A recent parliamentary report painted a grim picture of Uganda's debt portfolio as the country tries to maintain payments to its creditors.
The National Economy Committee found that Uganda's public debt reserves increased by 22 percent from Shs50.9 trillion in FY 2019/2020 to Shs69.5 trillion by the end of fiscal year 2020/2021.
Preliminary statistics from the finance ministry captured by the committee indicate that Uganda's public debt was 78.8 trillion shs in early June. This translates to 13 percent of monthly growth year-on-year.
The committee's report also shows that Shs48.1 trillion of debt is classified as external debt, and domestic debt is 30.7 trillion shs30.7 trillion. Signs of public debt gravitating towards the government have become more pronounced in recent months. From dragging their feet due to the allocation of resources for the parish development model to the delay in the remuneration of civil servants in July, everything was not rosy.
Mrs. Kateryna Bitaraquate, Permanent Secretary of the Ministry of Civil Service, explained the July delay as “a consequence for the processing and payment of wages.” However, these were mixed reports from the government that some of its functionaries said the delay was adapted to combat current inflationary pressures.
Issuing budget funds for the first quarter of fiscal year 2022/2023, the Permanent Secretary of the Ministry of Finance and the Minister of Finance, Mr. Ramathan Gubi, was more candid. He found that the allocated funds had been cut from 25 percent to 19 percent because the government was “experiencing cash flow constraints.”
Of the shs4.7 trillion paid, this newspaper reported in July that Shs230 billion had been allocated for wages, pensions and tips. Another Shs662 billion was intended to service domestic debts.
It was only recently that Mr Henry Musasizi, the Minister of State for General Duties at the Ministry of Finance, acknowledged the lack of credit in the government when he appeared before parliament's committee to reassure the government to explain why there were no fuel reserves.
“While we strive to fully function the oil and gas sector, we are constrained by the resource shell,” admitted Mr Musashizi, adding that money for fuel reserves will be added to the budget next financial year.
In fact, it was the taxman who raised the cover on the financial troubles of the government. The Ugandan Revenue Office (URA) said it is trying to meet the Shs12.3 trillion revenue collection target for fiscal year 2020/2021. This came after he discovered he was looking at Shs900 billion's revenue deficit halfway through the aforementioned fiscal year.
At the beginning of the financial year, the Ministry of Finance provided the tax authority with a total revenue target of UAH 22.3 trillion. This is UAH 3.1 trillion higher than the actual income collection for the 2020/2021 fiscal year. During this period, internal tax revenues recorded a shortfall of UAH 951.3 billion, and figures – 86.7 percent. The taxman also explained that the shortfalls were from direct domestic taxes (Shs273.6 billion), indirect domestic taxes (Shs487.2 billion) and non-tax revenues (NTR) (Shs190.5 billion).
In a recent policy brief, the South and East Africa Trade Information and Negotiation Institute (SEATINI) and the United States Agency for International Development (USAID) found that most developing countries, including Uganda, struggle with low-income mobilization.
“Tax leaks, illicit financial flows, generous tax breaks and a large informal sector, among other things, lead to a reduction in the tax-to-GDP ratio. Low revenue collection against the background of increased public spending leads to a budget deficit, thereby increasing the country's appetite for borrowing,” the document says, in particular, adding: “As a result, the cost of debt servicing is now the third item among the largest allocations to the national budget.”
Uganda's economic predicament is long overdue, given the fact that its gross domestic product (GDP) ratio has stagnated at an average of 13 percent over the past decade.
“In 2019/2020, the contribution of customs revenues to the total tax collection was 35.6 percent, and the Covid-19 pandemic and the prospects for trade liberalization [the African Continental Free Trade Area] AfCTA, this estimate will even go lower,” the document says, adding that the Ministry of Finance's 2019/2020 fiscal year report showed that total revenue lost due to tax expenses amounted to more than Shs5 billion. That figure represents 30 percent of the total net retreat of places collected in the same fiscal year.
Over the past five years, the Parliamentary Committee on issues of the national economy, he pointed out that the stock of debt to GDP is consistently on an upward trajectory. It collectively rose from 30 percent in fiscal year 2015/2016 to 47 percent in fiscal year 2020/2021.
