Uganda's debt levels on the rise due to capital flight

by Elayne Wangalwa 0

Uganda’s decline in donor support is likely to marginally hamper the country’s economic growth prospects.

According to Moody’s latest report entitled “Uganda, Government of, Credit Analysis“, the debt level is expected to escalate largely due to a rise in infrastructure spending. As a result of this, the country’s fiscal deficit is set to increase to 5.7 per cent of the GDP in 2015 due to fiscal expansion.

The Ugandan government expects its economic growth for the 2014/2015 financial year to accelerate to 5.3 per cent from 4.5 per cent seen in a similar period in 2013/2014. The country is banking on its infrastructure investments which will hopefully catapult its nascent oil sector.

Nonetheless, the growth of the East African nation’s economy has been performing at a relatively slow pace due to several challenges.

“The long-term health of government finances will depend largely on mobilizing new sources of revenue. The level of earnings from Uganda’s minerals and other exports will depend on improvements in domestic security,” Mathias Angonin, a Moody’s analyst and author of the report said in a statement.

In 2013, official statistics from the donor community revealed that Uganda received less funding than any of its neighbouring countries. Since 2010, the country’s traditional donors have been contributing less aid citing government corruption. Moreover, since the introduction of the anti-gay law last year, donors withdrew their funding to Uganda. As it is, 20 per cent of the country’s annual budget is financed by donor funding.

Meanwhile, Fitch Ratings upgraded Uganda’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘B+’ from ‘B’. This was attributed to the country’s robust growth, ‘which has averaged 6.6 per cent for more than a decade’.

“Fitch expects growth to remain above 5 per cent in the 2015/2016 financial year, supported by significant infrastructure investment in new power generation capacity,” Fitch said.

“Effective monetary policy implementation has helped contain inflation, which fell to 4.3 per cent in 2014 from a decade peak of 18.7 per cent in 2011.”

According to reports, Uganda’s government debt has risen steadily over the years to 30.4 per cent of the GDP in fiscal year 2014 from 20.8 per cent in 2010, due to rising domestic and external borrowing.