NEWS ANALYSIS | THE INDEPENDENT | Uganda’s debt stock has witnessed a significant surge over the past decade, primarily driven by the government’s intensified investment in infrastructure projects. This trend gained further momentum in the fiscal year 2020/2021 during the COVID-19 pandemic. The total national debt, (domestic and external) increased to 21.74 billion dollars (about 80.77 trillion Shillings) at the end of 2022, up from 20.99 billion dollars (78.83 trillion Shillings) in June 2022.
Over the last five years, it has more than doubled t to 23 billion dollars (86.5 trillion Shillings) today, with external debt accounting for more than 61 percent. While the government argues that the debt level at just over the 50 percent of GDP is sustainable, analysts, the IMF and the World Bank are worried at the rate of growth of debt and the reasons for borrowing.
Total public debt grew from just 10.74 billion dollars (about 36 trillion shillings) at end June 2018 to 12.55 billion (46.36 Trillions) by end June 2019, according to records at the Ministry of Finance, Planning and Economic Development. In 2020, it rose 21.7 percent from 15.34 billion (57.215 trillion Shillings) at end June 2020 to 19.54 billion dollars (69.512 trillion Shillings) by end June 2021.
The Public Debt Sustainability Analysis at the end of 2022 shows that over the year 2022 the increase in public debt was much smaller compared to the previous two financial years. Going forward, Government will contract less domestic and commercial debt and give priority to external concessional financing. As at end June 2022, short-term debt (treasury bills) accounted for 15 percent of the total domestic debt down from 22.5 percent in June 2021, while the share of long-term debt (treasury bonds) increased to 85 percent from 77.5 percent in June 2021.
This increase in the share of longer dated instruments (treasury bonds) is consistent with Government’s decision to issue more long-term debt as a measure to ensure public debt sustainability. Multilateral creditors accounted for 62 percent of External Debt Stock followed by the Bilateral creditors at 28 percent and Commercial Banks at 10 percent as at 31st December 2022.
Multilateral lenders are usually development banks made by member nations, providing loans and grants to member nations for social and economic development support.
A bilateral lender on the other hand, is a lender, usually a country that gives a credit facility to another country directly, with the terms discussed between the two. The outstanding debt stock including arrears from multilateral creditors is largely from the International Development Association of the World Bank (IDA), representing 55 percent by December 2022, a decrease of 1 percentage point from the previous year.
The share of IMF has increased by 1 percentage point from 10 percent as of 31st December 2021 due to increased borrowing from the IMF to support economic recovery from the COVID-19 pandemic effects. The total external debt service paid between July 1, 2022 and December 31, 2022 amounted to 360.83 million dollars (1.35 trillion Shillings) of which 254.41 million (952 billion shillings) was for principal payments, 96.54 million dollars for interest payments and 9.88 million dollars paid as charges.
According to the data analysis, Exim Bank of China is the dominant creditor with 2.663 billion dollars representing 74 percent of the outstanding bilateral debt stock including arrears as of 31st December 2022, a slight increase from the previous year. This is followed by UKEF (United Kingdom Export Fund) at 8 percent 309.14 million dollars, AFD (the French Aid for Development) with 242.9 million dollars and the Japan International Cooperation Agency, JICA, 204.6 million dollars (about 7 percent each).
The Japan Bank for International Cooperation (JBIC), Saudi Fund, Kuwait Fund, Abu Dhabi Fund, Spain and Austria account for the other 4 percent. The data also shows that commercial banks and other financial institutions, which are considered the most expensive of international lenders, are owed to the tune of 1.271 billion dollars (4.76 trillion Shillings).
The Trade and Development Bank (or PTA Bank) accounts for 474.3 million dollars, followed by the African Export and Import (AFREXIM) Bank with 379 million dollars. The Standard Bank Group of South Africa and Standards Chartered Bank are demanding from Uganda 287.5 million and 106.4 million dollars respectively. Other commercial banks are German Commerzbank AG and Bank Austria and with 11.4 and 3.34 million dollars respectively.
Multilateral lenders, which are basically known for low-cost and long-term or concessional loans, have the biggest share of outstanding credit on Uganda, totaling 8.08 billion dollars out of the total external debt of 12.96 billion. The World Bank remains Uganda’s biggest single lender with a total of outstanding claim of 4.455 billion dollars as at December 2022, through its International Development Association, IDA.
It is followed by the African Development Bank and its concessional lender, the African Development Fund with a total of 1.776 billion dollars and the International Development Fund (IMF) with 840 million dollars. Another major lender is the Islamic Development Bank with 482.4 million and IFAD (International Fund for Agriculture Development of the UN) with 251.7 million dollars.
The European Investment Bank and the Arab Bank for Economic Development in Africa follow with 110.7 and 66.1 million dollars respectively. The others are the OPEC Fund for International Development and the Nordic Development Fund with 50 million and 41.9 million dollars respectively. The decrease in the undisbursed debt stock is due to increased disbursements since the easing of the lock-down and full re-opening of the economy.
Implementation of the projects is further expected to pick up pace and we expect further reduction in the undisbursed balances because of enhanced field visits and the quarterly portfolio reviews being conducted by the Ministry of Finance, Planning and Economic Development. Exim Bank charges an average interest of 1.5 percent, with a 20-year maturity and a 7-year grace period, while the World Bank charges an average 1.3 percent with a maturity of 30 to 50 years.