The Ugandan government has failed to adhere to its own set debt management targets, leading to a downgrade in the country’s overall risk of debt distress and a negative outlook on its credit rating. The breaches were highlighted in the Public Debt and Other Financial Liabilities Management Framework (PDMF) for the period 2023/28. This failure to implement certain provisions outlined in previous frameworks has resulted in a shift from low to moderate risk of debt distress.
According to the Ministry of Finance, the breaches included exceeding borrowing thresholds, failing to control interest rates, and lacking effective policy actions for debt management. Consequently, development partners are closely monitoring Uganda’s borrowing capacity to ensure transparency, sustainability, and effective management of debt.
Under the previous framework (2018/23), the government aimed to limit the stock of domestic debt to 15 percent of GDP. However, this ratio surged to 18.7 percent, reaching Shs44.6 trillion by the end of the 2022/23 financial year, significantly higher than the targeted Shs36.6 trillion. Other breaches included exceeding domestic debt interest payment targets and total expenditure on domestic debt.
The Ministry of Finance attributed some elements of the breaches, such as interest rates, to market-driven factors influenced by global economic conditions. Despite these challenges, the new PDMF for 2023/28 emphasizes responsible borrowing, debt sustainability, and transparency in debt management.
The rapid increase in public debt, exacerbated by global factors such as the COVID-19 pandemic and disruptions in the global supply chain, has raised concerns about Uganda’s fiscal health. Public debt has risen from 34.6 percent of GDP in 2019 to over 50 percent and is projected to exceed 53 percent in the current financial year, surpassing the IMF recommended threshold for low-income countries.
The impact of global factors, including the rise in interest rates by major economies like the US, has contributed to higher debt servicing costs for Uganda. Market-driven increases in interest rates have led to a dramatic rise in debt servicing expenses, further straining the country’s financial resources.
Additionally, Uganda faced a revenue collection shortfall of Shs160.31 billion in January 2024, signaling a slow economic environment. Lower-than-expected tax and non-tax revenues contributed to the shortfall, highlighting challenges in revenue mobilization and tax administration.
Despite these challenges, the Ministry of Finance remains committed to addressing debt management issues and promoting fiscal sustainability. The government aims to adopt a mix of concessional, non-concessional, and alternative financing options while diversifying sources of financing and enhancing transparency in debt management practices.
