Bank of Uganda Governor Emmanuel Tumusiime Mutebile has warned that Uganda’s rising debt coupled with low tax revenues amid Covid-19 will leave devastating effects on the economy.
Appearing before the Parliamentary Committee on National Economy on Thursday, Mr Mutebile said the payment of high interest charges on loans will starve the country of finances needed to develop social services.
“Although the multilateral creditors have put in place facilities to dampen the adverse effects of the Covid-19 pandemic, uncertainties relating to the ensuing expenditure pressures, subdued economic activity and declining tax revenues, and a possible further decline in grants could lead to further borrowing on non-concessional terms,” he told the committee chaired by Hoima Municipality MP Lawrence Bategeka.
The Governor said despite Uganda being in a significantly strong debt position, the current trend of borrowing is worrying and there is a growing concern of risk to debt distress in 2020/21 financial year.
Mr Mutebile said in March and April, Uganda’s exports declined by 29.6 percent, imports by 27.4 percent, workers’ remittances by 41.5 percent and tourism receipts by 85.4 percent.
“Real Estates prices and invariable collateral valuations are likely to be depressed in the Covid-19 aftermath, which may amplify banking institutions’ expected credit losses, and worsen their solvency”.
The MPs also raised concern that the country’s debt of about Shs54 trillion, which is 44 percent of the debt to GDP ratio, is dangerous for the economy.
This comes after Government on Tuesday submitted another supplementary budget request of more Shs1.09 trillion to fight Covid-19 despite only two weeks remaining to the end of the financial year.
State Minister for Planning David Bahati, who tabled the budget before Parliament on Tuesday, said that the money will borrowed from the World Bank, and the IMF.
This is the third supplementary budget to be brought to parliament in the 2019/20 financial year budget of 42 Trillion.
The supplementary schedule number 1 and 2 that was approved on April 8 was amounting to Shs923b.
This included Shs284b for the fight against covid-19 and Shs400b for defense classified equipment among other expenditures.