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UGANDA COUNTRY DEBT PROFILE
UPDATED 2015
1. Political Background
Table 1: Political Overview
Date of Independence
Constitution
Type of government
Legal system
Executive branch
Legislative branch
Judiciary branch
9 October 1962 (from the UK)
The country’s current constitution was adopted on 8 October
1995 and amended in 2005.
Republic, multi-party system
There is mixed legal system of English common law and
customary law.
-The President is the Chief of State as well as Head of
government. The prime minister assists the president in the
supervision of the cabinet which is also appointed by the
president from among elected legislators.
-The President is elected by popular vote for a five-year
term; however there are no Presidential term limits.
There is a unicameral Parliament where members of the
National Legislative Assembly are democratically elected
for a five year term by the people of Uganda.
1. Court of Appeal- Judges are appointed by the
President and approved by the Legislature
2. High Court - Judges are appointed by the President
Capital and largest city
Geography
Total Area
Geographic Coordinates
Border countries
Official languages
Kampala
241, 038 sq km
1 00 N, 32 00E
Landlocked country which shares borders with DRC, Kenya,
Rwanda, South Sudan and Tanzania
English
Source: African Studies Centre, Central Intelligence Agency
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The Map of United Republic of Uganda
2. Economic and Social Analysis
Table 2: Snapshot of Economic and Social Indicators
GDP (official exchange rate)
US$26.09 billion (2014 est.)
Agriculture: 21.9%
GDP composition by sector
Industry: 26.7%
Services: 451.3% (2014 est.)
GDP real growth rate
5.9% (2014 est.)
Inflation rate (consumer prices)
4.3% (2014 est.)
Revenues: $3.434 billion
Budget US$
Expenditures: $4.431 billion (2014 est.)
Population
35,918,915 (July 2014 est.)
Population below poverty line
24.5% (2009 est.)
Life expectancy at birth
44.46years (2014 est.)
Literacy rate
78.4% (2015 est.)
GDP Per Capita (PPP)
US$1,800 (2014 est.)
Gini coefficient
44.3 (2009)
Source: Bank of Uganda, CIA, Global Finance 2015 publications
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3. Economic and Social Analysis
Uganda is of one of the poorest countries in the world, however it is also rich in natural
resources, and it has significant potential for growth. The country remains an agricultural
economy, thus growth tends to be dependent on weather conditions making the economic
growth very volatile. Still the public and private sectors are making important investments in
the oil sector which will represent a major structural change. The country also remains
dependent on donations which in the past had been temporarily suspended because of
corruption problems and a controversial bill. The government is doing a good job in terms of
economic management and maintaining a good relationship with the IMF.
Up to 61% of the current account deficit was financed through FDI, with portfolio investment
flows drying up and official borrowing decreasing. During FY2013/14, Uganda received FDI
amounting to a total value of US$ 1,154 million. This was 14% higher than the US$ 1,009
million received in FY 2012/13. The increase was primarily spurred by progress in the
development of Uganda’s oil and gas sector. With FDI inflows equivalent to an average value
of 4.2 % of GDP over the past five years, Uganda received a higher level of FDI than almost
any other country in the East African Community (EAC) as shown in Fig.1 below.
Fig.1 Uganda has been one of the largest receivers of Foreign Direct Investment in the
EAC
Source: United Nations Statistics Database cited in World Bank (2015): The Growth Challenge:
Can Ugandan Cities get to Work? Uganda economic update 5th edition
Report No. 94622 Feb 2015
With the adoption of the country’s first Poverty Eradication Action Plan (PEAP) in 1997,
impressive economic growth was experienced in the country over the PEAP period, with an
average GDP growth rate of 7.2% between 1997/98-1998/99. However, due to the fall in
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world coffee prices and rise in oil prices in 1999/00, which among others affected the
expansion of productive sectors of the economy, the average real economic growth rate
slowed down to 6.8% per annum from 2000/01 to 2004/05 as shown in Fig.1 below. Owing
to sustained government interventions to promote growth, the country’s economic growth rate
however increased and reached a peak of 10.8% in the 2005/06 fiscal year.