“This trend has been linked to large investments in infrastructure and energy projects to stimulate Uganda's growth under the National Development Plan (NDP) and the need to finance Covid19-related costs,” the report notes, adding: “Debt continues to grow as the government continues to increase public investment in infrastructure to prepare for oil production. while while increasing investment in other key sectors such as agriculture, energy, education, water, the environment and roads.”
The committee acknowledges that Uganda's public debt accumulation continues to grow faster than economic growth. Take fiscal year 2020/2021, when the economy grew by three percent. Public debt also rose 22 percent through budget support loans purchased by the International Monetary Fund (IMF) and the World Bank to support Uganda's response to Covid-19.
In March, the IMF announced that $ 1 billion would be allocated under the so-called ECF Extended Credit Faculty program in semi-annual tranches lasting more than three years. The first tranche of $258 million, according to the IMF, was allocated when the program was approved by the IMF executive board on June 28, 2021 to support the East African country's recovery from the Covid-19 pandemic.
“The budget deficit and debt will decrease over time (as the COVID-19 shock weakens) by reducing non-priority spending, gradually abandoning crisis measures and increasing public revenues. Greater efficiency of the public sector will ensure an increase in spending on social programs, including health care, education and social assistance,” the IMF said.
According to the Committee on the National Economy, Uganda's external debt grew by 10 percent from $15.7 billion in fiscal year 2019/2020 to $18.2 billion in fiscal year 2020/2021.
“This was largely due to paid and outstanding debt (DOD), which increased by 19 percent driven by budget support payments paid within one fiscal year, as opposed to project payments, which extend to a number of financial years leading to the implementation of but retained debt (CUD),” the parliamentary report said.
Some of Uganda's wounds were self-inflicted as there is an increase in committed but retained debt, which increased 11 percent from $5.3 billion in fiscal year 2019/2020 to $5.9 billion in fiscal year 2020/2021.
“This growth indicates the slow implementation of some current projects, the non-issuance of loans, as well as new commitments during the year that have not yet been paid by the end of the financial year,” the parliament's report said.
Multilateral lenders, according to the report, retained the largest share of Uganda's external debt in the financial year 2020/2021 and the first half of the financial year 2021/2022. Despite a nine percent drop in the share of external debt owned by multilateral lenders from 72 percent in June 2017 to 61 percent in December 2021, the report says multilateral lenders continue to have the highest share in total external debt.
“The World Bank's International Development Association (IDA) has recorded the highest share of multilateral debt at 57 per cent, followed by the African Development Fund (ADF), which accounts for 19 per cent,” the report said.
The share of debt to bilateral creditors in the 2020/2021 financial year decreased to 29 percent from 31 percent in FY 2019/2020. For bilateral creditors, EXIM Bank of China retained the largest share of bilateral creditors, accounting for 73.3 percent ($2.59 billion) of total bilateral debt as of June 2021. Projects funded by money received from exim bank include $350 million (Shs1.3 trillion) for the Entebbe-Kampala Expressway, $200 million (Shs758 billion) for the reconstruction of Entebbe International Airport, $100 million (Shs379 billion) to improve road networks, $483 million (Shs1.8 trillion) for Isimba Hydroelectric Power Station, and $1.4 billion for Karum Dam, among others.
The total amount of payments on foreign loans and grants, according to the committee, increased by 20 percent to 9.395 trillion shs9.395 trillion in the 2020/2021 financial year from 7,799 trillion W during the 2019/2020 financial year.
“Despite the increase, external resources have fulfilled at 76 per cent of the expected appropriations, mostly on the axount from low loan rates to support projects at 52 percent,” the statement said.
During the first half of the 2021/2022 fiscal year, the report additionally reveals that total foreign assistance was performed at 86 percent of the programmed levels. This was mostly due to the underperformance of grants to support projects.
“Project financing remained the main channel of funding used to finance the country's development agenda, not for budget support. It also suggests that foreign aid agencies still oppose budget support to fund the country's priorities,” the report said, adding, “Grants continue to have a small share of the national budget (20 percent). However, their indicators are significantly different from the levels budgeted. Therefore, it is necessary to strengthen measures to mobilize domestic revenues, since grants are unreliable.”