Uganda’s debt level is on the rise due to capital flight and a decline in donor support, hampering the country’s economic growth prospects, a Moody’s Investors Service report published last week says.

Mathias Angonin, a Moody’s analyst and the author of the report, said that the long-term health of government finances will depend largely on mobilising new sources of revenue.

“The level of earnings from Uganda’s minerals and other exports will depend on improvements in domestic security,” Mr. Angonin said.

Moody’s expects Uganda’s fiscal deficit to increase to 5.7 per cent of GDP in 2015, from between 2 per cent and 4 per cent over eight years ago, due to fiscal expansion before the 2016 elections, higher investment in power projects and the recapitalisation of the central bank. Although still relatively low, tax revenue will continue to rise faster than and exceed current expenditure.

Mr Angonin said that Uganda’s stable rating outlook reflects the country’s prospects for accelerating growth, improving infrastructure and consolidating institutions.

“Investment in mining projects and transport will help to accelerate growth in the economy, which is small but diversified and faces considerable social challenges,” he said.

Moody’s assessed Uganda’s institutional strength as very low, noting that the country’s effectiveness, regulatory quality and control of corruption scores have weakened even though its political stability, rule of law and inflation indexes have improved. Uganda’s fiscal strength is assessed as medium, because of its weak tax revenue position against relatively low debt levels.

“Debt-affordability indicators are favourable, but expected to deteriorate as deficits are increasingly financed on non-concessional terms,” Mr Angonin said.

For its 2014/15 fiscal year, Uganda pegged 20 per cent of its budget on donor funding; in the past three years, the country has received less funding than its neighbours due to corruption, mismanagement and the controversial Gay Bill it introduced.

Uganda’s government debt has risen over the years to 30.4 per cent of the GDP in 2014, from 20.8 per cent in 2010, due to rising domestic and external borrowing.

Last year, the Parliamentary Committee on the National Economy raised the alarm over the rising debt which outstrips domestic revenue growth.

Source: The East African

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