KAMPALA – Uganda’s fiscal landscape is set for significant adjustments as the government lays out its borrowing plan for the fiscal year 2024–25. The recently released Medium-Term Debt Management Strategy (MTDS) report by the Ministry of Finance underscores the nation’s strategies to meet its financing needs prudently and cost-effectively.
Rising Debt and the Need for a Plan
By December 2023, Uganda’s public debt had escalated to USD 24.69 billion (UGX 93.38 trillion), reflecting a sharp increase from USD 21.74 billion (UGX 80.77 trillion) at the end of December 2022. This 13.6 percent surge was primarily fueled by substantial loan disbursements and increased domestic borrowing to meet the country’s growing budgetary demands.
“The formulation of the Annual Borrowing Plan ensures that the government meets its financing needs at the lowest possible cost with a prudent degree of risk,” noted the Ministry of Finance in its report. This strategy also aims to enhance predictability in government borrowing and promote the development of the domestic market.
Breakdown of the Borrowing Plan
For FY 2024–25, Uganda’s gross financing requirement is estimated at UGX 20.93 trillion. This amount is intended to be secured through a mix of domestic and external funding sources. Of this, 40% (UGX 8.37 trillion) is expected to come from external markets, while 60% (UGX 12.56 trillion) will be sourced domestically.
The external borrowing will be split into commercial and non-concessional financing, making up 18.6% (UGX 3.90 trillion), and concessional and semi-concessional financing, constituting 21.4% (UGX 4.48 trillion). Domestically, treasury bills are expected to make up 22.8% (UGX 4.77 trillion), while treasury bonds will comprise 37.2% (UGX 7.79 trillion) of the total borrowing.
Innovative Financing Options
The MTDS report also highlights the exploration of innovative financing options such as domestic infrastructure bonds, Sukuk, Panda, and Samurai bonds over the medium term. These alternatives are expected to diversify the funding sources and potentially lower the cost of borrowing.
Risks to the Strategy
However, the implementation of this strategy is not without risks. Increased expenditure requirements, project delays, revenue shortfalls, and market volatility pose significant challenges. “The potential risks to achieving this year’s debt management objectives include increased expenditure beyond projections, poor project performance, and persistent revenue shortfalls,” the report cautions.
Policy Recommendations
To mitigate these risks and ensure the successful implementation of the borrowing strategy, the MTDS report outlines several policy recommendations:
- Align Borrowing with Macroeconomic Assumptions: Ensuring that borrowing is undertaken within the assumptions of the macroeconomic framework is crucial.
- Pursue Public Investment Financing Strategy: Aligning government programs and projects with suitable sources of financing and exploring alternative affordable financing options is essential.
- Implement Fiscal Consolidation Path: Adhering to the planned fiscal consolidation path as indicated in the macroeconomic assumptions will help maintain fiscal discipline and sustainability.
Expert Opinions
Experts emphasize the importance of a balanced approach to borrowing. “While the need for financing is undeniable, it is imperative that the government exercises caution and ensures that the borrowed funds are used efficiently and effectively,” said a senior economist at the Ministry of Finance.
The strategy’s success will largely depend on the government’s ability to manage borrowing costs and mitigate interest rate risks, which have been persistent challenges over the past five fiscal years. The MTDS aims to address these issues by ensuring that borrowing is aligned with the underlying macroeconomic assumptions and by exploring innovative financing options.
In conclusion, Uganda’s borrowing plan for FY 2024/25 represents a comprehensive effort to balance the country’s financing needs with prudent debt management. The government’s focus on cost-effective borrowing and risk mitigation is critical to maintaining economic stability and promoting sustainable growth. As Uganda navigates these financial challenges, the implementation of the MTDS will be pivotal in achieving the desired fiscal outcomes.
