Uganda To Reduce On Domestic Borrowing

Falling revenues and a rising supplementary budget due to the UPDF activities in South Sudan, led the government to borrow an extra 700billion Uganda Shillings through issuance of treasury bills and bonds.
Known as domestic borrowing, the Uganda government had budgeted to borrow at least 1.02trillion Uganda Shillings but instead had to increase this to 1.7trillion. In the 2014/15 National Budget to be read on 12th June 2014, it is expected that government will borrow less. According to the budget estimates in the National Budget Framework Paper 2014/15, government will borrow 1.6trillion Uganda Shillings from the domestic market.

Dr Adam Mugume the Executive Director Research at Bank of Uganda (BOU) revealed that in a series of meetings with the IMF and Ministry of Finance, the government committed itself to less borrowing from the domestic scene.

The unplanned increments in borrowing had negative implications for the economy. Dr Mugume noted that led to a rise in the interest rates on the debt, meaning the government would have to pay more on domestic debt. Interest payments on domestic debt in 2014/15 are expected to grow to 997billion Uganda Shillings, up from 838billion Uganda Shillings in 2013/14.

Uganda Revenue Authority (URA) is expected to have a deficit of close to 500billion Uganda Shillings by end of June 2014 due to the poor performance of companies in during the financial year. The Ministry of Defense also requested for about 200billion Uganda Shillings to fund activities in South Sudan. The mission in South Sudan was unpredictable and so was the expenditure.

The IMF in its recent review of Uganda’s economy noted that government has to find options of increasing revenues, as it is a more sustainable model of financing government activities.

“Following the recent large shortfall in tax revenue and the risk of reductions in foreign aid, broadening the tax base and improving efficiency in tax administration are more critical than ever,” Ana Lucia Coronel, the Uganda IMF Senior Resident Representative said in the May review of the economy.

In December 2013, the IMF had also cautioned the Uganda government from borrowing more than what was recommended in the 2013/14 National Budget. In January 2014, Standard and Poor’s an International credit ratings agency downgraded Uganda’s ability to pay its debts to “B Stable” due to the rise in expenditure yet revenues remain low.

Asked on what assurances were there that the government will adhere to what has been budgeted for, Maria Kiwanuka, the Minister of Finance made a commitment by signing in the presence of the IMF and other officials from government. This however is not bidding, but if the government fails to adhere, then it sends all the wrong signals to the international market, which could increase borrowing costs for the government.

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