Uganda’s national debt has surged nearly threefold in the past three years, now surpassing 50% of the country’s GDP, posing a growing risk of default. This alarming increase is primarily due to the fact that about two-thirds of the country’s debt is sourced externally, according to a report released by the Bank of Uganda on Thursday.
The central bank’s “State of the Economy” report warns that the escalating cost of servicing Uganda’s $15.1 billion debt could stifle economic growth, with a substantial portion of government expenditure now diverted towards debt repayment, leaving less for essential public investments.
Over the past decade, under the leadership of President Yoweri Museveni, Uganda’s government has ramped up borrowing, especially from China, to finance large-scale infrastructure projects, including roads, power plants, fiber optic networks, and airport expansions. Just three years ago, the country’s debt stood at a modest $6 billion, highlighting the rapid growth of its financial obligations.
The central bank raised concerns about the risks of failing to meet external debt obligations due to exchange rate fluctuations and slow export growth, which could worsen the debt burden.
In the 2018/19 fiscal year, debt interest payments were projected to consume 17.3% of the national budget, the largest single allocation. Uganda is far from alone in this predicament; many African nations have similarly taken on significant debt during periods of cheap credit, but are now facing mounting repayments as interest rates rise in developed economies.
Countries like Ghana, Mozambique, Angola, Chad, and Gabon are grappling with similar challenges, with high debt repayment costs, according to the Jubilee Debt Campaign, a UK-based organization that advocates for responsible lending to developing nations.
Uganda’s economy has been faltering in recent years, hindered by poor agricultural performance, weak exports, and endemic corruption. Economic growth slowed to 3.9% last year, a significant drop from the 4.8% growth in the previous year.
The rapid increase in debt is a point of contention for opposition politicians, who criticize Museveni’s economic management and accuse him of squandering future oil revenue by overburdening the country with Chinese loans. Uganda is set to begin crude oil production from its western oil fields near the border with the Democratic Republic of Congo in 2020, which many hope will boost the economy.
Nobert Mao, leader of the opposition Democratic Party, stated, “Museveni is mortgaging the future of Uganda. Lenders know the country has vast natural resources, including oil and minerals. We view his actions as reckless.”
Despite the criticism, government officials have defended the borrowing, arguing that the investments in infrastructure are essential for improving the country’s long-term economic efficiency. However, economists like Fred Muhumuza from Makerere University caution that the benefits of such investments will likely be outweighed by the long-term debt burden, which may strain public services.
“We’re servicing the debt, but it’s coming at the cost of vital public services that the government should be providing,” Muhumuza warned.
In response to a shortfall in state revenue, the government recently announced plans to significantly increase domestic borrowing from its original budget forecasts, with funds being used to cover civil servant salaries.
