Uganda at high risk of debt distress-report
Kampala, Uganda | THE INDEPENDENT | Parliament’s Budget Committee has noted that the country’s debt servicing level is one associated with high risk of debt distress.
This is carried in their report on the coming financial year 2020/2021 Budget Framework Paper totalling Shillings 39.64 trillion. The Committee Vice Chairperson Patrick Isiagi Opolot presented the report on Thursday during a parliament sitting chaired by Deputy Speaker Jacob Oulanyah.
As of end of June 2019, the stock of public debt amounted to 46.36 trillion Shillings (USD 12.55 billion). Of this, the external debt was 30.85 trillion Shillings (USD 8.35 billion). The domestic debt was 15.51 trillion Shillings (USD 4.2 billion).
According to Isiagi, this simply implies that the total stock of public debt to Gross Domestic Product- GDP was 36.1 percent in nominal terms and 27.3 percent in present value terms.
“Debt sustainability analyses indicate that Uganda is not under debt distress and will not be so under the medium term. However, vulnerabilities have increased as some investment projects may not generate the envisaged return. Beyond potential risk of debt distress, the growing debt stock has also resulted in a higher cost of debt service”, reads part of the committee report.
Isiagi told parliament the debt service (interest payments and amortization) are projected to take up 22 percent of the domestic revenue in the coming financial year 2020/2021, a level typically only associated with countries at high risk of debt distress.
The proposed Shillings 39.64 trillion budget for financial year 2020/2021 sets a new tax revenue target of 21.54 trillion Shillings up from 20.4 trillion Shillings in the current financial year to enable financing of the budget. Another Shillings 6.93 trillion is projected to come from external borrowing while 771 billion is budget support loan.
Government borrowing from the domestic market is also projected at 2.57 trillion Shillings in the 2020/2021 financial year.
The committee notes that one of the factors driving up the cost of borrowing is the growing proportion of non-concessional debt.
According to the Public Debt and Financial Liabilities Management Framework for financial years 2018/2019-2022/2033, interest payments to domestic revenue benchmark should not be more than 12.5 percent.
Isaigi says that the projected interest payment to domestic revenue in the coming financial year 2020/2021 is 16.7 percent, which violates the Public Debt and Financial Liabilities Management Framework.
Dokolo Woman MP Cecilia Ogwal underscored the burden that the public debt has on the country.
Finance Minister Matia Kasaija while presenting the Budget Framework Paper said that government was looking at reducing the reliance on debt by increasing domestic revenue and improving the execution rate of projects as some of the ways to sustain the country’s debt, in the financial year 2020/2021.
According to the Budget Framework Paper, the government debt financing strategy for the 2020/2021 financial year involves several commitments that will see the debt sustained.
This includes prioritizing concessional debt to minimize debt service costs, limiting domestic borrowing to not more than 1 percent of Gross Domestic Product (GDP) in the medium term and improving the country’s export earnings to enable payment of debt since exports are a key source of foreign currency.
Kasaija says that the proportion of domestic debt maturing in one year reduced to 36.5 percent of the total domestic debt by June 2019 from 36.8 percent in June 2018 on account of issuance of longer-dated securities.
“Despite this improvement, the ratio is close to the recommended benchmark of 40 percent. Additionally, the current practice of rolling over maturing debt implies that the government faces a risk of being unable to refinance its maturing domestic debt,” he says.
However, the Finance Minister says that to mitigate against this risk, the government will continue implementing the strategy of taking on longer-dated securities, while keeping domestic borrowing as low as possible.
Last year, the Auditor General warned that although Uganda’s debt to GDP ratio of 41 percent is still below the International Monetary Fund (IMF) risky threshold of 50 percent and compares well with other East African countries, it is unfavourable when debt payment is compared to local revenue, which is the highest in the region at 54 percent.
******
URN
The post Uganda at high risk of debt distress-report appeared first on The Independent Uganda:.
0 Response to "Uganda at high risk of debt distress-report"
Post a Comment