THE REPUBLIC OF UGANDA
DEBT SUSTAINABILITY ANALYSIS REPORT 2015/16
Uganda remains at a low risk of debt distress, with external public and publicly guaranteed (PPG) debt found to be sustainable in the medium and long term. Despite this, there has been an increase in vulnerabilities compared to previous Debt Sustainability Analysis (DSA) assessments. The major risks to the outlook relate to the poor performance of exports as well as an increased rate of debt accumulation, particularly on non-concessional terms. The stock of total public debt grew from US$ 7.2 billion at the end of June 2015 to US$ 8.4 billion in June 2016. This represents an increase from 30.6% of GDP to 33.8% over the two periods. The increase was largely on account of external debt, which grew from US$ 4.4 billion to US$ 5.2 billion over the period. Domestic debt increased from US$ 2.8 billion to US$ 3.2 billion. The present value of external public and publicly guaranteed (PPG) debt to GDP is projected to increase from 11.7% in FY2015/16 to 15.1% in FY2016/17, and to peak at 22.9% in FY2019/20. Nominal total public debt is projected to increase from 33.8% of GDP in FY2015/16 to 37% in FY2016/17, before peaking at 42.6% in FY2019/20. The Present Value of total public debt will follow a similar trend, increasing from 24.6% in FY2015/16 to peak at 33.8% in FY2019/20. Stress tests on total public debt indicate significant risks related to non-debt variables, particularly interest rates and the exchange rate. This underscores the need to borrow on concessional terms as much as possible. A key concern is the slow growth in exports, which represent an important source of foreign exchange with which Government meets its external debt service obligations. The stress test on the PV of External Debt to Exports breaches its threshold in FY2019/20. Despite this, Uganda remains at low risk of debt distress because the breach is small in magnitude and of short duration. Government will continue efforts towards improving project implementation across the entire project cycle, including the production of high quality feasibility studies and proper, timely management of the land acquisition process. Untimely project implementation tends to lead to cost overruns and delays as well as reducing the benefits of infrastructure projects, which undermines economic growth and affects the country’s ability to repay its debts.
1 Debt Sustainability Analysis Report 2015/16
1.0 Introduction Uganda aspires to transform from a peasant to a modern and prosperous country within 30 years, as set out in the Vision 2040. The NDP II, the second in a series of development plans through which the Vision will be achieved, identifies infrastructure development as a critical way of unlocking the binding constraints to Uganda’s development. The Plan lists a number of priority infrastructure projects that will accelerate the country’s transformation. The financing for these projects is expected to be mainly external borrowing. As such, it is critical that debt sustainability is a key consideration in the decision making process with respect to these and other public projects. To this end, Government prepares an annual Debt Sustainability Analysis (DSA) Report. The report uses a consistent macroeconomic framework to assess Uganda’s current and future debt levels, as well as the country’s ability to meet its debt obligations and any risks and vulnerabilities that might arise therefrom. The DSA informs decision making at different levels of Government, and is a key input into Government’s Medium Term Debt Strategy, the National Budget Strategy, the Medium Term Expenditure Framework, and the Fiscal Risks Statement. The report captures external debt stock as debt outstanding and disbursed (DOD), rather than debt committed. Debt committed includes both disbursed and undisbursed debt, and is reported in other publications of the Ministry, such as the annual Report on Loans, Grants and Guarantees. The rest of this report is structured as follows: Section 2 sets the context for the report, highlighting the current levels of debt and discussing the assumptions underpinning the DSA. Section 3 presents and discusses the results of the analysis while Section 4 concludes.
|Author:||Ministry of Finance, Planning and Economic Development|
|Date:||April 19, 2017|