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Sunday, June 11, 2017

Central Bank: #Uganda will be unable to sustainable its public #debt



Written by URN
The Central Bank has advised government to desist from further unnecessary borrowing saying that the country's current debt is unsustainable. Uganda's external and domestic Public debt stands at $ 8.7 billion (about Shs 30.9 trillion).
According to finance minister Matia Kasaija, the debt is sustainable over the medium to long term. Kasaija said the debt in nominal terms is equivalent to 33.8 percent of the Gross Domestic Product (GDP). That he said is lower than 50 percent threshold beyond which public debt becomes unsustainable.
But Adam Mugume, the executive director for research at Bank of Uganda disagrees with the assertion and says that continued borrowing will further affect the economy which has already slackened.
Mugume adds that the current debt remains big given that Uganda Revenue Authority can only collect 14 percent of the Gross Domestic Product from taxes.
"The minister said the debt is sustainable, the numbers really confirm. But the question we always ask ourselves is; supposing growth remains at 3 percent, supposing exchange rate gives way, what would happen to this public debt? What it actually means, Uganda will be insolvent. If growth was to remain in the range of 3 percent, if the exchange rate was to continue depreciating, then most of this debt will be a problem", he said.
He says the finance minister may have not factored in the aspect of interest rates payable to the outstanding public debt.
"Even as you look for development expenditure, the question is, interest payment for next financial year 2017/18 will be around Shs 2.6 trillion. That is around 12 percent of total expenditure and also equally around 19 percent of tax revenue. That is interest not principal...Although the picture looks good in terms of the macro numbers we use for debt sustainability, the question we need to start asking is, suppose the worst case scenario happens, what would happen to my debt?
Government according to Mugume has in the last two years been borrowing at a rate of 17 percent annually from National Social Security Fund yet some banks have also borrowed from the same source. That he says explains the reason why interest rates have remained at 23 percent.
He welcomes the decision by government to reduce domestic borrowing saying that will create more resources available to commercial banks. That, he says, could lead to lower interest rates in the near future.
Mugume whose job involves monitoring the currency in circulation in the economy also welcomed a decision by the minister to institute measures to guard against delays public investments. He says in the financial year 2015/2016, Shs 9.7 trillion was budgeted for development expenditure but what took off was only about 7.4 trillion.
Mugume says the 2016/2017 budget had Shs 7.1 trillion in terms of development but projects worth Shs 6.5 trillion were undertaken by close of the financial year.
THE OBSERVER

Uganda's public debt not sustainable - Central Bank

The Central Bank has advised government to desist from further unnecessary borrowing saying that the country's current debt is unsustainable. Uganda's external and domestic Public debt stands at $ 8.7 billion (about Shs 30.9 trillion). According to finance minister Matia Kasaija, the debt is sustainable over the medium to long term.

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