ENTEBBE- The International Monetary Fund (IMF) managing director, Ms Christine Lagarde, has warned Uganda on debt accumulation.
Ms Lagarde, who held bilateral talks with President Museveni at State House in Entebbe on Friday, pitched their discussions on the need for Uganda to scale up its infrastructure in order to boost production that would translate into better economic growth for the country.
But Uganda’s pursuit of infrastructural development is also piling up the country’s debt burden; raising concerns around its sustainability.
“There has to be a good balance between concessional and non-concessional loans. The second point is that macroeconomic stability is a key that is looked at by the investors and by the lenders; be it from private sector or bilateral institutions or countries. The third point is that there is abundance of financing available and that key financing is looking at bankable projects and those that are operated in a disciplined and well- implemented,” Ms Lagarde said at a joint press conference with President Museveni at State House, Entebbe, after the talks on Friday.
Uganda’s debt is expected to rise once China’s Exim bank approves a Shs8 trillion loan to build the first phase of the Standard Gauge Railways from Malaba to Kampala.
The government is also planning to borrow from the PTA Bank in order to revive the national airline. Uganda’s debt burden has been of concern because its financing has been inclined towards the non-concessional segment.
Non-concessional loans are those that a country secures at market or commercial rates whereas concessional loans are below market rates.
In November, Uganda’s credit rating was downgraded by credit rating agency Moody’s in part because of concerns on debt affordability that had been a persistent vulnerability for Uganda.
Ms Lagarde also said the best way for Uganda to finance its projects was to widen its tax base by removing VAT and Income Tax exemptions.
In September 2016, the World Bank suspended all new funding to Uganda; estimated at about $1.5b over several concerns, including the country’s absorption capacity. It is estimated that about 40 per cent of borrowed funds remain unutilised by the government, yet interest payments have to be made. President Museveni blamed the low absorption on lazy civil servants.
“Some of you are dormir (French word to mean sleeping), that is why you talk of (poor) absorption capacity; because how can you have a problem of absorption capacity when good roads are needed.”
“When you say absorption capacity, it is because of those people who are sleeping and I am not going to tolerate them – both the bureaucracy and the civil service,” he said.
“The problem of absorption capacity is curable by ejecting people who are dormir and replacing them with hardworking people,” Mr Museveni added.
Lagarde was in Uganda this week to recognise the 30-year relationship between the IMF and Uganda.