{UAH} Experts insist Uganda's debt is unsustainable -the visionary has mortgadged the country,kitalo

Experts insist Uganda's debt is unsustainable

Written by Alon Mwesigwa

Last Updated: 24 June 2015

Finance minister Matia Kasaija

Analysts have insisted Uganda could struggle to pay back the amount of debt it is accumulating. This is despite assurances from government that the country's debt levels were sustainable.

Dr Fred Muhumuza, a former adviser to the minister of finance, said last week that Uganda should not look at the debt-to-GDP ratio alone, but also at the ability to mobilise revenues and pay back.

"If 60 per cent of your revenue can go to service the debt, that's not sustainable," he told a budget review meeting by Economic Policy Research centre and Bank of Uganda.

Uganda's debt-to-GDP ratio is at 34 per cent, with government saying it was still affordable because it is below the 50 per cent threshold for East African countries.   

Dr Adam Mugume, the director for research at BOU, said the debt dynamics were misleading.

"Comparing public debt-to-GDP ratio is misleading," he argued. "If the ability to tax and pay the debt is low, then there is a problem. In the long run, you must be able to tax and pay back. If the revenues are low, then the ability to service a debt will be poor."

Uganda Revenue Authority is expected to collect Shs 11.3tn while Shs 6.4tn will be paid for debts next financial year. Uganda's debt stands at $7.6bn with 60 per cent of this external. The country is set to borrow about Shs 5.9tn in 2015/16 from both the domestic and external sources.

Anna Lucia Coronel, the IMF country representative in Uganda, said at a recent PricewaterhouseCoopers budget breakfast meeting that while she thought the debt burden was still sustainable, the country must borrow smart.

"Uganda has a large infrastructure gap and development needs; you have to spend," she said. She, however, cautioned: "Do this while increasing revenues as well and borrow in a healthy way. Do more concessional loans."

Meanwhile, some economists have said the budget was out of touch with reality, with issues such as unemployment. For instance, John Mutenyo, a senior lecture at the school of economics at Makerere University, said the budget was not clear on how to tackle unemployment.

"Unemployment is a major source of insecurity. So many youths are now vulnerable to manipulation and can easily be confused," he said.

While Finance Minister Matia Kasaija said government was aware of the problem of unemployment, he didn't say anything about how to solve it.


amwesigwa@observer.ug

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