How to address Uganda’s worsening debt crisis

Uganda is currently facing a looming debt crisis as its public debt is projected to reach 47.5% of the Gross Domestic Product (GDP) in the current financial year. This increase in borrowing and expenditure is primarily driven by the country's response to the COVID-19 pandemic. Julius Mukunda, the Executive Director of the Civil Society Budget Advocacy Group, sheds light on the critical challenges facing Uganda in a recent interview on CNBC Africa. Alia Fumon, the interviewer, delves into the key issues with Mukunda, discussing the sustainability of the country's debt levels, alternative financing methods, accountability in project implementation, and strategies to boost domestic tax collection. As Uganda grapples with the escalating debt burden, stakeholders are exploring ways to address the crisis and ensure economic stability in the long run. Mukunda highlights two primary challenges contributing to Uganda's debt crisis - a lack of capacity to manage incoming funds effectively and the substantial amount allocated to service the existing debt. Despite the debt-to-GDP ratio remaining below the 50% threshold, Mukunda emphasizes that the nation's financial woes are rooted in these fundamental issues. He underscores the importance of prudently managing both revenue inflows and debt servicing expenditures. The impact of the COVID-19 pandemic has exacerbated Uganda's debt situation. Mukunda acknowledges that debt repayment has been deferred to future years, raising concerns about the sustainability of this approach. He expresses apprehension about the escalating debt refinancing costs and warns that the country's debt burden is reaching unsustainable levels. The diversion of funds from development projects to service debt obligations further complicates Uganda's ability to manage its financial obligations effectively. In response to these challenges, Mukunda proposes several strategies to mitigate Uganda's impending debt crisis. He advocates for enhanced revenue collection through efficient tax administration and the elimination of unproductive projects. Mukunda stresses the importance of aligning project implementation with national priorities and fostering transparency and accountability in the allocation of funds. By prioritizing projects that yield tangible benefits and cutting back on unnecessary expenditures, Uganda can create fiscal space to address its debt burden more effectively. Furthermore, Mukunda emphasizes the need for competency and governance reforms within the public sector. He calls for the removal of incompetent officials responsible for project management and advocates for a more strategic approach to resource allocation. By streamlining project implementation and focusing on essential infrastructure projects, Uganda can enhance its capacity to generate returns on investments and boost economic growth. Addressing the issue of accountability, Mukunda underscores the importance of citizen engagement in project selection and monitoring. He advocates for increased public participation in decision-making processes to ensure that projects align with the needs and priorities of the Ugandan population. By fostering a culture of transparency and consultation, the government can enhance accountability and reduce the prevalence of ineffective and unsustainable projects. In conclusion, Mukunda asserts that Uganda must prioritize domestic revenue generation as a key strategy to manage its escalating debt levels. By maximizing tax collection efficiency, eliminating loopholes, and ensuring equitable tax distribution, the country can enhance its financial sustainability and reduce reliance on external borrowing. As Uganda navigates its debt crisis, the adoption of prudent financial management practices and governance reforms will be crucial in safeguarding the nation's economic stability and fostering long-term prosperity.