Uganda In Debts: Finance PS Seeks Solutions As Uganda Faces UGX 24.9 Trillion Debt Servicing Bill

Ugandan Government is set to allocate up to UGX 24.9 trillion for servicing the country’s public debt. This revelation follows a report from the Bank of Uganda, indicating that as of August 2023, Uganda’s public debt stood at UGX 88.807 trillion, excluding the UGX 7 trillion worth of loans approved by Parliament in December.

Stephen Ojiambo, Commissioner of Accounts in the Treasury Operations, emphasized before Parliament’s Finance Committee that the focus in the upcoming financial year will be on timely debt payments to avoid accruing additional interest. The increased projection for external amortization expenditure is attributed to substantial principal repayments on various projects, including the Karuma power dam, Isimba dam, Kabalega International Airport, Afrexim Budget support, Standard Bank, and TDB budget support.

Concerns arise as the Bank of Uganda’s State of Economy report for December 2023 highlights the strain on revenue collections due to escalating public debt. With every UGX 100 collected in tax revenues, UGX 32 is allocated to debt servicing, diminishing resources for essential services.

The Ministry of Finance also revealed plans to inject UGX 197 billion into Roko Construction Company and Lubowa Specialised Hospital, fulfilling the government’s obligations for share purchases and promissory notes payment. Additionally, UGX 274 billion has been budgeted for the partial repayment of reparations to the Democratic Republic of Congo, stemming from resources plundered during Ugandan troops’ operations in the late 1990s.

However, concerns were raised by Basil Bataringaya, MP for Kashari North, regarding the prioritization of meeting international debt obligations over domestic arrears, leaving local suppliers unpaid. With UGX 7.7 trillion in domestic arrears, the allocated UGX 200 billion may take around four decades to settle, posing financial challenges for those who have provided goods and services to the government.

Furthermore, the economic challenges are compounded by the impact of the Anti-Homosexuality Act on Uganda’s external financial risks. Minister of State for Finance Henry Musasizi stated that negotiations with the World Bank are ongoing to lift the ban on financing new projects in Uganda. The economic situation is further strained by the lingering effects of COVID-19 on growth and revenue mobilization, coupled with increased global interest rates affecting external borrowing costs.

As Uganda grapples with these financial challenges, concerns are also raised about the sharp increase in commitment fees, set to rise from UGX 19.348 billion to UGX 70.616 billion. Commitment fees are incurred on undisbursed loans after project effectiveness and are charged by creditors such as the African Development Bank, French Development Agency, Exim Bank of China, and Exim Bank of Korea.

The Ministry of Finance’s September 2023 Debt Statistical Bulletin reported a reduction in Uganda’s undisbursed debt from $3.13 billion to $2.99 billion, yet all idle loans continue to attract commitment fees, heightening fiscal concerns for the country.