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Debt servicing is straining service delivery – IMF warns Uganda

FILE PHOTO: The IMF team meets Uganda’s finance chiefs in Kampala in February before they made their report.

Kampala, Uganda | THE INDEPENDENT | The International Monetary Fund (IMF) has warned that as Uganda allocates more resources to interest repayment, key social services are being starved which will, in turn, impact health, schools, and job creation.

In its latest economic outlook report for Uganda after the executive consultations on the country, the IMF says: “One shilling paid for debt service is one shilling less going to a school or a health clinic. The current ratio of interest payments to revenue is comparable to what countries with high risk or in debt distress typically face.”

This literally means that Uganda is edging close to the red although the IMF maintains current debt levels are still manageable. The international lender of last resort said long-term sustainability of the development strategy also depends on strong investment in people.

“Given limited budget resources, the [Uganda] government must find a balance between infrastructure needs and supporting social sectors, such as health and education,” the IMF said.

The auditor general has also warned the government on the rate it is amassing debt.

In a report submitted to parliament in January which covered the financial year that ended June 2018, the Auditor General, John Muwanga said Uganda’s debt had increased at 22 per cent up from 33.99 trillion Shillings as at June 30, 2017, to 41.51 trillion Shillings as at June 30, 2018.

Muwanga then told the Speaker of Parliament Rebecca Kadaga that payment for loans worth 3.9 trillion Shillings, which are 50 per cent of those he had studied expire in 2020.

He noted that if the government was to service the loans as projected in the 2019/2020 financial year, it would require more than 65 per cent of the total revenue collections, which is over and above the sustainability 40 per cent levels.

The IMF indicates this might soon get out of hand. Of concern is the fact that taxes are not growing at the same rate as debt, which puts Uganda on the road to debt distress.

It also added that with Uganda on course to exceed 60 million people by 2030, it must create more than 600,000 jobs a year for its expanding labour force and to ensure that the benefits of growth are shared fairly.

Stephen Kaboyo, the managing director Alpha Capital, said IMF assessment “confirmed that the economy is on a solid growth path but pointed out concerns on the weakened debt metrics and the need to create more jobs for young people.”

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