Uganda MPs speak out on ballooning national debt

Uganda's Parliamentary Accounts Committee has raised a red flag over the rate at which the government is borrowing.

All the other East African economies have taken on a growing burden of public debt, whose repayment is taking the lion’s share of the national budgets.

Last week, Ugandan lawmakers expressed concern that the rate at which the government is borrowing is not sustainable and puts the country’s national assets in danger of being auctioned in the event of default.

Uganda’s public debt had risen from as low as $1.9 billion in the 2008/2009 financial year to over $11 billion by December 2017, accounting for an estimated 38.4 per cent of the country’s GDP.

The MPs argued that upon the construction of the planned standard gauge railway, Uganda’s debt-to-GDP ratio could reach 47 per cent.

In the 2018/2019 budget, the government has allocated 32.7 per cent of the total revenues towards debt repayment, taking the biggest portion of the budget.

In Kenya, the total public debt hit Ksh5.04 trillion ($50.4 billion) in June this year, comprising external debt worth Ksh2.56 trillion ($25.6 billion, 51 per cent) and domestic debt worth Ksh2.48 trillion ($24.8 billion, 49 per cent).

According to the Parliamentary Budget Office, Kenya’s external debt is dominated by borrowing from China, which has reached Ksh558.8 billion ($5.58 billion) from the Ksh80.9 billion ($809 million) from years ago on account of heavy infrastructural investments.

The other component of the debt includes a concessional World Bank debt of Ksh583.2 billion ($5.83 billion) and debt from commercial banks at Ksh968.9 billion ($9.68 billion).

What about the Eurobonds?

Domestic debt on the other hand, is primarily owed to banks (55 per cent) worth Ksh. 1.4 trillion ($14 billion) and non-bank financial institutions and residents (44 per cent) at Ksh 1.1 trillion ($11 billion).

Kenya spends over 50 per cent of all revenues collected on debt repayment. The Central Bank has warned that the window for additional borrowing is quickly closing and the country should seek alternative methods for funding its infrastructure projects.

Last year, debt as a proportion of the gross domestic product was estimated at 57 per cent, a figure that it is expected to rise to 60 per cent this year against a ceiling of 74 per cent set by the IMF and an East African Community convergence ceiling of 50 per cent.

The IMF says that while the commercial component of Kenya’s public debt has increased, the risk of external debt distress still remains low.

In February 2018, Kenya issued its second $2 billion sovereign bond to pay off its maturing debts and fund development plans.

The bond was issued in two equal tranches of 10 years at a coupon of 7.25 per cent and 30 years at a coupon of 8.25 per cent.

In Tanzania, national debt had risen to Tsh57.96 trillion ($25.37 billion) by January this year.

In Rwanda, public-sector debt has increased in recent years, mainly due to large planned investment projects including the construction of the Kigali Convention Centre, which was completed in 2016, the expansion of the national airline RwandAir, currently underway and the construction of a new airport to handle cargo and increased passenger loads.

These projects, which are being completed through a series of PPPs and external guarantees, have led to an increase in external public debt to 37.5 per cent of GDP in 2017, up from just 16.4 per cent in 2012.

It is argued that while infrastructure is important to the economic development of a nation, funding for these projects is slowing, leaving East African economies with a debt overhang.

Rebasing economies

In 2015, the United States Agency for International Development warned that interest payments had started squeezing East Africa’s national budgets and that not even rebasing of some economies such as Kenya and Uganda would help.

In 2014, Kenya rebased its gross domestic product, growing the value of its annual output by about 25 per cent and reducing its debt-to-GDP ratio to 43.1 per cent from 52 per cent.

Uganda also did the same and eased its growing debt-to-GDP ratio from 39.8 per cent to 29.2 per cent. Last year, the IMF classified 15 countries in sub-Saharan Africa at high risk of debt distress.

Among them were Burundi, Ethiopia, Cameroon, Cape Verde, Central African Republic, Gambia, Ghana and Zambia. South Sudan, Zimbabwe, Mozambique, Chad and the Democratic Republic of Congo were in debt distress.