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Economic research centre wants govt to push for increased debt transparency
Public debt is estimated to have grown to Shs88.9 trillion by the close to the 2022/23 financial year. Photo / File
What you need to know:
- Economic Policy Research Centre (EPRC) says there is need to create guidelines to guide on how debt is sourced from a growing list of new lenders
The Economic Policy Research Centre (EPRC) has asked government to find mutually beneficial mechanisms that will ensure full transparency and accountability of debt by new lenders such as China.
In details contained in a presentation titled: Sustainable, inclusive and environmentally responsive debt in Uganda, delivered during a dissemination workshop in Kampala on Tuesday, EPRC indicated that before Covid-19, China had over taken the World Bank lending arm - Internal Development Agency (IDA) - as the biggest source of Uganda’s source of debt, some of which is obtained on commercial terms, which has strained the country’s reserves.
Therefore, EPRC said, there is “need to enter bilateral deliberative mechanisms to ensure full transparency and accountability of debt by new lenders, especially China”, noting that the rising debt stock, especially from non-bilateral lenders presents risks to reserves as it results into exchange rate depreciation.
The EPRC presentation also breaks down the source of Uganda’s debt, which puts IDA ahead of China, African Development Bank (AfDB) and Trade and Development Bank in terms of contribution.
For instance, the report indicates that during the 2020/21 financial year, IDA contributed 35 percent of Uganda’s debt compared to 16 percent for China and 12 percent from Trade and Development Bank.
However, before this, China had been the largest source of Uganda’s debt, contributing 38 percent during the 2017/18 financial year while IDA and Japan contributed 21 percent and 9 percent, respectively.
EPRC also noted that Uganda continues to source debt from multiple lenders include commercial banks such as Stanbic and Standard Chartered Bank, which during the 2020/21 financial year contributed 3 percent and 1 percent of Uganda’s debt stock, respectively.
Other sources of debt include, AfDB and France, which during the period, contributed 3 percent each while Islamic Development Bank contributed 5 percent.
Details from the Ministry of Finance indicates that by June 2023 Uganda’s public debt had grown to Shs88.9 trillion, which is almost twice the Shs52.7 trillion 2023/2024 budget.
Therefore, EPRC noted there was need for government to revert to concessional borrowing, which could drive economic growth by 3.1 percent of gross domestic product with the service sector expanding by 1.5 percent during the 2023/24 financial years.
EPRC also outlines a number reforms, which it argues, will allow Uganda to attain sustainable, inclusive and environmentally responsive debt, among which includes production of a common framework to address multiplicity of lenders, as well as expanding market-derived concessional financing to support the economy.
Other measures, EPRC indicated, include finding the right choice of projects to balance between social spending and infrastructure, as well as ensuring greater use of partial credit guarantees at scale to help the country access capital markets and issue bonds at lower coupon rates and longer maturities.
Carbon transition
EPRC also wants government to, besides reducing the amount of carbon emissions, introduce a carbon tax, which Mr Paul Lakuma, an EPRC research fellow says calls for a redesign of Uganda’s fiscal regime, through which government will build more capacity for transition without impacting the cost of production because of the inelastic transition from carbon carriers to green energy sources like electricity.