The global economic and financial crisis that erupted in 2008/09 also had an impact on the
country’s net exports, which was particularly felt in the 2009/10 fiscal year when growth
slowed down to 5.9% as compared to 7.3% in 2008/09. Growth recovered somewhat in
2010/11 reaching 6.7%. However, as again shown in Fig.1 below, real growth is estimated
to have slowed down in 2011/12 reaching a low of 3.2% against the 7% average projected
in the country’s National Development Plan (NDP 2010/11 – 2014/15). This low performance
is attributed to high interest rates/monetary tightening needed to bring down inflation, high
global oil and commodity prices, drought in some parts of the country, power shortages,
exchange rate volatility and weak external demand for the country’s exports. These factors
had severe implications for the real sector undermining business confidence and investment in
the industrial and services sectors, which grew by only 1.1% and 3.1% respectively as
compared to 7.9% and 8.4% respectively, in the previous year.
The economy however expanded by 4.5% in financial year 2013/14, less than the 5.7%
projected, but more than the 3.3% recorded in FY2012/13. The less than expected
performance is largely attributed to a weaker recovery in agricultural output and constrained
external demand from a slow global economic recovery and instability in the region particularly through their impact on demand for Uganda’s exports and Foreign Direct
Investment (FDI) inflows. The pace of GDP growth is nevertheless expected to pick up during
FY2014/15 and FY2015/16, growing at 5.3% and 5.8%, respectively.
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Fig.2: Real GDP Growth (2005-2016)
Source: AfDB- Uganda 2015 African Economic Outlook
In spite of the country’s impressive economic performance over the last decade, the country
continues to face challenges in sustaining high levels of economic growth. As indicated in the
country’s NDP, there are structural features in the economy that need to be addressed to
accelerate growth. These include:
• Lower than desirable growth in the agricultural and industrial sectors;
• Exports that are dominated by traditional agricultural products with minimal value
addition, implying that the rapidly growing new sectors are not contributing
significantly to exports and therefore not outwardly oriented; and
• New sectors that are not absorbing the rapidly growing labour.
On the social front, the 2014 UN Human Development Report indicated that Uganda’s human
development index improved from 0.293 to 0.484 between 1980 and 2013, reflecting
advancements across all three key development dimensions: health, education and living
standards. In the report, Uganda was 164th position out of 187 countries considered for the
ranking – in the "low human development" category.1 Progress was made in the UN
Millennium Development Goals (MDGs) in 2013, especially against child mortality and
1
UNDP (2014): Uganda Human Development Report
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improving nutrition. Nevertheless, other goals remain a concern, notably the environment,
maternal health and the fight against HIV/AIDS.
4.
Overview of Public debt in Uganda
Ugandan public debt stock is crippling upwards as shown in Fig. 2 below. The decline in
Uganda’s total debt stock in 2006, is attributed to the country’s debt cancellation under the
Heavily Indebted Poor Countries Initiatives (HIPC I & II). 75% of the external debt was
forgiven under the Multilateral Debt Relief Initiative (MDRI). However, the current debt is
accumulating at an average rate of 30% per year, since 2007 and public debt as of
November 2013 was estimated at Shs18 billion. External and domestic debt accounted for
18.1 percent and 12.3% of GDP, respectively.
Fig.3 Public Debt Stock
Source: Uganda debt sustainability report November 2013-Ministry of Finance, Planning and Economic Development
5.
External Debt Analysis
Uganda depends largely on external financial support, in which 48% of the national budget is
donor funded. The country is one of the major beneficiaries of Aid for Trade (AfT)2, ranking
second after Nigeria among the recipients in 2009. Most of the external debt is contracted on
Aid for Trade refers to development assistance that seeks to promote international trade and a number of
international initiatives to promote trade-related development assistance. This comprises aid that finances traderelated technical assistance, trade-related infrastructure, and aid to develop productive capacity.
2
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highly concessional terms and is owed to largely multilateral creditors. Fig. 4 and Fig. 5 shows the
total external debt and the external debt creditors of Uganda respectively.
Fig.4: Total External Debt (US$ Millions)
Source: Bank of Uganda -2014
Fig.5: External Debt Creditors
Source: Uganda debt sustainability report November 2013-Ministry of Finance,
Planning and Economic Development
In 2013, 87% of external debt was owed to official multilateral creditors, while the debt to
official bilateral creditors accounted for 13%. International Development Association (IDA)
held the largest share of Uganda’s debt obligations constituting 58.7% of the total, followed
by the African Development Fund (ADF), which accounted for 19.5%.
