Uganda’s national debt has surged to $24.60 billion (approximately Shs 93.38 trillion) as of December 2023, according to the latest report from the Ministry of Finance, Planning and Economic Development. This marks an increase from $23.66 billion at the end of the last financial year in June 2023.
Debt-to-GDP Ratio and Economic Expansion
Despite the rise in absolute debt, Uganda’s debt-to-GDP ratio has decreased slightly from 48.4% to 46.9%, attributed to the expansion of the economy rather than a debt reduction. This nuanced improvement indicates that while the economy is growing, the nation’s debt continues to climb, placing additional strain on fiscal stability.
Composition of the Debt
The public debt is comprised of $14.64 billion (Shs 55.37 trillion) in external debt and $9.96 billion (Shs 38.01 trillion) in domestic debt. This division underscores the significant reliance on external borrowing, which poses risks due to fluctuating global financial conditions and exchange rates.
Increasing Debt Service Costs
A key area of concern highlighted by the report is the rising cost of servicing this debt. In the financial year 2022/23, the total debt service to domestic revenue ratio was 32.6%, indicating a substantial portion of government revenue is allocated to debt repayments. By the end of December 2023, Uganda’s total public debt service amounted to $1.983 billion, with 59.9% dedicated to principal repayments and 39.8% to interest payments.
New Borrowing and Budget Challenges
Despite the growing debt burden, Finance Minister Matia Kasaija emphasized the necessity of additional borrowing to fund the budget for the 2023/24 fiscal year. The government aims to prioritize external concessional financing over domestic and commercial debt to manage costs more effectively. However, the reality remains that new loans totaling $1.563 billion were approved by Parliament, surpassing the repayments, thus increasing the debt stock.
Budget Shortfalls and Financing Gaps
The financial report also highlights shortfalls in budget support and disbursements. For the 2023/24 financial year, external financing amounted to Shs 1.415 trillion against a target of Shs 3.846 trillion. This shortfall was attributed to delayed project commencements and lower-than-expected budget support disbursements.
On the domestic front, net domestic financing for the first half of the fiscal year reached Shs 3.162 trillion, exceeding the target of Shs 1.341 trillion. The discrepancy was driven by the need to cover financing gaps resulting from delays in external budget support mobilization and underperformance in domestic revenue collection.
Major Creditors
Uganda’s outstanding debt, including arrears, is primarily owed to multilateral creditors. The International Development Association (IDA) of the World Bank holds 51% of this debt, followed by the African Development Fund at 17% and the International Monetary Fund (IMF) at 16%. Bilateral debt is dominated by the Exim Bank of China, which represents 71% of Uganda’s bilateral debt stock, despite a slight reduction from 74% in December 2022.
Uganda’s rising national debt and the increasing cost of servicing this debt present significant fiscal challenges. While economic expansion has slightly reduced the debt-to-GDP ratio, the absolute debt levels continue to grow. The government must navigate these financial pressures carefully, balancing the need for development funding with the imperative of maintaining long-term debt sustainability.