The Ugandan Government is planning to borrow Shs1.4trillion by issuing treasury bills and bonds to meet the growing expenditure in 2014/15.
Finance minister Maria Kiwanuka says this is in line with the recommendation by Bank of Uganda (BOU) and the International Monetary Fund (IMF) for the government to cut back on borrowing from the domestic market. The IMF has particularly been very critical of Uganda government borrowing more money, instead of finding options to increase tax revenues.
According to Kiwanuka the government would reduce on what it borrowed in 2013/14 from the domestic market.
In an extended pre-budget interview with local media, Dr Ezra Munyambonera, a Senior Research Fellow at Economic Policy and Research Center (EPRC) said that increased borrowing by government had led to commercial banks lending less to the private sector. Governments rarely default on their loans explaining why commercial banks would rather lend to them, than the risky private sector borrowers.
Additionally, due to the falling revenues and increasing supplementary budget, as a result of the UPDF activities in South Sudan, the government in 2013/14 borrowed over and above what had been projected by over Shs700billion.
The government has committed to spend Shs15trillion in 2014/15, with most of the money coming from Uganda Revenue Authority (URA). Part of the expenditure will go to paying interest on loans, both domestic and foreign.
According to Kiwanuka, by end of June 2014, Uganda’s public debt will raise to US $ 7billion, up from US $ 6.4Billion in 2012/13. Public debt is the money owed to international lenders, like the World Bank and domestic lenders like commercial banks and NSSF, by the Uganda government.
The Uganda Debt Network has been particularly concerned by the level of debt currently being taken by government as unsustainable. None-the-less, Kiwanuka described this level of debt as sustainable. She also said that rather than cut back on expenditure during a financial year, it would be better to borrow, if possible.