- Risky. Although Uganda is categorised as being at low risk of debt distress, it risky, according to Louis Kasekende, the Bank of Uganda deputy governor, for the country to take on higher debts, especially commercial ones.
Kampala. Uganda’s current revenue levels and mobilisation efforts cannot allow the country much room to take on higher levels of debt, Dr Louis Kasekende, the Bank of Uganda deputy governor, has said.
Speaking at the presentation of the Regional Economic Outlook for Sub-Saharan Africa in Kampala yesterday, Dr Kasekende said that although Uganda was at low-risk of debt distress, there was need to control public borrowing within certain levels, noting that debt servicing was a costly affair that drains resources.
“Although Uganda remains at low risk of debt distress, our revenue effort is not yet at a level that allows much room to take on much higher debts, especially commercial [ones], given its implications on debt servicing cost,” he said.
Uganda’s debt, according to International Monetary Fund (IMF) projections is expected to grow to 50.7 per cent in the 2021/22 financial year from the current 41 per cent.
However, Mr Patrick Ocailap, the deputy secretary to the Treasury, noted at the same meeting that government has been increased revenue collection capacity over the years, adding that revenue mobilisation will grow from Shs16 trillion this financial year, which ends in June to Shs19 trillion for the 2019/20 financial year.
“To enhance domestic revenue efforts, government intends to address the challenges through a comprehensive Domestic Revenue Mobilisation Strategy, which seeks to raise revenue to GDP ratio by 0.5 per cent annually. This increase in domestic revenue will provide the government with the additional resources for finance development and servicing debt obligations,” he said.
The Domestic Revenue Mobilisation Strategy, Mr Ocailap said, focuses on expanding the tax base as well as improving efficiency in tax administration.
Dr Kasekende also noted that government must aggressively drive the industrialisation agenda to deal with the current job scarcity, saying labour intensive manufacturing presents a stepping-stone for absorbing millions of unemployed youth.
The success of industrialisation, he said, will be hinged on commercialisation of agriculture through which industries are assured of a steady supply of quality inputs.
Ineffective budgeting process
The Regional Economic Outlook, presented by IMF also noted that Uganda lacks an effective fiscal policy to guide the budget process, which has often led to the deviation of funds and supplementary budget. For instance, in this financial year, government has had more than two supplementary budgets, forcing domestic borrowing to soar from Shs1.8 trillion to Shs2.1 trillion.
IMF also noted that government has adjusted the 2019/20 budget about three times, which portends lack of proper guidelines. Ms Clara Mira, the IMF senior resident representative, said because Uganda’s “budget does not provide sufficient guidance for top-down resource allocation” it is important that the country adopts an effective fiscal anchor such as keeping public debt below 50 per cent, to guide budgeting.