Rating firm, Moody’s, has singled out weak policies, poor budget planning and implementation as factors that have made it difficult for Uganda to tackle her ballooning debt portfolio.
The agency reports that Kenya and Tanzania, Uganda’s bigger neighbours face the same challenge that limits their ability to create policy solutions to the ever growing debt.
The report on the state of debt in the region says that only Rwanda has the institutional and policy framework that is stronger thus its government should be more effective in managing risks associated with a higher debt burden.
“Weaknesses related to public financial management and shortcomings in budget planning and implementation pose challenges in Kenya, Tanzania, and Uganda,” the firm said.
The firm says that the region to curb any further rise in debt burdens in the foreseeable future, and direct limited domestic resources toward productive use.
This, it says, will be important to how creditors view their ability to repay. Debt in the region has been driven by wider gaps in revenues generated by taxes and the expenditure plans, which is normally referred to as fiscal deficits.
Moody’s says that fiscal deficits are largest in Kenya, where large infrastructure-related development spending combine with subdued revenue collection has seen rising cost of debt. “Kenya, which relies less on grant funding, has posted the widest fiscal deficits over the past five years, where they averaged close to 7 percent of GDP,” Moody’s said.
“Large fiscal deficits in Kenya also reflect a narrowing of the domestic revenue base as government revenue net of grants has declined as a percentage of GDP. Kenya is the only country of the four that has failed to grow its revenue net of grants,” the firm said.
The firm says that the erosion of fiscal metrics was a key reason behind its decision to downgrade the sovereign rating of the country to B2 in February.
An increase in commercial borrowing in Tanzania has also increased. In Uganda, external debt remains mostly concessional, but its recourse to non-concessional domestic and external sources has increased.