Stop Borrowing Unnecessary Loans That Will Suffocate Country’s Economy

Stop Borrowing Unnecessary Loans That Will Suffocate Country’s Economy

By Patrick Edema

Editor, Uganda’s total public debt has hit a record of Shs 65.82trillion as of December 2020, up from Shs49 trillion in 2019 with a Shs16.82 trillion increment due to increased government borrowing. This means that of the estimated 43 million Ugandans, each one owes lenders Shs1.5 million. The country’s public debt portfolio is further projected to swell in the next financial year 2021/2022 and this could surpass the 50 percent threshold hence becoming untenable.

The latest Auditor General’s audit report indicates that though Uganda’s GDP has been increasing over the years since 2013/2014, its debt position has also increased. The rate of increase of debt is higher than the increment in the GDP levels, which creates a risk of reaching unsustainable levels sooner than later. According to reports, most of the funds were borrowed to invest in infrastructure projects such as roads, energy, irrigation, oil, and gas which is claimed to give a conducive environment for investments which in turn will boost the economy. A lot of debt has gone in hydropower energy, oil and gas, and water resources.

Although our leaders have always come out to say that Uganda will not suffer from over-borrowing of as faced by many developing countries where sometimes they have even become poorer, the opportunity to borrow non-concessional expensive money to meet infrastructure needs has become very tempting, especially in anticipation of oil revenues, which serve as collateral for borrowing from international markets. With a low public investment efficiency of about 0.3, public investments financed by public borrowing against future oil revenues is a precursor for a disaster. Public investments such as roads, electricity, and railway, among others, are expected to spur long-term growth.

For instance, China is one of Uganda’s biggest lenders, with about $3 billion in development projects through State-owned banks with future oil revenues usually used as collateral. China’s Exim Bank has funded about 85 percent of two major Ugandan power projects of Karuma and Isimba dams. It also financed and built the $476 million Entebbe Expressway to the airport, which cuts driving time by time more than half. There are risks to the rapidly rising public debt, especially the external debt, which has risen on annual basis at an average of about 18 percent in the four financial years to 2020/2021. The country should prioritize important infrastructure and avoid quick investments, which could lead to capacity constraints that drive public costs further.

Therefore, it is important for Uganda to strike a balance between the need for public investments and managing public finances. This will save the country from too much debt burden and allow citizens to benefit from the infrastructural developments financed by the borrowed funds.

Patrick Edema, This email address is being protected from spambots. You need JavaScript enabled to view it.