Uganda’s public debt to keep rising, says IMF

Kampala. The International Monetary Fund (IMF) projects that Uganda’s public debt will keep rising due to ongoing ambitious infrastructure investments by government.
Uganda is facing a problem of infrastructure deficit, which is affecting the country’s long term economic development.
In an interview with Daily Monitor recently, the IMF resident representative to Uganda, Ms Mira Clara, said:

“The current ongoing ambitious infrastructure investment scaling up will result in an increase of the public debt, with total public debt projected to peak in 2020/21, at about 50 per cent of (Gross Domestic Product) GDP (and external public debt at about 36 per cent of GDP), and decline thereafter, as the scaling up process is completed.”
The IMF and World Bank occasionally and jointly carry out what they call joint staff debt analysis of a particular country to find out whether that country is at the risk of falling under debt risk distress.
“In our view, Uganda’s public debt is currently sustainable and so is the projected accumulation path, provided the deficits are used to finance infrastructure investment (as is currently planned) and investments are implemented properly,” she said.
More often than not the government has said Uganda’s debt level is still sustainable.
Ms Clara said: “Indeed, in our latest analysis of debt dynamics, in which we analyse recent developments and medium and long term prospects, we came to the conclusion that debt (in Uganda) remained at low risk of distress.”
In the past, the IMF had placed a limit at which Uganda should borrow from external sources. However, Ms Clara said under the current arrangement with the IMF, the policy support instrument, the IMF executive board endorsed the removal of the previously existing limit on non-concessional borrowing of $3 billion.
According to the current IMF debt policy at low risk of distress, does not require explicit non-concesional borrowing limits.
The design of Uganda’s debt policy, including the decision to engage in any new borrowing, continues to be guided by considerations of project feasibility, debt sustainability, economy’s absorption capacity, and implementation capacity.
Ms Clara explained that the proper selection, sequencing and implementation of the large infrastructure projects remain essential to ensure that projects produce the desired growth and productivity.
Looking ahead, she stressed that efforts towards enhancing domestic revenue collection would reduce the borrowing needs and provide more space to borrow sustainably.
Uganda government, through the ministry of Finance, has a debt management unit to ensure that the country’s debt level remains under control.
In an interview with Daily Monitor last week, deputy governor, Bank of Uganda, Dr Louis Kasekende, said Uganda’s public debt, though still sustainable, has risen in recent years, primarily on account of borrowing to finance infrastructure projects that are necessary to improve the economy’s productive capacity and competitiveness over the medium-long term.