Uganda: The Big Deal About The Big Debt

Last Updated: 3 October 2019
Article by Steven K. Mugisha

On the 14th of June 2018, Uganda's finance minister read the budget for the financial year 2018/19 and so did his counterparts of the other East African states. Being part of several post-budget engagements I listened in while the experts discussed away. I pride myself of being a disciplined tax accountant who does not cross lanes. I have always left economics for the economists.

However in the eyes of the majority, an accountant should also have answers to questions directed to economists. I got several calls seeking my comments on the 2018/19 budget especially the debt, so I have seized the opportunity to provide an economist's opinion. To simplify our discussion let us define some concepts.

GDP (Gross Domestic Product)

Gross domestic product is the total value of everything produced within the boundaries of a country in a financial year. The nationality of those in production does not matter as long as the production is within the country. Economists say that GDP is the best way to measure the size of a country's economy.

Public Debt (National Debt)

If government spending in a financial year is greater than what it collects in revenue, the difference is normally financed by debt which in some cases accumulates over the years. The amount outstanding at any one moment is what is referred to as public debt

According to the finance minister our public debt is seated in the neighborhood of UGX 38 Trillion and the Gross Domestic Product (GDP) at UGX 102 Trillion or there about. In the minister's view debt in absolute terms even if bigger than our annual budget (about UGX 33 Trillion), does not call for worry.

In his remarks after the budget reading, the president resonated with his delegate but in a different fashion. According to him the debt as a percentage of GDP (about 38%) is a ratio we should only worry about if it goes to the 50% zones.

Compared with the other East African states whose debt to GDP ratios are in the 40-60 percent range, and also since I have learned that for some of the world's biggest economies this number was even higher than 90, I will agree with the president and the finance minister that indeed there is no cause for panic. However there is concern about Uganda's acceptance of loans with high interest rates with no or very short grace periods (non-concessional loans).

My feelers signal a climbing trend of taking on more expensive debt than previously. The non-concessional debt as a percentage of total public debt is growing year on year while the part of the pie representing concessional borrowings is on the decline. I would definitely have more sleepless nights if this less cautionary stand continues.

Interest payments in the new financial year is estimated at about a quarter of a trillion if not over. This can finance our agriculture budget in about 3 folds or the entire current education budget. I think government should begin to regard concessional lenders' conditions so as to be able to access more concessional borrowings for our long term infrastructure projects as this would give us access to less costly debt in terms of interest.

Another interesting number is the Revenue to GDP ratio. In simple terms it is revenue collected as a percentage of GDP. Uganda's has been below 15% for the past years; for every UGX 100 of our annual national income, the URA collect below UGX15 in revenue. Kenya and Tanzania should be the envy of Uganda's revenue collectors because the two neighbours very nearly touch 20%.

If this number is improved through revenue collections, we shall definitely have less deficit to call for debt and of course less interest payments. The 5% difference between our neighbours' ratio and ours, in my opinion represents revenue potential not realized due to smuggling, under-declaration and having many potential tax payers outside the tax web. We are yet to see the impact of the new revenue measures such as container scanning at the frontiers, the electronic tax stamps and other enforcement measures.

There are hundreds of cases where a professional drops a UGX 10 million job in the private corporations for a UGX 2.0 million position within the government departments. So the unrestricted corruption, the huge waste within public spending, embezzlement and abuse of resources also magnify the problem.

Even if all is not bad, the model to combatting our debt concerns has 3 silver bullets; reduce non-concessional loans, improve revenue collection and eradicate resource abuse.

SK Mugisha; a Fellow of the ACCA is the Director of Tax Services at Ligomarc

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions