Africa-Press – Uganda. The chaotic scenes unfolding in the Sudanese capital of Khartoum—where rival factions of the country’s armed forces are flexing their muscles—have captured the imagination of a number of Ugandans. And rightly so. Less acknowledged, but no less remarkable, is how an economic malaise has retained a dark grip on East Africa’s economic engine.
Last month, already weathering inflation and an uneven recovery from the coronavirus pandemic, Kenya made heavy weather of paying its civil servants. Top officials from her treasury made clear that they were operating in straitened circumstances where prioritising paying salaries would translate into a default on public debt.
The flagging fortunes in Kenya are well and truly a sign of the times. As the region’s economic powerhouse toiled to pay its civil servants late last month, Fitch downgraded Uganda’s credit outlook. The rating agency lowered the outlook for its credit rating for Ugandan government debt to “negative” from “stable.”
The telltale signs Fitch pointed out included “declining foreign exchange reserves, [and] a scheduled increase in debt service payments.” The other ominous dark clouds gathering overhead are “rising government interest costs, a less favourable public debt structure in some respects and a rising net external debt/GDP ratio.”
Fitch added: “Reduced availability of concessional bilateral and multilateral external financing has led the government to greater recourse to borrowing at higher costs from external commercial creditors and in the domestic market.”
The grim scorecard will only make a bad situation worse for Uganda. Fitch’s downgraded outlook will as a matter of fact further complicate plans to borrow at good terms. This is deeply worrying. Already, Uganda’s international reserves were at the end of 2022 whittled down to 3.5 months of current external payments from 4.5 months in 2021.
With the Finance ministry admitting that liquidity pressures are still a clear and present danger, a lot of soul searching ought to be done. Mr Ishmael Magona, the acting director for budget in the ministry, recently set the alarm bells ringing when he revealed that the country has managed to rake up only about Shs24 trillion out of next financial year’s Shs51.56 trillion budget.
Uganda will doubtless borrow at unfavourable terms to cover her deficits. It is against this gloomy forecast that we urge state actors to improve the government’s tax administration policy—sooner rather than later—so as to trigger a bump in revenue collection. Tax exemptions cannot be given on a whim as is so often the case.
Non-priority spending also ought to be trimmed. In fact, the country should be subjected to acute economic austerity to reduce public expenditure. The expenditure rationalisation that came into effect when the pandemic took the winds out of our sails has to be a mainstay going forward. These are tough times, and should be treated as such.
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