IMF Warns Uganda Debt Metrics Are Weakening

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Uganda’s public debt may expand to 50.7 percent of its gross domestic product as the nation borrows for infrastructure investment ahead of planned oil production and in a bid to become a middle-income economy by 2040, the International Monetary Fund said.

The debt may rise to that level by the end of June 2022 from a projected 42.2 percent of GDP in this financial year, the Washington-based lender said in an Article IV report on Uganda’s economy. Obligations to external lenders may account for more than a third of GDP from 27.7 percent this year, the report said.

“While Uganda’s debt level remains at low risk of debt distress, directors cautioned that debt metrics had weakened, some investment projects may not generate the envisaged return, and interest payments are rising,” the IMF said.

Uganda’s debt climbed 22 percent to 44.7 trillion shillings ($11.9 billion) in the fiscal year to end-June 2018 as the country borrowed to build roads and hydroelectric dams.

Interest payments are projected to take as much as 20 percent of revenue in 2019-20, a level typically only associated with countries at high risk, or in debt distress, the IMF said. Tax cuts and exemptions would hamper revenue collection, the lender said.

“Uganda’s external position is weaker than the level implied by fundamentals and desirable policies,” the IMF said.

East Africa’s third-biggest economy, whose government projects oil production will begin in 2022, may expand by 6.3 percent in the 12 months through June 2019 and 6.6 percent in 2023-24, IMF said.

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