Home Economy Shrinking Shilling Drives Uganda’s Debt Up by Trillions

Shrinking Shilling Drives Uganda’s Debt Up by Trillions

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Secretary to the Treasury, Ramadan Ggoobi

In June 2023, Uganda’s external public debt stood at USD 14.23 billion. However, recent fluctuations in currency exchange rates have led to a staggering increase of Shs 3.8 trillion in the country’s debt, primarily due to the depreciation of the shilling against the dollar.

Top Ugandan economist Enock Twinoburyo highlighted that the exchange rate has shifted from Shs 3,700 to Shs 3,970 per dollar, resulting in a significant rise in the shilling equivalent of external debt, reaching Shs 56.77 trillion. This represents an increase of Shs 3.86 trillion, which is approximately 14–15% of domestic revenue.

Twinoburyo emphasized the need for measures to address this depreciation, suggesting the implementation of mild capital controls, similar to those imposed during COVID-19, to limit high repatriation. Additionally, he advocated for export diversity and staggered project implementation to avoid overburdening the economy with heavy foreign exchange needs.

Furthermore, he highlighted the importance of resolving long-standing issues such as legal disputes involving key figures and financial institutions, which currently constrain foreign exchange credit facilities.

Secretary to the Treasury, Ramadan Ggoobi, acknowledged the recent foreign exchange fluctuations but reassured that they are temporary shocks, attributing them to external factors such as the issuance of bonds in neighboring countries, which attracted portfolio investors away from Uganda.

Ggoobi asserted that Uganda’s public debt remains sustainable, emphasizing the government’s commitment to fiscal consolidation and prudent borrowing practices. He stated that borrowing decisions would be based on reasonable costs, with an emphasis on living within the country’s means.

In addressing the challenges posed by currency depreciation, Twinoburyo proposed several long-term strategies, including monitoring external liabilities, maintaining adequate foreign exchange reserves, and implementing structural reforms to enhance competitiveness and resilience.

Overall, the situation underscores the importance of proactive measures to mitigate the impact of currency fluctuations on Uganda’s economy and debt sustainability.

Credit: Chimp Reports