Uganda shows strong appetite for debts

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Dr. Ruhakana Rugunda Premier Uganda at the Regional Conference on Public Debt Management and Sustainable Economic Growth in Sub-Saharan Africa

Prime Minister of Uganda Ruhakana Rugunda Friday 28 February 2020, opened the regional conference on public debt management at Speke Resort Munyonyo.

In his opening remarks, Rugunda said almost 40% of countries in Sub-Saharan Africa are in debt distress or have a high risk of it.

He said the IMF’s records show the average level of total debt for Sub-Saharan African countries had risen to 55% of GDP in 2016 compared to 35% in the early 2010s.

Debt in itself may not be a problem if it is incurred for development reasons and at affordable costs, Rugunda noted.

He said the reason for the rising debt burden can be attributed to an increasing level of investment requirements.

Victoria University

“In order to improve productivity and growth, countries need to invest in infrastructure. Thus bringing future wealth forward.”

He said debt has been instrumental in addressing infrastructure gaps of the past and has contributed to achievements in human and social capital development.

“Therefore, it has helped us achieve our development goals and finance our development agendas.”

He said countries, where peace and stability are flourishing, are attractive places to lend to.

“As countries move away from conflict, they may also experience more borrowing options. Some of those who lend to the region may even consider it a contribution to peace.”

He added: “There is an argument that a country facing fiscal challenges is more likely to be politically unstable. So access to credit can contribute to stability.”

According to Rugunda, debt management is not just about risks and challenges. It is also about opportunities.

“We need to ensure that the debt we acquire is well utilised and contributes to sustainable and inclusive economic growth. This requires prudent economic policies alongside capable project management.”

Uganda shows appetite for debts

Speaking at the same conference, David Bahati, the State Minister of Finance for Planning, concurred with Rugunda that many of the governments across the Sub Saharan African region are grappling with integration of their National Development Plans with the delivery of the Sustainable Development Goals (SDGs) agenda.

Hon. David Bahati Minister of State for Planning Ministry of Finance at the Regional Conference on Public Debt Management and Sustainable Economic Growth in Sub-Saharan Africa

He said the resources required to meet these obligations are not readily available from the domestically generated revenues, thus calling for the acquisition of external financing.

 “I recall an article in the May 2019 Economist that stated I quote “while many governments around the world could bear more debt, that does not mean that they should. The risks posed by higher public debt are distant but real.”

Bahati believes that some countries in the region just like Uganda are experiencing low debt distress levels and could comfortably bear more debt.

“However, we are cognizant of the risks that our borrowing poses and we are taking action to mitigate these risks. Uganda does not aim to hit its debt limits, but rather take on the amount of debt that best supports our development objectives, all factors considered.”

“While I am aware that Uganda has shown a strong appetite for the debt – we face no difficulty in repaying our debt,” Bahati noted.

Over the past decade, the Government of Uganda has borrowed extensively to finance the country’s infrastructure demands.

The debt-to-GDP position increased from 19.2 per cent in 2009 to 36.1 per cent in 2019.

While this is a large increase, it represents the Governments ambition for economic development.

In the last decade, there has been a reduction in grants and concessional financing alongside a rise in non-concessional financing including commercial loans many of which are from unsolicited financiers.

While the majority have attractive rates of interest, they typically come with additional charges which may significantly increase the true cost of the loan.

“We use our debt wisely. 59% of our borrowing is still on concessional terms with multilateral institutions and development banks. Our engagement with bilateral and commercial partners is to finance specific projects that are of high returns and directed towards growth drivers and export promotion,” Bahati told the conference.

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