Uganda’s debt sustainable, says IMF

By Ismail Musa Ladu & Tonny Abet

It is a misconception to assume that Uganda's public debt is unsustainable, according to the International Monetary Fund (IMF), one of the country's leading creditors.

The IMF Resident Representative for Uganda, Ms Izabela Karpowicz, whose institution has so far lent Uganda about $491.5 million (Shs1.7 trillion), noted that the country's public debt levels are still within a manageable threshold in the long term.

She said: "We used to rate Uganda at low risk and now it will be moving to a medium risk and this is due to Covid-19... "

She added: "... It is not correct to say the debt is not sustainable over the medium and long term."

Ms Karpowicz was speaking last Thursday on the sidelines of a policy dialogue on Uganda's economy, which was organised by the Advocates Coalition for Development and Environment (ACODE) and the Civil Society Budget Advocacy Group (CSBAG).

According to Ms Karpowicz, what should cause Ugandans sleepless nights is how "resources that are being borrowed now and in the future" will be deployed productively and not the "debt level issues."

As long as the borrowed funds can spur growth, the IMF Representative in Uganda believes, "Uganda will naturally grow out of the debt."

To navigate through the tough economic situation occasioned by the Covid-19 pandemic, the IMF chief in Uganda said: "We would like to see strong budget allocation in social sector going forward."

She says spending in the social sector has decreased, asking government to spend more on education and health, saying investment in these segments of the economy will not only trigger but drive the recovery processes.

Speaking as a panelist at the policy dialogue whose theme was 'Economic Recovery and Re-engineering Economic Growth' , Ms Karpowicz called for a balance between infrastructure and social development, saying this has a potential to put back the economy on a sustainable growth path.

Debt situation

There are varied opinions regarding the magnitude of the country's public debt.

While some believe that the country is already in debt distress, others such as Mr Stephen Kaboyo, the chief executive officer of Alpha Capital Partners and a former central bank technocrat, is convinced that government is playing with fire as it is quickly sliding into debt distress.

Officially, Uganda's stock of public debt grew by 21 per cent to $15.27 billion over one year (June 2019 to June 2020). This is equivalent to 41 per cent of the annual GDP and 31.8 per cent in present value terms.

The external debt constitutes $10.45 billion (68.4 per cent) while domestic debt is $4.82 billion (31.6 per cent).

Critics using government official figures say the public debt is expected to rise to 49.9 per cent of GDP by the end of 2021 and 54.1 per cent in 2022.

The key driver for the projected increase in debt is the need for extra borrowing to cover revenue short falls, Covid-19 related expenditure as well as support for economic recovery.

However, late last month, Finance minister Matia Kasaija disclosed that government would seek to reschedule payments, 24 hours after this newspaper revealed each Ugandan now owed Shs1.5 million in debt contracted by the government.

In an interview with Reuters news agency, Mr Kasaija revealed that repayments of the debt, now at $17.96 billion (Shs66 trillion) if domestic debt is included, might have to be renegotiated with major creditors, including China, the World Bank and IMF.

This article was originally published by the Daily Monitor. [Photo: Daily Monitor]