Uganda said on Tuesday its ballooning public debt was sustainable and it would borrow with care in the future, dismissing concerns from the central bank and the government’s auditor that growing indebtedness posed risks to the economy.
The East African nation’s appetite for credit has accelerated over the last decade, fuelled by leader Yoweri Museveni’s plans to expand transport and energy infrastructure.
But critics say the escalating borrowing could spark a crisis along the lines of those the country experienced in the 1990s and early 2000s before the World Bank forgave loans.
“The risk for government defaulting on debt repayment is non-existent,” Finance Minister Matia Kasaija told a news conference in the capital Kampala. However, future borrowing would be done “cautiously and selectively” to avoid potential risks.
As of June, Uganda’s total public debt stood at 41.5 percent of GDP, Kasaija said. The central Bank of Uganda (BoU), however, said last year the debt stock including credit agreed but not yet disbursed topped 50 percent of GDP.
A senior BoU official has said that unless economic growth reached 7 percent, debt servicing would become a problem. The bank expects the economy is to grow 6 pct in the year to June 2019.
Auditor general, John Muwanga, said in a report last month that Uganda’s public debt sustainability “fares poorly” because its tax-to-GDP ratio was low.
Much of the credit acquired in recent years was sourced from China, stoking criticism from the opposition which accuses Beijing of front-loading Uganda with unsustainable debt on the expectation of tapping oil revenues.
Uganda expects to start pumping crude by 2021 from fields in the western part of the country, near the border with Democratic Republic of Congo. China’s China National Offshore Oil Corporation CNOOC co-owns the fields alongside France’s Total and UK’s Tullow Oil.
China is also expected to offer landlocked Uganda another credit line worth about $3.5 billion to fund construction of a railway from Kampala to the border with Kenya, its neighbour and gateway to the sea.