As at the end of December 2023, Uganda’s total public debt stood at Shs93.38 trillion, equivalent to USD 24.69 billion. Of this amount, external debt was Shs55.37 trillion equivalent to USD 14.64 billion while domestic debt was Shs38.01 trillion equivalent to USD 10.05 billion.
The public debt was projected at Shs97.638 trillion, equivalent to USD 25.716 billion by June 30, 2024.
In nominal terms, Uganda’s public debt to GDP was estimated at 46.9 percent in June 2023, and was projected to end at 47.9 percent the financial year ending June 2024.
The most important question that arises of this debt increase is whether the country has invested well the borrowed money and if these investments have given good returns.
The Finance Ministry Permanent Secretary and Secretary to Treasury Ramadan Ggoobi says 29 percent was invested in improving the transport infrastructure including, the oil roads, tourism roads, Kampala-Entebbe Express Way, the Kampala Flyover, and the several tarmacked roads linking the whole country; airports including upgrading of Entebbe International Airport, and building of Kabalega International Airport, rehabilitation of the Metre Gauge Railway, among others.
“Where have we spent the money we have borrowed? For me that is the question we need to ask because we talk about debt, and also spend the money, not on consumption. Uganda does not spend money on consumption. Borrowed money is strictly for those things which have a return on investment. This is how we have spent the money. About 29% of our debt stock we have reported which we are paying back, has been spent on roads; oil roads. That is the money we have borrowed and we are getting the oil next year; we have spent that money on building tourism roads. Those who go to some of the national parks; Murchison Falls, Queen Elizabeth, you watch elephants on tarmac; we have spent the money on the Kampala – Entebbe Expressway; we have spent the money on Kampala flyover; we have also borrowed for the airport. These are good investments which are going to give us return and we pay,” says Ggoobi.
He adds that 28 percent has been invested in the development of energy infrastructure, including Karuma and Isimba Dams, power transmission lines, and rural electrification.
“We have borrowed 28% for electricity. 28% of that money we talk about has gone into electricity; two dams: Karuma and Isimba, a total of over 900 megawatts,” said Ggoobi.
Although the last unit of Karuma dam was switched on recently to enable its commissioning, the hydro power plant suffered a number of setbacks during its construction hence delaying its completion.
A delay in the completion and commissioning of the 600MW Karuma Hydropower Project would cost the government an accrual interest claim of 113.933 billion shillings on delayed payments, the delayed acquisition of reservoir land, and the slow progress of the Resettlement Action Plan (RAP) according to the Auditor General.
The Auditor General’s report on the progress of electricity generation infrastructure projects covering the Financial Year that ended on 30 June 2023, Karuma Dam was planned to be completed within 60 months
The construction of Karuma hydropower dam commenced in December 2013, and was initially set to be commissioned in December 2019, but missed the target due to defects that had been identified. These defects could adversely affect the safety, reliability and durability of the plant.
This prompted for an extension of 12 months that the contractor again failed to meet.
Government yet again pushed the completion of the 600MW dam by 12 months to June 2023.
The last unit of Karuma hydropower dam was switched on in 2024.
The project cost was initially estimated at USD 1.7 billion, approximately 6.323 trillion Shillings but the charge has since skyrocketed to 8.183 trillion Shillings due to implementation challenges.
Additionally, 12 percent of the money borrowed by government of Uganda has been invested in improving water sources for both human consumption and for irrigation and livestock.
5 percent has been invested in agro-industrialisation.
4% has been invested in the development of industrial parks, extension of the National Backbone Infrastructure as well as investment in education and health, among others.
Is Uganda’s Debt Still Sustainable?
In nominal terms, Uganda’s public debt to GDP was estimated at 46.9 percent in June 2023, and was projected to end at 47.9 percent the financial year ending June 2024.
Despite this debt increase, government says it is still sustainable and is committed to keeping it sustainable.
Government also says that this debt is below the 52.4 percent threshold provided for in the Charter for Fiscal Responsibility for the financial year 2023/24, and less than 50 percent of GDP Government policy target for debt sustainability.
“The debt of Uganda is sustainable and will remain so. why? because it is not by chance, it is deliberate. If you checked these numbers, in the region, we are among the most comfortable. The risks have increased everywhere in the world, but we are among the best as far as debt management is concerned. Our debt to GDP ratio as at the end of June is projected at 47.9%. We have been talking about this debt for many years now, oh we are getting in trouble, when will this trouble come?” Ggoobi said.
He added: When you go to the IMF, these are the monitors of the global [economy]. They will tell you among the most credible and transparent countries in debt governance in the developing world is Uganda. We go to the IMF every year twice; they send us some countries; they say sit down with those people [Ugandan officials) and they show you how credibility is built in numbers.”
“I went to Paris, and I met the counterpart of France, the treasury secretary of France and the question he asked me was, why is it that internet has made us to double check your numbers but whenever we check with the authorities that monitor all of us, they give us the official position you give us, but it seems your people do not believe in this, why? This is the treasury secretary of the big economy of France, bigger than Africa. it’s because in Uganda, we want good things, we don’t trust them.”
Nonetheless, the ratio of total debt service to domestic revenue excluding maturing domestic debt (redemptions) is projected to increase to 40.3 percent in FY2024/25 from 33.4 percent in FY2023/24, above the threshold of 20 percent.
Finance Minister, Matia Kasaija said that this is the reason Government has committed to exercising caution in borrowing to ensure debt sustainability by implementing the following measures:
i) Prioritizing concessional borrowing where available, and reducing commercial borrowing at high interest rates. Such borrowing shall only be for very few strategic and high impact projects.
ii) Strengthening capacity for domestic revenue mobilisation.
iii) Controlling Government spending to ensure allocative efficiency.
iv) Boosting exports to increase foreign exchange inflows.
v) Ensuring project readiness and quality of public investments to increase the return on investment.