Because of the above, government has been on an international and domestic borrowing spree. This has raised Shs6.6 trillion of new loans i.e. over and above the original borrowing plans. The new money is to cover a revenue shortfall of Shs2.5 trillion and the rest is going to the stimulus spending and other new expenditure demands that arose – like classified. If you cannot read between the lines on what increased “classified” spending does around elections, stop reading this article right here. But our debt levels are already high.
Most governments avoid taxing their citizens or squeezing public spending because both options are not popular with the public; especially the voters. Borrowing is always a sweet option. For instance, it is the rich who lend government money (by buying its treasury bills and bonds) and thereby make a killing off interest paid on them. So instead of squeezing its rich citizens by taxing them to finance gaps in the budget, borrowing enriches them by giving them fresh investment opportunities. So they can now sit doing nothing but earning from government paper.
In an ideal world, borrowing is not very bad for the country if the lenders are its own citizens. Take the example of a country where all the holders of government treasury bills and bonds are its own citizens. Also treat the country as a company and give it a balance sheet. This is actually the position of Japan whose debt to GDP ratio is about 280%. Whatever lies on the government liability side are actually assets to citizens. Here you can have an indebted state but a wealthy citizenry. In such circumstances, the nation has zero net debt since the liabilities of government are assets of citizens.
A government cannot default on such loans, which are given in local currency since it can print its own money. Historically, some countries have used inflation (printing money) to pay off their debts – Britain and France being prime examples after World War Two. Many analysts ignore the fact that inflation can be redistributive. While it destroys the value wages for fixed income earners (who are often the poor), it acts as an effective tax on idle capital. When rich individuals are not using their capital productively but lending it to the government to earn interest, they become a rentier, as opposed to an entrepreneurial, class.
Uganda’s case is different. The largest chunk of our loans is from abroad and foreign currency denominated. Its interest costs are low because most of it is concessionary. This demands that we sustain export revenue growth otherwise the risk that we can fail to raise dollars to pay it off remains. Unless productively used, such loans repayments are a net deduction from the nation to foreigners. Yet even our domestic debt is largely held by foreign interests i.e. offshore investors (we can best call them speculators) and the multinational banks that dominate our banking industry. This means that a lot of what we pay as interest goes abroad, enriching fat capitalists in London, Paris and Dubai. While we may be happy to borrow, we must know who we are enriching.