June 5, 2023

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Budget: Uganda’s Debt Payments Near 3/4 of Total Revenue

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The budget committee of Parliament has raised a red flag at the rising cost of debt payments amidst shrinking revenues as for every 100 shillings collected in revenue, Uganda will be spending 71. 7 shillings in paying local and foreign debts in the coming financial year.

The committee has noted that fiscal operations are in distress owing to a significant rise in the share of the budget going to debt related payments.

This concern was put forward in the committee’s report on the Budget Frame work paper for the financial year 2021/22 – 2025/26 which was presented and passed by the plenary on Thursday.

According to the committee’s report on the budget framework paper presented by the Vice Chairperson Patrick Isiagi, debt payments including domestic arrears have eaten up the largest portion taking up 34.4% of the budget equivalent to shillings 15.773 trillion of the shillings 45.658 trillion budget projected for the 2021/2022.

The government has set aside shillings 8.547 trillion for Domestic Refinancing, 4.960 trillion for interest payments, 1.826 trillion for external debt payments and 400bn for domestic arrears.

Following the debt payments it becomes apparent that only shillings 29.538 trillion of the budget is discretionary. Yet a quarter of this is still also borrowed from local and foreign sources as the actual revenue collection still falls short of 22 trillion shillings. 

The rest of the resource envelope will be consumed by shortfalls in wage, pension and gratuity and Appropriation in Aid taking up 170bn and  215bn shillings respectively.

These figures raise alarm bells owing to the fact that the share of debt payments has risen from 20.04% of the budget in the current financial year representing shillings 9.115 trillion.

This state of affairs becomes more precarious with the fact that domestic revenues are expected to decline by shillings 117.7bn from shillings 22.026 trillion in the current financial year to shillings 21.908 trillion.

The committee report notes, “Debt related payments are constraining resources that would otherwise be utilized in interventions that would directly support development agenda of industrialization of inclusive growth, employment and wealth creation.”

According to the budget framework paper the stock of total public debt amounted to US$ 15.27 billion at end June 2020, up from US$ 12.55 billion at end June 2019. Of this, US$ 10.45 billion (approx. UShs 38.97 Trillion) was external debt, while domestic debt was US$ 4.82 billion (UShs 17.98 Trillion). This is equivalent to 41.0 percent of GDP.

The Committee observes that for the period of one year, public debt increased by 10,592 billion shillings representing a growth rate of 23 %.

“The need for extra borrowing to cover for both the revenue shortfalls and the Covid-related expenditure needs was the main driver of the significant increase in debt in FY2019/20.” Says the report.

The committee further states that as Government continues to support economic recovery through provision of the economic stimulus package to various sectors, debt is projected to increase further over the near term amounting to 47.6 percent of GDP by end of June 2021, and peaking at 49.7% in 2023/24 before starting to decline. 


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