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Uganda’s addiction to borrowing

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.



  1. Andrew Mwenda also! At one time and still says corruption is a good thing. But when some people try to do honest business through borrowing, but whose interest rates are business-wise debilitation; AM labels them borrowing addicts.

    Andrew, it is not addiction but dictatorship or tyranny, which is forcing Ugandans to borrow in order to stay afloat. In the Republic, according to Plato, because of their financial/economic incompetence especially indiscipline dictators/tyrants only survive by borrowing. In other words, the NRM is a borrowing addict. Being a self-confessed dictator, how much has Mr. Museveni’ s leadership so far borrowed?

  2. 1.During this period of Covid 19;Civil Servants are the most envied they receive their salary however little in time including even the Pensioners;What does his mean for the Private Sector?It could be one The biggest frauds in the World what do i mean if a business x has been making profits for 20 years why should it collaspe within a year coz of Covid 19?Is there something the private sector is hiding?
    2.The role of development partners like EU,IFC,IDA,World Bank,IMF is to enable some nations achieve MDGs.
    3.Those who apply for Loans should be credit worthy that explains why Uganda is rarely declined a loan.
    4.Uganda presents great business proposals thats why development partners can not resist lending money to her.
    5.The competition between the traditional lenders based in Europe and USA has increased with the emergence of wealthy nations like Japan,China,Saudi Arabia that is why Nations like Uganda,Kenya have now some breathing space when it comes to borrowing because nations like China and Japan know the complexities with Democracy.
    6.Uganda’s chief Economits,Mr.Kaguta is very keen when it comes to business matters;M7 refused to commission a Toyota show room in Namamve he preffered to commisson an Assembly Plant instead. Actually Rwanda’s excitement with Volkeswegan was just to traumatize M7 Volkswegan Rwanda just fits car tyres and wipers only Rwanda received a bad deal.
    7.Uganda’s Public secotor is sustained by the taxes Ugandans pay while big development projects like Road,Railway,Airport construction are sustained by development partners who charge small interest actually they even tend to waive off some bad loans.

    • But Winnie, give Ugandans a break: Mr. Museveni is not and will never be a Chief Economist.

      Without the virtue/history of honesty, how can somebody (78 year old man) with a 35-year concealed name “Tibuhabura” (does not listen to advises) be a chief Economist? In other words, dishonesty is at variance with economics. It is irreconcilably inconsistent with the principles of political economy, trade and/or sustainable so call development partnership.

      Mr. Museveni is the most diabolic, selfish, wishful-thinking and indiscipline extravaganza president Uganda has ever had. E.g., in the 21st Century what economic sense and/or why would the Chief Economist of any reasonable government authoritatively subscribe to purchasing 9 million Transistor Radios, as teaching aid for the children of impoverished Ugandan?

  3. @Mr.O;Why should i give you a break?Have you ever heard of the term cost benefit analysis?what is the price of an ipad compared to a TV and Radio?do you know that one ipad can buy 50 radios and 15 TVs.

    • But Winnie, without the “graphics’ how would you e.g. teach: Math, Biology, Chemistry, Physics Geography, TD etc. on Radio, and on what Wavelength? In other words, like with all the previous procurement scandals of this country e.g., LC bicycles; the 9-million Radio is but another regime institutionalized dishonesty and racketeering scheme.

      Winnie, 35 years and counting, dishonesty; which feeds into dictatorship is the worse thing happening to Uganda and Africa at large. Otherwise, since the end of the 20th Century a country can develop into a middle income status in 20 years. But see where we are: Backward and under the lead-burden of dishonesty, obsessive borrowing and shameless savage dictatorship.

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