Matia Kasaija, Finance minister. PHOTO/FILE

The minister of Finance, Matia Kasaija said on Monday that Uganda could contact its main creditors, including China and the World Bank, to discuss a potential suspension of loan repayments due to an increasing risk of default after its debt load increased by 35% in a single year.

As at December 2020, Uganda’s total public debt had surged to USD 18 billion, a 35% rise from a year earlier and total public debt has hit a record Shs 65.8 trillion, up from Shs 49 trillion in 2019 due to increased government borrowing- according to the Ministry of Finance Public Debt Portfolio analysis. This was fueled by fresh borrowing to cover revenue shortfalls as measures taken to combat the coronavirus hit the economy hard and stifled tax collections. The country’s public debt is expected to grow in the coming fiscal year, with analysts warning that it will exceed the 50% level, making it unsustainable.

In an interview on Monday, Kasaija told Reuters, “I will approach them,” referring to Uganda’s biggest creditors such as China, World Bank, IMF and others. “I will not hesitate to approach them and say, ‘you guys can we suspend servicing these loans for, say, maybe, two years?'”

Matia Kasaija retorted that debt repayments were swallowing up an increasingly disproportionate chunk of the country’s public resources. However, over the last decade borrowing has been vastly expanded, mostly from China, to fund costly infrastructure projects and is currently negotiating with China for a $2.2 billion loan to finance a much delayed standard gauge railway project.

Patrick Amuriat Oboi, the Forum for Democratic Change president was quoted by the Daily Monitor calling the debt burden “a disaster” protesting that it “has gone beyond unacceptable levels. Our economy is on its way to collapse and at the current rate, we are soon going to be declared a highly indebted poor country. We need to stop consumptive expenditure such as creating new administrative units”.

Acknowledgement of Uganda’s unhealthy loan obligations comes at the climax of the financial year 2020/21 amid final preparations for the national budget for the next financial year. On Monday 26th April, the Finance Minister told the Budget Commitee of Parliament that the total resource envelope has increased from Ushs 41.30 trillion to Ushs 44.78 trillion on account of increase in external financing, increase in domestic borrowing and a slight increase in domestic revenue.

In addressing Uganda Parliamentary Press Association members on Budget for FY 2021/22 at Hotel Africana in Kampala Moses Zziwa, the acting commissioner in charge of debt policy and issuance at the Ministry of Finance justified Uganda’s debt implications as being a result of infrastructure financing.

 “A lot of debt has gone into energy, works and water sectors. There are also flagship projects including Karuma Hydro Project, Isimba Dam, Kabaale International airport, expansion of Entebbe International airport and irrigation schemes among others,” he said- adding that there is still need to finance infrastructure such as the Standard Gauge Railway, the East African Crude Oil Pipeline and the oil refinery among others.

“There is also low revenue upturn resulting from low economic activities as a result of Covid-19 pandemic and so this will require additional borrowing because the domestic revenue is affected,” he said.

Kasaija, for one, predicted a better future for the country, claiming that, while the public debt has been rising at an unprecedented pace, much of the expenditures for which capital was borrowed will soon begin to produce domestic revenue, and the government will be able to reduce its borrowings as domestic income increased.

“Even me I don’t like borrowing but in this case, we don’t have any options, but to borrow to finance some of these big projects” Kasaija stated.