Central Bank warns gov’t on escalating borrowing

Government’s continued appetite for loans come to the attention of the central bank-Bank of Uganda, warning that the country could run into the default risk as nearly two-thirds of that borrowing is external.
The bank in its latest report titled “State of the Economy”, said the rising costs of servicing the country’s US$15.1billion debt could hit economic growth because of reduced public investment.
Over the last decade, the government of Uganda has upped borrowing, mostly from China, to fund infrastructure projects including power plants, roads, fibre cable networks and an airport expansion. Three years ago, Uganda’s debt was just US$6.2 billion.
BOU says the debt poses, “a risk of higher exposure or failure to meet external debt obligations in case of exchange rate volatility and slow growth in exports.”
According to the budget framework paper for financial year 2018/19, interest repayments consume 17.3 per cent of the planned expenditure, with analysts saying it is likely to be the largest portion of the national the budget.
The Ugandan economy has been struggling in the last few years because of poor agricultural output, weak exports and corruption. Growth was 3.9 per cent last year, down from 4.8 per cent in the previous yea.
The economy is projected to grow by 5 per cent in real terms in financial year 2017/18, above the 3.9 per cent growth registered in financial year 2016/17. The growth would be driven by higher growth rates in agriculture and services, supported by improved implementation of infrastructure projects and a return to normal weather conditions.
Real GDP growth is expected to average at about 5.9 percent in the medium-term and 6.7 per cent in the long-term. This growth would be supported by enhanced productive capacity from the completion of infrastructure projects, investment in agriculture, regional integration and oil production, as well as enhanced efficiency in resource allocation.
Government officials have always defended the borrowing, saying infrastructure investment was necessary to make the economy more efficient.