Uganda has joined the international chorus urging for the reform of international financial architecture. The Deputy Secretary to the Treasury, Patrick Ocailap says reforming the international financial architecture is imperative to give developing countries like Uganda a fair chance to turn its immense potential into opportunities to overcome future challenges.
He said the global crises such as the COVID-19 pandemic and others have rendered debt servicing in Africa to all-time high rates due to external shocks.
“Leaving very little fiscal space or nothing for investment for sustainable growth,” he said.
Uganda is suggesting the global finance climate architecture should be simplified by making it better for a coordinated and strengthened capacity to expeditiously access climate funds when they face climate shocks.
“For example, Eastern Uganda around Mount Elgon has been affected by landslides triggered by heavy rains, faced with such a situation, it would be very imperative for the flexibility embedded in the financial architectures to allow the immediate channeling of resources in those areas using the instruments that we have in the bank,” suggested Ocailap
Ocailap says loans to countries such as Uganda should contain contingency clauses that he says should be able to free up resources from the loan repayments. He made the call at the launch of Africa Development Bank’s Uganda country focus report 2024.
The report titled “Driving Uganda’s Transformation The Reform of the Global Financial Architecture” by the Africa Development Bank Group, says public debt payments have risen from 3.4% in 2015-2019 to 12.7% in 2020-2022.
The group says funds in Africa are channeled to servicing debts instead of financing development. Experts at the African Development Bank note that challenges in the global financial architecture have limited the pace and quality of growth in most countries including Uganda.
It is estimated that about 74 billion dollars will be paid by countries in Africa in the year 2024 compared to 17 billion dollars paid in 2010. 40 of the 74 billion dollars will be paid to private creditors.
Uganda’s Fiscal Status
According to the report launched on Wednesday, the government continues on a path of fiscal consolidation, squeezing development spending, and slowing growth in the process.
It notes that the fiscal deficit was reduced to 5.1 percent of GDP in 2022/2023, from 7.4 percent of GDP in 2021/2022.
A fiscal deficit is a shortcoming in the income of a government as compared to its spending. It is the difference between the total income of the government and the total expenditure incurred by it. This difference is filled by government borrowings.
In response to the fiscal deficit, the government of Uganda has resorted to measures aimed at reducing demand through low spending or fiscal tightening.
The report says fiscal tightening has been on account of lower government consumption, rather than raising domestic revenue collections, which were 13.8 percent of GDP in 2022/2023.
Uganda’s real GDP growth slowed in 2023 to 4.6 percent, held back by contractions in food crop production and public administration, as well as flat manufacturing output. It predicts that the economy is expected to expand by 6.0 percent in 2024 and 7.0 percent in 2025, as oil companies continue to ramp up investments.
Overall revenues are estimated to fall 2.3- 2.7 percentage points (pps) below the plan, with expenditure falling 2 pps short due to subdued VAT and tax collections.
In the medium term, the fiscal deficit estimates are 4.2 percent of GDP in 2023/2024, declining to 3.6 percent of GDP in 2024/2025.
Ocailap said Uganda’s economy has remained resilient and has fully recovered from internal and external shocks with a current GDP of 6% for the 2023/2024 financial year.
“This is an impressive growth compared to Africa’s average of 3.4%. And have by focused strategic interventions and investments in the infrastructure, agriculture, services as well as the environmental aspects” he said.
Debt Financing Status
According to the report, debt servicing remains high, with interest payments of 3.2 percent of GDP in 2023. It notes that public borrowing mounted during COVID-19, weakening public debt indicators. Public debt accumulation has reportedly since slowed and combined with fiscal consolidation, helped reduce debt stocks in 2023 to 47.6 percent of GDP.
The report notes that “The main concern is the shift in the external debt mix which has increased commercial borrowing from 0.7 percent in 2018 to 21.2 percent in 2023, combined with the higher international lending rates,” It reports that Uganda’s current sovereign debt rating by the IMF is a moderate risk of debt distress.
Calls for reforms in the global financial architecture have become very common in the economic and political discourse including in Uganda.
At the African level, there have been demands to increase the voice and representation of sub-Saharan countries.
Specific and urgent calls for reform include more representative global governance, increasing the World Bank’s operational and financial capacity, prioritizing programs that would integrate Africa into the global economy, connecting the continent’s critical infrastructure and trade routes, and increasing participation and collaboration with bilateral public and private lenders and investors, such as China, sovereign wealth funds, and multinationals.
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