Uganda: financial pressure to increase debt to 48.8% by June

The African Development Bank (AfDB) said that an increase in financing needs will bring Uganda’s public debt to 48.8% by June 2021.

Debt, AfDB said in its country Africa Economic Outlook, is expected to rise further to exceed 50 percent by June 2023.

The AfDB is one of Uganda’s largest multilateral lenders, coming only below the World Bank. Currently, it has a commitment of approximately $ 1.8 billion to government and the private sector.

Much of this money is held in the transportation sector, which accounts for at least 63 percent of the bank’s portfolio.

Agriculture accounts for 15 percent while water and sanitation accounts for 12 percent. Energy represents 7% while the social sector and ICT represent respectively 2% and 1%.

In its outlook, the AfDB said that the economic slowdown in 2020 had increased the government’s financing needs, which are expected to reach 11.4% of gross domestic product in 2021, but are still at sustainable levels even at low levels. ‘it exposes the country to adverse shocks.

The bank also noted that the increase in the rate of interest payments, spurred by the growth in non-concessional borrowing, posed a challenge for the economy, advising the government to revert to concessional financing to avoid the possibility of pushing debt. at unsustainable levels.

This, the bank said, must also be done at the same time as strengthening domestic resource mobilization and improving the business environment to attract foreign and local investors.

“The authorities should cut spending to bring the primary deficit, estimated at 4.5 percent of GDP in 2021, to a sustainable level,” the AfDB said.

Uganda’s economy, the bank noted, had been damaged by Covid-19, with real gross domestic product declining 0.5% in 2020, after increasing 7.5% in 2019.

Tourism and hospitality have been the hardest hit sectors, other sectors including manufacturing, retail and wholesale and education struggling to manage disruption resulting from Covid-19.

The debt-to-gross domestic product ratio stood at 40.8% in June 2020 from 35.9% a year earlier, but had risen rapidly due to increased borrowing to ease the disruption of Covid-19.

Change of government

While responding to AfDB concerns, Ms. Maris Wanyera, Acting Director of Debt and Cash Management at the Ministry of Finance, said that in the future, the government will ensure that all loans are purely concessional.

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