Debt crisis: Govt to reduce domestic borrowing

The government has released the Medium Term Debt Management Strategy (MTDS) for financial years 2023/2024 and 2026/2027.
The strategy was released last Thursday.

In the strategy, the Ministry of Finance, Planning and Economic Development says in the medium-term during FY2023/2024, the government intends to further reduce domestic borrowing from 2.1 percent in FY2022/2023 to 0.9 percent of Gross Domestic Product (GDP) in FY2023/2024 and increase external borrowing for priority projects.
The ministry said government borrowing from the domestic market for fiscal purposes in FY2023/2024 is projected at Shs1.585 trillion compared to Shs5 trillion in FY2022/2023, which is equivalent to one percent of GDP. 

“This is in line with the government’s policy decision to maintain domestic borrowing to no more than one percent of GDP in order to avoid crowding out of the private sector,” the ministry said in the strategy.
Servicing  public debt continues to put more pressure on the budget, whereby total interest payments as a percentage of GDP increased from 2.3 percent in the FY2018/2019 to 2.8 percent in the FY2020/2021. It reached 3.1 percent in FY2021/2022, which has an adverse effect on the resources available for the development programmes.

Also, the government has to pay for the rising interest costs.
Interest payments are projected to amount to Shs6.135 trillion, equivalent to 2.9 percent of GDP. Of this, Shs5.227 trillion is projected for domestic interest payments, while the remaining amount equivalent to Shs907.9b will be foreign interest payments and commitment fees. 

The government says over the medium term, interest payments are projected to average 2.3 percent of GDP.
Meanwhile, a total of Shs8.343 trillion is projected as external financing in FY2023/2024. Of this, Shs2.452 trillion will be obtained as budget financing loans and Shs5.891 trillion from project loans. The majority of project loans (Shs3.078 trillion) will be attained under concessional terms.

Every year, the minister of Finance is required to table a plan on public debt and any other financial liabilities to Parliament alongside the National Budget.
Finance minister Matia Kasaija last Thursday said the preparation of the MTDS for FY2023/2024 captured views from the Parliamentary Budget Office (PBO), National Planning Authority (NPA), Bank of Uganda (BoU) and officials from the Finance ministry.

“The FY 2023/2024 MTDS will ensure a well-balanced composition of the government’s debt portfolio in terms of costs and risks while financing the government’s gross borrowing requirements. Government will continue to ensure effective debt management and responsible borrowing to achieve her sustainable development agenda,” he said.
The MTDS is a plan that guides the government’s borrowing to achieve a desired composition of the government debt portfolio.