Uganda’s public debt rises to 73.7 trillion.
Uganda’s public debt rises by 3.1% to Shs 73.78trillion compared to June 2021, as per the Bank of Uganda latest report on the status of the economy.
The report released late last month says the increase in debt between June and October 2021 was mainly due to Shs 1.67trillion increase in domestic debt.
“The external debt exposure amounted to Shs45.3 trillion (US$ 12.7billion) as of the end of October 2021, an increase of 2.7% compared to June mainly on account of increased debt from multilateral creditors and private banks,” the report states.
The Debt Sustainability Analysis (DSA) indicates that external debt burden and public debt indicators remain moderate. This is owed to the fact that although the FY2020/21 fiscal deficit widened to 9.1% of Gross Domestic Product (GDP), bringing public debt to 48.3% of GDP from 41.7% in FY2019/2020, and closer to the 50 percent of GDP target, the fiscal target for FY2021/22 reflects post-Covid-19 consolidation, with a fiscal deficit to GDP of 6.4 percent.
However, the debt service to tax revenue ratio gradually increased to 27.1% in October 2021, up from 24.4 percent in October 2020.
Current account to deteriorate
The country’s current account deficit is likely to deteriorate as the goods and services balances worsen in the short term. The trade deficit is expected to widen, as import growth is anticipated in response to the opening-up of the economy.
However, increased external demand combined with the continued strong performance of coffee exports is expected to partially improve the trade deficit.
The report further states that deterioration in the services deficit may persist, as recovery in the tourism sector remains protracted, as travelers remain cautious of emerging strains of the coronavirus.
Foreign Direct Investment Inflow
Meanwhile, Foreign Direct Investment inflows are likely to remain subdued, partly due to gradual recovery in domestic economic activities and weak investor sentiments, reflecting slow recovery of global private capital flows to developing countries. This signals that the budget support and project aid disbursements are likely to be the major sources of finance for the current account deficit.
But still, the current account deficit is likely to further deteriorate as petroleum exploration and production activities resume, particularly the construction of the pipeline, resulting in higher import expenditure.
However, the widening deficit will be partially offset by increased travel services receipts in response to developments in the tourism sector. The trajectory of recovery of the tourism sector is contingent on the evolution of the Covid-19 pandemic and the pace of vaccination.