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Auditor General calls for strategy on worrying nation’s debt

Auditor General John Muwanga

Kampala, Uganda | THE INDEPENDENT | Auditor General John Muwanga says that Uganda’s high cost of borrowing may deny future generations the opportunity to sustainably borrow.

This is carried in his findings on the public debt in the financial year 2019/2020 audit report that he presented to Speaker Rebecca Kadaga on Thursday.

Over the past three years, Uganda’s public debt has increased from 33.5 trillion to 56.83 trillion Shillings from June 2017 to June 2020, an increase of almost 70 percent.

Muwanga says that although the International Monetary Fund (IMF) has recommended 50 percent debt to Gross Domestic Product-GDP ratio as the point of safety for developing countries, Uganda has reached 46.4 percent despite rebasing its GDP last year.

Uganda rebased the GDP using the 2016/2017 base year revealing that the size of the economy is now 122.6 trillion Shillings, translating into economic growth of 6.5 percent for financial year 2018/2019. Rebasing of the GDP means replacing the old base period with a more recent base year for computing constant price estimates.

“Additionally, the percentage of interest to domestic revenue has reached 13.69 percent, which is above the recommended cap of 12.5 percent. Uganda’s credit rating outlook was revised from stable to negative,” reads the audit report.

According to Muwanga, this situation has had a resultant effect of higher cost of borrowing which may deny future generations the opportunity to sustainably borrow.

“Although government has attributed the debt increment to the need to cover for both the revenue shortfalls and the rising expenditure needs, I have advised government to devise a comprehensive strategy to align revenue mobilization and fiscal policy management as well as reducing or rationalizing government expenditures,” he recommends.

A recent International Monetary Fund- IMF report raised a red flag at Uganda’s rate of borrowing warning that by 2022, the country’s debt would be unsustainable.

The Auditor General’s findings on public debt follow the Bank of Uganda (BoU) Monetary Policy report for August 2020, which also indicated that the country’s public debt increased by 20.5 percent from 46.2 trillion in June 2019 to 56.5 trillion in June 2020.

The increase in the public debt according to the BoU report was attributed to accumulation of interest on old debts and the many acquired new debts.

The Central Bank says that the bulk of the debt had been acquired in 2020 to enable government counter the economic distress occasioned by the COVID-19 pandemic.

In the past financial years, debt repayment has been taking the biggest chunk of the National budget. Out of the 2020/2021 financial year budget of 45.5 trillion, 29 percent of it (13 trillion Shillings) is appropriated for debt repayment.

The Auditor General has in the past years said that it is unfavorable when debt repayment is compared to national revenue collected. Muwanga also notes the under absorption of loans.

In their new report, Deputy Auditor General Keto Nyapendi kayemba says a review of loan disbursements revealed that 12 loans worth 1.37 trillion reached expiry before disbursing.

‘The energy sector was most affected due to recurring unresolved land compensation issues affecting project implementation. Such low levels of performance undermine the attainment of planned development targets and render commitment charges paid amounting to 9.5 billion in respect of undisbursed funds,” she said.

Kayemba cites a need for government to identify and resolve any bottlenecks hindering the absorption of loans especially in the energy sector.

She also notes the increased Commercial bank borrowing with non-fixed interest rates. The report reveals that loans from commercial banks that are non-concessional grew from 192 billion to 2.8 trillion representing a spike over the past three financial years. Auditor General says that the contracted loans had very short repayment periods with high-interest rates as compared to concessional loans.

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