Uganda’s public debt has surged over the past five years, rising from UGX 42.20 trillion in June 2019 to UGX 86.75 trillion in June 2023. By December 2023, the debt had surged to UGX 93.38 trillion, reflecting a 13.6% growth within a year. This increase is primarily attributed to the acquisition of commercial loans for budget support and the costs associated with heightened domestic borrowing, according to the Ministry of Finance’s latest 10th edition of the Medium-Term Debt Management Strategy (MTDS) for the fiscal years 2024/25 to 2027/28.
This annual report provides a comprehensive framework for public debt management, focusing on cost-effective borrowing and risk mitigation in light of the current domestic and global financial conditions.
The MTDS report acknowledges the challenges faced during the implementation of the FY 2022/23 strategy, notably the global escalation of interest rates due to the monetary policy tightening by major central banks, including the US Federal Reserve and the European Central Bank. The report notes that domestic interest rates rose more sharply than external rates, leading the government to substitute USD 500 million of planned domestic borrowing with external financing to avoid high domestic interest costs. Despite these challenges, the MTDS achieved 98.3 percent of its planned borrowing, although at a higher-than-projected cost, with total interest payments reaching 3.42 percent of GDP against a target of 2.93 percent.
In the first half of the fiscal year 2023/24, the MTDS performance was impacted by supplementary expenditure requirements, increasing the fiscal deficit and necessitating additional borrowing. Major breaches in domestic debt operational targets were observed, with interest payments as a percentage of GDP reaching 2.88 percent by December 2023, surpassing the MTDS target of ≤2.43 percent.
Looking ahead to FY 2024/25, the report says the government aims to balance borrowing costs and risks by optimizing the mix of domestic and external borrowing. The strategy plans for 40 percent of total borrowing to come from external sources and 60 percent from domestic sources, with a gradual reduction in Net Domestic Financing (NDF). This approach is designed to align with the Public Investment Financing Strategy (PIFS) and reduce reliance on commercial borrowing.
“The Government will effectively manage borrowing costs and risks by determining the appropriate balance between domestic and external borrowing. Additionally, it will explore alternative financing options with competitive rates to reduce the need for Net Domestic Financing in meeting its budgetary requirements,” the report reads in part.
The Medium-Term Debt Management Strategy (MTDS) for the fiscal years 2024/25 to 2027/28 provides a comprehensive framework for public debt management, focusing on cost-effective borrowing and risk mitigation in light of the current domestic and global financial conditions. This 10th edition of the MTDS emphasizes three specific objectives: managing external debt interest rate risks, reducing domestic debt refinancing risks, and minimizing reliance on commercial borrowing through innovative financing options.
“The Medium-Term Debt Management Strategy provides a framework within which the Government can make informed choices on how its financing requirement should be met, while considering constraints and potential risks pertaining to different debt instruments,” the report states. It highlights the systematic approach to decision-making that has bolstered the debt management function, enhanced staff analytical capacity, and reduced operational risks.
During the FY 2024/25, the Government of Uganda will effectively manage borrowing costs and risks by determining the appropriate balance between domestic and external borrowing. In addition, it will explore alternative financing options with competitive rates to reduce the need for Net Domestic Financing (NDF) in meeting its budgetary requirements.
In conclusion, Uganda’s MTDS for 2024/25-2027/28 aims to balance the costs and risks of borrowing by leveraging both domestic and external sources. By adopting a strategic approach to debt management, the government hopes to secure the necessary financing for its budgetary needs while minimizing the financial burden on the treasury.
