Opposition Demands Public Debt Repayment Schedule

The Opposition in Parliament has demanded that the government develops a public debt repayment schedule to guide debt management in Uganda.

As at end of June 2019, the stock of public debt amounted to 46.36 trillion Shillings (USD 12.55 billion). Of this, the external debt was 30.85 trillion Shillings (USD 8.35 billion). The domestic debt is 15.51 trillion Shillings (USD 4.2 billion).

According to the Leader of Opposition Betty Aol Ocan, after the development of the debt repayment schedule, terms and conditions of domestic borrowing should also be laid before parliament and become enforceable by a resolution.

Ocan argues that government is at the verge of failing to pay its domestic debt and that  borrowing being undertaken on highly competitive rates as compared to external loans.

“It is worrying to note the extent and impact of domestic debt rollover.  In the financial year 2018/2019 alone, the government, through Treasury Bills and Bonds,  borrowed 7.4 trillion Shillings of which 5.23 trillion was for refinancing maturing domestic debt and only 2.16 trillion was left for pressing expenditure. This means that the greatest proportion of domestic debt is a debt rollover,” the opposition response noted in its response to the National Budget Framework Paper.

But Finance Minister Matia Kasaija says that the government is looking at reducing the reliance on debt by increasing domestic revenue and improving the execution rate of projects as some of the ways to sustain the country’s debt, in the financial year 2020/2021.

According to the Budget Framework Paper, the government debt financing strategy for the 2020/2021 financial year involves several commitments that will see the debt sustained.

This includes prioritizing concessional debt to minimize debt service costs, limiting domestic borrowing to not more than 1 per cent of Gross Domestic Product (GDP) in the medium term and improving the country’s export earnings to enable payment of debt since exports are a key source of foreign currency. 

The Budget Framework Paper proposes a 39.64 trillion Shillings budget with a new tax revenue target of 21.54 trillion Shillings up from 20.4 trillion Shillings in the current financial year to enable financing of the 2020/2021 budget.

Another  6.93 trillion Shillings is projected to come from external borrowing while 771 billion Shillings is budget support loan. Government borrowing from the domestic market is also projected at 2.57 trillion Shillings in the 2020/2021 financial year.

Kasaija says that the proportion of domestic debt maturing in one year reduced to 36.5 per cent of the total domestic debt by June 2019 from 36.8 per cent in June 2018 on account of issuance of longer-dated securities.

“Despite this improvement, the ratio is close to the recommended benchmark of 40 per cent. Additionally, the current practice of rolling over maturing debt implies that the government faces a risk of being unable to refinance its maturing domestic debt,” he says.

However, the finance Minister says that to mitigate against this risk, the government will continue implementing the strategy of taking on longer-dated securities, while keeping domestic borrowing as low as possible.

Last year, the Auditor General warned that although Uganda's debt to GDP ratio of 41 per cent is still below the International Monetary Fund (IMF) risky threshold of 50 per cent and compares well with other East African countries, it is unfavourable when debt payment is compared to local revenue, which is the highest in the region at 54 per cent.  

The Opposition is scheduled to present its response to the Budget Framework paper before Parliament's Budget Committee on Monday.