The World Bank has advised the government to be more prudent in borrowing to avoid drowning the country into debt.
Speaking at Uganda’s National Budget Conference in Kampala on Thursday, the World Bank country manager, Ms Mukami Kariuki, warned that government must limit domestic borrowing, increase domestic revenue collection and go for concessional external debt.
She said that this will enable government respond better to the impacts of the Covid-19 pandemic.
World Bank also asked government to prioritise spending on human capital development like health and education, social protection, road maintenance and agriculture.
Kariuki, for example, said the additional Shs200 billion for road maintenance in this financial year is too little. The government plans to continue borrowing largely on favourable terms and restrict borrowing for projects or expenditures that are likely to enhance productivity and are critical for economic recovery.
The sharp increase in the debt stock has been defended by government, as necessitated by Covid-19. Uganda’s debt to GDP ratio has since increased from 41% in financial year 2019/20 to 49.9% as of June 2021.
This ratio, according to the Finance ministry, is projected to increase to over 52.7% by the end of this financial year and peak at 53.1% at the end of the next financial year.
Finance minister Matia Kasaija said that the government will focus on concessional loans which can easily be restructured, while domestic borrowing will target long-dated financial instruments, while some projects and expenditures may be postponed where necessary.
Kasaija assured that this time, the revenue increments in the next budget will not be financed by increase in taxes, but more on compliance on paying the existing taxes.
The Civil Society Budget Advocacy Group, CSBAG, also expressed concern at the continued indiscipline in the budgeting and plan implementation in government, which leads to pressure to borrow.
CSBAG Chief Executive Julius Mukunda cited the accumulation of domestic arrears like compensations and salaries calling for penalties against officials who lead to this accumulation.
He says the ministry should stick by its word of following the Public Finance Management Act which clearly spells out circumstances under which supplementary budgets should be done.