September 22, 2020


As Uganda continues the inevitable path of debt acquisition for development, lessons can be drawn from utilization challenges leading to debt accumulation for future reflection. The rate of contracting new loans has over the years risen much faster than the rate of absorption. By end of June 2016, the total debt outstanding was at 52% of GDP, of which only 34% of GDP was disbursed.   The Auditor General validates this position in his report (December, 2016) for FY 2015/16 which indicated UGX 18 trillion remaining undisbursed attracting commitment fees of UGX 20billion.

The same report notes that undisbursed loans attracted commitment fees worth USD18.8m between 2007/08 and 2015/16.  Also, the level of disbursed loans reduced from 63% of the total external debt to 51% in the same period. The report also highlights that out of 96 loans sampled for the period 2010 to June 2016 totaling to USD8.8 million, only 24.5% was disbursed.  Overall disbursement levels of creditors (World Bank, IFAD, German, Japan, PTA among others) were reducing with exception of China that registered a steadfast rise due to high loan disbursement for Karuma and Isimba dams in FY 2015/16.

Nonetheless it should be noted that the Karuma and Isimba dams started appearing in the Budget for FY 2011/12 when no funding was yet secured, portraying the “growing syndrome of budgeting first and then planning” yet  reverse should be true.   In addition, Chinese loans nearly USD 3 billion have been acquired in contravention with the PDDA amended through single sourcing which undermines the standards of competition, makes them difficult to monitor but also compromises on quality. 

Loan in Uganda are characterized by slow absorption explained by a multitude of factors ranging from capacity of implementing and monitoring agencies, land compensation, poor sequencing of loan acquisition, and aspects of rent seeking, procurement and politically driven acquisition of loans. These recurring challenges have affected effective loan implementation rendering them costly. On the other hand, there are notable risks emerging with domestic debt. Government’s own borrowing by end of December 2016 was UGX 12.4 trillion compared to UGX 12.1 trillion of Private Sector Credit. The ratio of domestic tax revenue to domestic debt is currently at 1:1 and it is for this reason that the Government continuously relies on renewal or rollover of maturing domestic debt. 

In FY 2017/18 budget, nearly 50% of the current domestic debt stock is to be rolled over of which significant amounts are in short term government securities. This is over 15% of domestic revenue – the threshold required in the 2013 Public Debt Management Framework. Domestic debt is expensive and as such, interest payments will account for the largest share of domestically funded budget in FY 2017/18 (also 3rd largest share of the overall budget at 12.2%).  

Conclusively, the debt sustainability risks are becoming pronounced and the poor utilization of loans compounds future debt burden on future tax payers yet the current tax base is even narrow.  

Public domestic debt is currently crowding out the private sector investment amidst shrinking tax base. Thus, Uganda’s public debt potential dividends may not be foreseen in the near future unless debt management and effective utilization is revamped by implementing and monitoring agencies.