President Museveni has said Uganda needs to get out of borrowing especially internally as it is not necessary.
“Uganda is devising means on how to reduce or stop borrowing especially internally,” Museveni told representatives of Uganda Bankers’ Association at State House Entebbe on Wednesday.
In 2021, Bank of Uganda disclosed that a significant reduction in net domestic financing would free- up loanable funds in the banking sector for lending to the private sector.
This is the second time in a year that Museveni is warning against domestic borrowing.
In January, Museveni observed: “The high interest rates of the Commercial Banks is on account of two actors: the Commercial Banks wanting high profits and not caring about the wanainchi and Government (Finance) giving high priced treasury bills to the world in order to borrow from the public.”
Museveni said that the government has discussed this distortion and realized that the endless borrowing is among the causes.
“We should minimize borrowing by the Government,” he said.
Domestic financing is executed mainly through issuance of longer-term securities with fixed interest rates, while external financing is sourced from concessional financing sources, making use of the currently large undisbursed balances from both multilateral and bilateral creditors in the external debt portfolio.
During the State House meeting, the Finance Ministry Permanent Secretary, Dr Ramathan Ggoobi supported the President’s idea, saying the ministry had already employed several measures to stop internal borrowing.
Gobi said the measures included “fiscal consolidation, restoration of fiscal discipline, clearing domestic debt and disciplining accounting offers among other measures.”
The development comes against the backdrop of a public outcry over government’s plans to borrow Shs1.7 trillion as part of a wider plan to raise Shs2.5 trillion in external borrowing to plug the revenue collection deficit occasioned by a slowdown in economic growth.
The private sector has been complaining about the high interest rates of commercial banks which deny millions of people access to affordable credit.
Interest rates typically range between 22 and 25%, and depending on the duration of the loan, consumers can end up paying more than twice the value of the original amount.
The International Monetary Fund (IMF) recently said Uganda’s fiscal policy should seek to balance support for the recovery and sustainable public debt while reducing reliance on domestic financing to alleviate crowding out private sector financing.
Parliament’s Committee on the National Economy has revealed that Uganda’s public debt stock increased by 22 percent from Shs50.9 trillion in the 2019/2020 fiscal year to Shs69.5 trillion by end of the 2020/2021 fiscal year.
Shs48.1 trillion of the debt stock is classified as external debt, with domestic debt totalling Shs30.7 trillion.
Experts have warned that against the background of low tax revenues and increasing expenditure, Uganda’s public debt could reach about 53 percent of GDP by close of the financial year 2021/22 above the target of 52 percent and alongside heightened liquidity pressures as debt service takes an increasing share of revenues.
Uganda’s debt increased from Shs 29.6 trillion (34.6 percent of GDP) in 2015/16 to Shs 69.5 trillion (47 percent of GDP) in 2020/21.
The practice of implementing “supplementary budgets” has since signaled that the government can always reallocate money from other spending units or borrow to meet emerging spending needs, increasing the country’s debt burden.