Govt sets targets to manage debt in the next financial year - National | NTV

Govt sets targets to manage debt in the next financial year

Wednesday January 1, 2020



Government through the Ministry of Finance and Economics Development has set out to reduce reliance on debt by increasing domestic revenue and improving the execution rate of projects as some of the ways to sustain the country’s debt.

At the end of the financial year 2017/2018, the stock of public debt amounted to Shs46.36 trillion of which, the external debt was Shs30.85 trillion. The domestic debt is Shs15.51 trillion.

In the new budget framework paper, Finance Minister, Mr Matia Kasaija, says government’s debt financing strategy for the financial year 2020/2021, will involve several commitments that will see the debt sustained.

This, he says, includes reducing reliance on debt by increasing domestic revenue, improving on the execution rate of projects for timely realization of their returns and subsequently their impact on the economy among others.

The other commitments are prioritizing concessional debt to minimize debt service costs, limiting domestic borrowing to not more than 1 percent of Gross Domestic Product (GDP) in the medium term and improving the country’s export earnings to enable payment of debt since exports are a key source of foreign currency.

Kasaija outlines the commitments in the Shs39.64 trillion budget framework paper for the financial year 2020/2021. The Budget framework paper is awaiting scrutiny by parliament.

In the framework paper, the Finance Minister also sets a new tax revenue target of Shs21.54 trillion up from Shs20.4 trillion in the current financial year to enable financing of the 2020/2021 budget.

Another Shs6.93 trillion is projected to come from external borrowing while Shs771 billion is budget support loan. Government borrowing from the domestic market is also projected at Shs2.57 trillion in the coming financial year.

Addressing the issue of risks related to public debt, Kasaija says that the proportion of domestic debt maturing in one year reduced to 36.5 percent of the total domestic debt by June 2019 from 36.8 percent in June 2018 on account of issuance of longer dated securities.

“Despite this improvement, the ratio is close to the recommended benchmark of 40 percent. Additionally, the current practice of rolling over maturing debt implies that government faces a risk of being unable to refinance its maturing domestic debt,” he says.

However, the finance Minister says that to mitigate against this risk, government will continue implementing the strategy of taking on longer dated securities, while keeping domestic borrowing as low as possible.

This year alone, Parliament approved loans to a tune of Shs6.15 trillion, according to the annual performance report of the House. More loan requests are still under scrutiny by the National Economy Committee of Parliament.

In 2019, the Auditor General, John Muwanga warned that although Uganda's debt to GDP ratio of 41 percent is still below the International Monetary Fund (IMF) risky threshold of 50 percent and compares well with other East African countries, it is unfavorable when debt payment is compared to local revenue, which is the highest in the region at 54 percent.