BoU Warns Against Borrowing as Public Debt Hits UGX 53 Trillion

Bank of Uganda (BoU) has warned that the rate at which Uganda's public debt is increasing is a cause for worry as the country now hits 53 trillion Shillings in debt.

BoU Governor Emmanuel Tumusiime Mutebile issued the warning on Thursday while appearing before Parliament’s National Economy Committee, where he was summoned to discuss the impact of the COVID-19 pandemic on the economy.

Mutebile told Parliament that the provisional total debt stock was at 53.697 trillion Shillings by the end of April 2020, which is an increase of 13.7 per cent compared to July 2019. According to the Central Bank, the ratio of debt to GDP stood at 13.9 per cent in nominal value terms at the end of April 2020 and 29.7 per cent in present value terms at the end of March 2020.

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Mutebile said that the recent loans acquired during the COVID-19 pandemic could push the ratio up in part also due to the weaker fundamentals including slow growth, exchange rate depreciation, weaker exports and a fragile domestic revenue base. This also happens at a time when the country is faced with unprecedented challenges from health, macro-economics and social effects of the pandemic. 

He added that in order to limit the harm of the pandemic on the economy, it is important to maintain macroeconomic stability, secure core public services, maintain a vibrant private sector saying it will allow a quicker return to business creation and sustainable development after the pandemic passed.

The Central Bank added that while Uganda remains at risk debt distress, significant vulnerabilities are evident.

“Indeed, Uganda’s debt service has surpassed the threshold level in FY2019/2020 and it is projected to remain high in FY2020/2021. This could be an early indication for fiscal risk could lead to high levels of debt distress,” says Mutebile.

Aston Kajara, the Mwenge South MP asked whether it was possible for Uganda to seek debt relief from its lenders or postpone debt servicing for two years.

Jacob Opolot, the Director of Economic Research and Policy at BoU in an interview with Uganda Radio Network - URN said that although Uganda is still within the limit, the biggest problem is the rate of increase of debt is very high.