A busy street in Kampala’s commercial district. There is concern over rise in Uganda's debt stock File Photo
Although Uganda is still being assessed as a low-risk debt distress country by the World Bank and the International Monetary Fund, a sudden rise of 12.2 per cent in its stock of debt, has raised concerns that if the trend continues, the country might fall back into unsustainable debt burden.
According to the Bank of Uganda, the country’s stock of external debt is about $2.5 billion. Its level of debt to official creditors was 14.6 per cent of GDP at the end of 2009.
Uganda’s external debt stock (disbursed and outstanding) has been declining from $4.7 billion in March 2005 to $1.1 billion in March 2007.
The former decrease in debt stock was partly due to multilateral debt relief from IMF, World Bank and African Development Bank coupled with reduced contraction of new loan due to deliberate government policy to reduce external stock gradually.
However the trend has since reversed. According to official data from the Ministry of Finance, Planning and Economic Development, the country’s external debt stock for the year ended June 2009 stood at $2.04 billion compared with $1.79 billion at the end of June 2008 — a 12.2 per cent increase in stock in just one year.
In a recent joint IMF/World Bank Debt Sustainability Analysis prepared by the IMF and the International Development Association on its debt sustainability, Uganda was found to still be in the comfort zone.
Officials of the two multi-lateral lenders argued however caution that the sensitivity of Uganda’s debt indicators to a growth shock suggests that careful selection of public investment projects have a key role to play in the maintenance of debt sustainability over the near and medium term, requiring continued attention from the Ugandan authorities to improving investment planning processes and strengthening implementation capacity.
Based on the joint low-income country Debt Sustainability Framework (DSF) of the World Bank and the IMF, Uganda continues to be assessed as a low risk of debt distress.
The primary aim of the DSF is to guide borrowing decisions of low-income countries in a way that matches their need for funds with their current and prospective ability to services debt, tailored to their specific circumstance.
Given the central role of official creditors and donors in providing new development resources to these countries, the framework simultaneously provides guidance for their lending and grants allocation decisions to ensure that resources to LICs are provided on terms that are consistent with their long-term debt sustainability and progress towards achieving the MDGs.
The forward looking nature of the DSF allows it to serve as an “early warning system” of the potential risks of debt distress so that preventive actions can be taken in time.
The official government document shows that new commitments in financial year 2008/09 were $710.9 million.
Computed statistics by the Ministry of Finance show that there were more loans than the grants in the recent fiscal years — loans stood at $510.6 million while grants amounted to $200.3 million.
$37.2m arrears
The document shows that the stock of arrears of interest as end of June 2009 amounted to $37.2 million.
Uganda government external debt servicing based on the estimate of cash debt service was $62.21 million in 2008/09 which government says is equivalent to that of the previous year 2007/08. Minister of Finance, Planning and Economic Development Ms Syda Bbumba told The EastAfrican recently that though there has been an increase in the level of stock of external debt, it is not worrying.
“Much as we have been contracting new loans to meet our development needs, the external debt level is still within our external debt sustainability strategy,” she said.
Being conscious of not falling back into an sustainable debt burden as it was the case in the early 2000s, the government in its new debt strategy tries to seek grants first before seeking concessional loans from the multilateral institutions.
Ms Bbumba explained that new loans are on concessional basis which is in line with government strategy of external debt sustainability.
Uganda’s indebtedness by source shows that the multilateral institutions are the top creditors. The World Bank is still the largest creditor taking up to 63 per cent of external debt stock in the year under review.
