Our Reporter
Uganda’s economy is in freefall—with rising debt for the first time surpassing the debt to GDP ratio at 53 percent in the next financial year and Fitch ratings recently revised the outlook on Uganda’s long-term foreign currency issuer defaulting rate (IDR) from stable to negative. The revision of the outlook to negative reflects heightened fiscal and external financing and liquidity pressures, partly related to reduced availability of concessional external financing, tighter domestic and external financing conditions, and large twin budget and current account deficits (CAD).
The total public debt today stands at Shs80.7 trillion as Shs47.7 trillion constitutes external debt, while Shs30 trillion is domestic debt as government continues to borrow from banks in the country crowding out the private sector, which is attempting to rebound from the ravages of the Covid-19 pandemic.
The debt-to-GDP ratio is a measure that compares a country’s total debt and what it produces. The ratio reliably indicates a country’s ability to pay back its debt. A high debt-to-GDP ratio may make it more difficult for a country to pay both internal and external debt and may lead creditors to seek higher interest rates to compensate for financing risk due to likely default or unnecessary debt.
Though the IMF has recommended 50 percent as the point of safety, many developed countries have gone up to 200 percent. However, according to the IMF, developing countries are more prone to economic shocks and exchange rate risk, thus limiting them to 50 percent.
These shocks are evident in declining foreign exchange reserves, a scheduled increase in debt service payments, rising government interest costs, a less favourable public debt structure in some respects and a rising net external debt-to-GDP ratio.
This comes at the time the Auditor General, John Muwanga warned ominously that, “Public debt is continuously on the rise, a fact that is attributed to persistent budget deficits [mismatch of government revenue and expenditure], rollover of liquidity papers, bond switches, private placements, new borrowings for various development projects and foreign exchange loss arising from the depreciation of the shilling against stronger currencies.”
In the month of February 2023, the Centralimplored investors holding Treasury Bonds due to mature in April to apply to convert their holdings into longer-dated tenures to come due between May 2025 and August 2042.
The Bank of Uganda (BoU) said investors holding the bonds maturing in April, which have coupon rate of 11% can now apply to convert their holdings to the various longer-dated tenures with coupon rates ranging between 14% to 18.5%.
The new tenure options that investors can switch to include a three-year, five-year, ten-year, fifteen-year and twenty-year bonds, the bank said in a statement.
The bank did not give reasons for the bond switching in which investors are free to choose whether to participate or not.
With the economy expected to bounce back in the mid-term where investments in the oil sector could pivot growth, experts are asking government to cut wasteful expenditure into non-productive sectors of the economy and enforce fiscal discipline to be able to steer the ship across the choppy waters.
But rather than fixing the economy and improving service delivery at the grassroots, there are fears that Parliament is seeking to pander towards the populist debate on the Anti-Gay Bill to deflect the spotlight away from more pressing issues such as the economy.
Uganda’s Parliament recently passed a largelyunchanged version of one of the world’s strictest anti-LGBTQ+ bills after President Yoweri Museveni demanded that certain provisions from the original legislation berevised.
Despite four amendments, the bill retains most of the harshest measures of the legislationearlier on passed in the House in March 2023. Those include the death penalty for certain same-sex acts and a 20-year sentence for “promoting” homosexuality, which activists say could criminalise any advocacy for the rights of lesbian, gay, bisexual, transgender and queer citizens.
The Bill was passed amid resistance from the deputy Attorney General, Jackson Kafuuzi, who earlier on wrote to the President ‘disassociating’ the Attorney General’s office from the Bill and advised the President not to assent to it. He has appealed to the president to reject assenting to the Bill for the second time. “The President valued my advice when he rejected to assent to the Bill and anyone who is not happy with my position should look at the articles of the Constitution that gives his powers to advise the President on legal matters,” Kafuuzi argued after he was criticised during the plenary debate by the Speaker, Anita Annet Among.
Legal scholars have warned that the introduction of the Anti-homosexuality Bill is not necessary as the Penal Code Act Is adequate. Prof. Sylvia Tamale, a distinguished legal scholar while appearing before MPs opined that, “Should the sexual abuse of children be punished? Absolutely. Should their recruitment in sexual acts be punished? Absolutely. Should rape be punished? Absolutely. Both heterosexual and homosexual abuse of children and sexual assaults must be punished in the harshest possible way. In fact, the Penal Code (as Amended) deals with these issues very effectively. So does the Sexual Offences Bill, which this Parliament itself recently passed. All Ugandans agree that paedophiles have no place in a civilised society; but let’s not make a mistake; paedophilia and homosexuality is not the same thing. And it’s well established that the majority of paedophiles are heterosexual.”
The President is yet to assent to the Bill, which the US, European Union have strongly condemned. The US government said it was assessing the implications of the looming law for activities in Uganda under its flagship HIV/Aids programme. The UN human rights head, Volker Türk, called the proposed law “shocking and discriminatory”.
Politicians may be keen to pass a Bill that may appeal to the psyche of their naïve constituents but the ramifications of such a law once assented to could be devastating to a a weak economy that largely serves a few elitepoliticians leaving a number of ordinary Ugandans to fall deeper into the poverty trap.
