Uganda’s domestic borrowing is expected to rise in the next financial year as government increases spending on road infrastructure in the Albertine Graben

https://i1.wp.com/www.monitor.co.ug/image/view/-/3788522/highRes/1546119/-/maxw/600/-/ntm069/-/market02+pix.jpgThe Hoima-Kaiso-Tonya road is among the many that government is constructing in the Albertine Graben. FILE

Kampala – Uganda’s domestic borrowing is expected to rise in the next financial year as government increases spending on road infrastructure in the Albertine Graben.

In the 2017/18 National Budget Framework Paper, government is expected to increase domestic borrowing to Shs1.47 trillion from Shs677b in 2016/17.

The government had committed to slow-down on domestic borrowing in order to avoid crowding out the private sector.
However, in the next financial year, the same government has opted to increase borrowing.

“There are so many demands on the treasury at the moment yet our tax revenue cannot meet all the demands we have. Yes, we had planned to scale down domestic borrowing but because we have an oil resource to take out by 2020, there will be infrastructure needs that need to be put in place,” Mr Matia Kasaija, the Finance minister told reporters on Tuesday.

The government has set a target of 2020 to have started oil production but requires the necessary infrastructure to be in place by then.

According to Mr Kasaija, about seven roads are required to be constructed in order to cater for transportation of equipment to be used in the construction of the pipelines and oil refinery, among others.

He insists that going to the domestic market to borrow funds is a sacrifice they had to make. “The returns from our oil are going to be in excess of $1.5b per year. We need the infrastructure to ensure this happens and once we start to export, the roads will already be in place. Shouldn’t we make a bit of sacrifice to ensure that this happens?” he wondered.

Default risk
On top of crowding out the private sector, government has been incurring higher interest payments on domestic debt because some of was short term in nature.

In fact, the government for the third year in a row will be forced to roll-over domestic debt. In 2016/17, the expectation is to roll-over Shs4.9 trillion.

This amount is expected to rise to Shs6.2 trillion in 2017/18. The government does admit that there could be a risk of it failing to refinance domestic debt obligations.

“Out of the total domestic debt, 44.6 per cent will be due for repayment in the next 12 months, which above the recommended benchmark of 40 per cent. This, coupled with the current practice of rolling over maturing debt, implies that government faces a heightened risk of being unable to refinance its maturing domestic debt,” the 2017/18 National Budget Framework Paper, reads in part.
This is notable in the interest payments the government has to pay annually.

Interest payment
In 2017/18, the Uganda government is expected to increase interest payments on debt to Shs2.3 trillion up from Shs1.62 trillion in the current financial year. That amount is larger than the entire budget for the education sector.

“The high level of government expenditure on interest payments, particularly domestic interest payments next year, is a consequence of the high borrowing requirements, necessitated by the need to scale up infrastructure spending,” the Paper further reads.

On Tuesday, appearing at a Civil Society Budget Advocacy Group dialogue on the National Budget Framework Paper, Mr Lawrence Bategeka, an economist, warned the government about continued domestic borrowing because of its implications on private sector borrowing and debt repayments

Source: Daily Monitor

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