Uganda’s Debt Rises by Shs 3.8 Trillion as Shilling Depreciates

Uganda’s external debt has risen by a staggering 3.5 trillion after the shilling depreciated against the dollar on Wednesday.

In June 2023, Uganda’s external public debt was USD 14.23 billion.

“With USD vs. UGX moving from Shs 3,700 then to Shs 3,970 today (Wednesday), it means the shilling equivalent of external debt has increased dramatically from Shs 52.91 trillion in June 2023 to 56.77 trillion today,” said top Ugandan economist Enock Twinoburyo.

“That is an increase of Shs 3.86 trillion (about 14–15% of domestic revenue),” he told ChimpReports.

While not all external public debt is in United States dollars, this development gives a clear picture of how the depreciation of the dollar against foreign currencies affects debt repayment.

However, while appearing on NBS this Thursday morning, the Secretary to the Treasury, Ramadan Ggoobi, said the foreign exchange risk in recent days characterized by the depreciation of the shilling against the United States dollar (USD) is a temporary shock and will soon go away.

He said this has been occasioned by the issuance of a lucrative Eurobond (maturing in June 2024) and an infrastructure bond in Kenya, as well as a Eurobond in Ghana. 

Ggoobi noted that these developments have attracted portfolio investors, depriving the Ugandan market of foreign exchange.

He said Uganda has avoided a Eurobond and that public debt is sustainable.

Ggoobi said Uganda is implementing the fiscal consolidation agenda, hence managing domestic borrowing.

“We shall borrow as long as the cost is reasonable; if the cost is high,we shall not borrow, and we shall have to live within our means,” said Ggoobi.

Solution

Twinoburyo said to address the depreciation of the shilling, there is a need for “mild capital controls like they imposed on banks during COVID-19 to limit high repatriation.”

He also called for export diversity and staggering projects to avoid front-loading projects with heavy foreign exchange needs.

“There is a need to address long-term vulnerabilities in competitiveness. For example, the court cases involving Patrick Bitature and Hamis Kiggundu and financial institutions constrain some foreign exchange credit facilities,” said Twinoburyo.

He also called for the monitoring of external liabilities and timeliness of reveals; building adequate foreign exchange reserves to provide a buffer against external shocks and help stabilize the currency during times of volatility; and implementing structural reforms to improve productivity, infrastructure development, and human capital, which can also enhance competitiveness and resilience to external pressures.