financial year budget to be allocated towards debt servicing, President Yoweri Museveni while speaking at the budget reading last month, said that he will personally authorize all loans to be borrowed by the government.
It is worth noting that an astounding 17 trillion shillings out of the total budget of 52.7 trillion shillings of the 2023/24 financial year was earmarked for servicing public debt.
Museveni criticized government officials for unnecessary borrowing, and vowed to approve every loan himself.
“You heard your budget, Ugandans, of 52 trillion. While I support that budget because there is no other solution in the short run, it is important to know that 17 trillion shillings of that budget is to pay debts. He (Finance Minister, Matia Kasaija) talked about it towards the end of his speech, but it should be highlighted. The 52 trillion you are talking about, 17 trillion of it is to pay debts,” Museveni said.
“Many of these debts were being pushed by the new colonial public servants until recently when I put down my foot and insisted on approving every loan. That’s why you hear these loans take time now to be approved, because I insisted I must approve every loan (external loan). Because all this money was not worth borrowing. If you audit it, it was not borrowed for a good purpose,” he added.
BORROWING FOR KAMPALA URBAN DEVELOPMENT PROGRAMME
Regarding the proposed borrowing for the Greater Kampala Metropolitan Area Urban Development Programme (GKMA-UDP) of up to US$600 million, Musasizi told the Committee that the borrowing initiative will support a crucial development programme while adhering to the set strategies to manage the national debt.
However, part of the US$600 million loan has not been approved by the President according to Musasizi.
The committee chairperson, Hon. Jessica Ababiku, tasked the minister to explain why they do not have approval from the President.
She gave the committee one week to provide the President’s letter, stating that they do not want to erroneously approve a loan.
“We shall proceed with what is complete in terms of the approval. We do not know why that was not approved,” Ababiku said.
Musasizi pleaded with committee to process the loan as they wait for the letter from the President.
“On the French loan, the President is yet to give us the letter clearing it. The letter we have is the one of the World Bank loan. But I am sure next week, the President will clear,” he said.