Uganda’s national debt has nearly trebled in the last three years to $15.1 billion, equivalent to more than 50 percent of GDP, the central bank said in a report.
Two thirds of that debt was external, creating a risk of default if the shilling weakened, the Bank of Uganda added.
The warning is contained in State of the Economy report for March 2018 which the central bank has just published.
“The present value of total public debt as a ratio of GDP…. including committed but undisbursed loans, the ratio of total public debt to GDP is closer to the 50% threshold. This poses a risk of higher exposure or failure to meet external debt obligations in case of exchange rate volatility and slow growth in exports. In addition, high debt may become a drag on economic growth by discouraging public investment due to the high debt service costs.”
Bank of Uganda also warns about the shortfall in revenue collection;
“Preliminary data for the first six months of FY 2017/18 indicates shortfalls in revenue
collection and government expenditure relative to the programed amounts. Total
Government revenue (including grants) amounted to Shs. 7,346.7 billion, which is Shs.
1,135.8 billion lower than the programed amount – a shortfall mainly due to
underperformances in both domestic revenue and grants. Total government expenditure
and net lending also underperformed, to the tune of Shs. 1,894.8 billion, largely due to
lower development expenditure driven by slow implementation of government
development projects. Developments in government revenue and expenditure resulted in
a fiscal deficit of Shs. 2,572.1 billion, financing of which amounted to Shs. 2,304.5
billion, out of which over 85 per cent was external.”
The Central Bank also remains concerned on the slow growth in Private Sector Credit in relation to easing monetary policy
Growth in Private Sector Credit (PSC) remains relatively subdued, but is expected to strengthen
given sustained monetary policy easing. Average annual growth in PSC averaged 5.0 per cent in
the quarter ended December 2017, down from 5.9 per cent in the quarter ended September
2017. This deceleration was mainly on account of foreign currency-denominated loans, which
declined by 1.0 per cent, from 3.8 per cent in the preceding quarter. Over the same period,
annual growth in Shilling-denominated loans strengthened to 9.5 per cent from 7.4 percent in
the previous quarter.
Modest PSC growth in an environment of sustained monetary policy easing in part reflects a raft
of supply side constraints and implies that monetary policy alone cannot boost economic growth. The risk of Non-Performing Loans (NPLs) to PSC growth has moderated following the
decline in the ratio of NPLs to 5.6 per cent in December 2017, from 7.2 per cent in the
preceding quarter ended September 2017. NPLs dropped most significantly in the
Manufacturing sector while Mining-Quarrying and Agriculture remain the sectors with the highest NPLs. The decline in NPLs reflects commercial banks’ deliberate effort to improve their
asset quality. Loans in the watchful category, however, increased in December 2017 compared to
September 2017, suggesting that the level of NPLs remains a curtailing factor and therefore a
risk to credit growth in the near term.