BoU Governor, Michael Atingi-EgoThe Bank of Uganda has urged swift measures to reduce the amount of money it is spending on debt servicing.Central Bank Governor Michael Atingi-Ego expressed concern about the amount of money that the government is spending on debt servicing.He warned that it has an impact on allocations to other areas like social services and salaries.He says that on the level of debt, there is not much threat to sustainability for as long as the borrowed funds are allocated to areas that boost economic growth.Atingi-Ego says that for now, Uganda cannot stop borrowing because it has no money to invest in infrastructure and other areas that are vital for economic growth; prudent debt management is required.The government is implementing a fiscal consolidation framework that should help lower government expenditure and reduce borrowing, and in the process, cut the resources that go towards debt servicing, he says.Uganda’s public debt is projected to reach 60 percent of GDP by financial year 2030/2031, from the current 53 percent, which the International Monetary Fund calls sustainable, with a moderate risk of debt distress.The stress tests point to heightened vulnerabilities, with several indicators breaching their thresholds, some persistently, under adverse scenarios, according to the IMF.“Vulnerabilities related to the heavy reliance on costly domestic financing have also intensified, with both domestic debt-to-GDP and domestic debt service-to-revenue ratios projected to remain well above the low-income country averages,” it says.They recommended the swift adoption and implementation of the Domestic Revenue Mobilization Strategy to broaden the tax base, improve administration, and rationalize tax expenditures.Uganda’s total public debt stock stands at about 30.2 trillion shillings (around 34.9 billion dollars), and for the 2026/2027 financial year, the government allocated a record 33.4 trillion shillings to debt servicing, which is about 40 percent of the total national budget of 84.3 trillion shillings.The IMF Executive Board Directors also agreed that stronger fiscal consolidation, anchored in enhanced domestic revenue mobilization and improved expenditure discipline, is needed to reduce debt vulnerabilities, ease crowding-out pressures, and rebuild policy space.Uganda’s fiscal consolidation strategy aims to narrow widening budget deficits, curb debt accumulation, and manage rising debt-servicing costs, while supporting economic growth driven by upcoming oil production and infrastructure investments.The strategy involves expanding the tax base, reducing exemptions, and tightening tax administration rather than relying heavily on consumption taxes; rationalizing spending through efficiency in allocations, cutting non-essential recurrent expenditures, and enforcing leaner public budgets.Another intervention is seeking low-cost financing options like climate grants, concessional windows, and diaspora instruments to maintain debt sustainability.The government hopes to reduce the fiscal deficit (the budget financing gap that requires borrowing), which has grown steadily in recent years and stands at about 7 percent of GDP today, to just over 3 percent by 2031, according to Atingi-Ego.Prof Augustus Nuwagaba, the Deputy BoU Governor that the recent spike in national debt was due to investments in vital infrastructure like roads and electricity plants necessary to boost the investment climate. He stresses that no money has been borrowed for purposes of consumption.This, he says, is what makes Uganda’s debt viable.Economist Dr. Fred Muhumuza warns that while officials give optimistic views about debt sustainability, the comparison of debt to GDP misses the point that servicing affects other areas.According to him, the rapid growth of the public debt stock has reached a scale where it directly constrains funding for essential public needs like healthcare and education.The overall fiscal deficit widened to 6 percent of GDP in financial year 2024/2025, from 4.7 percent in 2023/2024, and to 7 percent last year, reflecting higher recurrent spending and rising interest payments, according to the lender.The government is finalising the second Domestic Revenue Mobilization Strategy, which envisages significant revenue gains.However, the IMF says these gains are mostly from administrative reforms, which rely heavily on systems and data beyond the control of the Uganda Revenue Authority (URA) and for which an implementation plan is yet to be crafted.Debt repayment has become the single largest government expenditure, reducing fiscal space for critical public sectors.Civil society organizations and parliamentary committees have raised concerns over weak loan oversight and low economic returns from borrowed funds, though the Ministry of Finance maintains that the overall trajectory remains manageable.-URNThe post Time to Pay: BoU Demands Action on Mounting Debt Costs appeared first on Business Focus.