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6.
External Debt Sustainability Analysis
The Debt Sustainability Analysis (DSA) 2013 assessed Uganda’s Public and Publicly
Guaranteed (PPG) external debt to be sustainable in both the medium-term and the long-term
framework over the projection period; with both the solvency and liquidity debt-burden
indicators staying well below their sustainability thresholds as shown in table.3 below.
Table.3: Summary of External Debt Sustainability Assessment 2013
Source: Uganda Debt Sustainability report 2013
According to the 2013 Uganda DSA, the country’s external debt continues to be largely
sensitive to borrowing on less concessional terms given the current share of concessional debt
of almost 90% of the total external debt stock. Over the medium term, however, more nonconcessional borrowing is projected and likely to even dominate over the long term, changing
the external debt sensitiveness to shocks to real GDP growth and changes in prices of primary
products.
7. Domestic Debt Analysis
The domestic debt stock still remains modest, at around 12.3% of GDP in FY2012/13.
However, it accounted for 88.6% of the total interest costs because of the relatively high
market interest rates on Treasury Instruments against the concessional terms of the current
external debt. The ratio of medium- and long-term debt to short-term debt is currently 64:36,
but is expected to reach the benchmark level on 70:30 in the medium term. Domestic debt
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shall be issued exclusively for fiscal policy purposes and to further develop domestic financial
markets.
Fig.6: Domestic financing of the budget has increased recently
Source: World Bank (2015): Uganda economic update 5th edition Report No. 94622 Feb 2015
Uganda’s domestic debt stock has been on an upward trend. Public domestic borrowing
mainly arises for one or more of the following reasons3:

To fund the budget deficit when domestic revenues, foreign grants and public external
borrowing are inadequate to meet public sector expenditure;

For monetary policy implementation i.e. domestic debt papers are issued to influence
money supply, interest rates and/or inflation for macroeconomic stability. Such debt
may also be issued to sterilise local currency appreciation effect (“ Dutch disease”) of
sizable aid inflows to protect export competitiveness and avoid an influx of cheap
imports that substitute local products and stifle local industry;

Accumulation of public sector domestic arrears (exceptional financing), due to cash
flow constraints or technical factors, e.g. slow payment process; and
Cornilius Deredza (2010): Presentation at the Regional Multi-Stakeholder Conference on Domestic Debt
Management jointly organised by AFRODAD and KENDREN
3
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
To promote the development of domestic primary and secondary markets,
“benchmark” for corporate bonds and savings mobilization.
Of the above four factors, the issuing of domestic debt papers for monetary policy
implementation purposes has been the major driver of the country’s increasing domestic debt.
However, this is directly linked to the country’s external debt developments as explained
hereunder. The country’s external borrowing strategy since the 1990s indicates that external
debt financing will continue to constitute an important part of budget financing as long as
domestic revenues fall significantly short of expenditures and donor grants alone cannot meet
the shortfall (Uganda Debt Strategy, 2007:15). Accordingly, Uganda has been a recipient of
external aid assistance in the form of grants and loans, with loans being largely concessional
with a grant element of not less than 35%. Between 2001 and 2010 for instance, external
assistance flows to the country averaged approximately US$760 million annually, registering
the highest inflows of about US$1.2billion in the 2006/07 fiscal year4. On average, these
flows represent 25% of total budget revenue and 6% of GDP (MoFPED, 2012:1).
However, a key point to note is that the high externally financed deficits results in an annual
increase in the money supply above the level of demand from the economy. To avoid
potential macro-economic destabilization effects (such as high inflation pressures), there is
consistently need to sterilise the increases in money supply, either by sales of foreign
exchange or domestic debt through issuance of government securities. In this regard, increased
budget deficits and the respective increase in external aid inflows have simultaneously
resulted in increases in the country’s domestic debt stock as more issues have been done to
ensure that the country achieves its set money supply and inflation targets. Accordingly, the
country’s 2007 debt strategy specifies that the domestic borrowing requirement of the
Government is currently limited to the issuance only for liquidity management i.e. domestic
securities are only issued to “mop up” excess money supply and not to finance expenditure.
The actual volumes of debt issued are set by the Bank of Uganda based on Government
expenditure path, which together with foreign exchange sterilisation sales, reduce excess
liquidity (Uganda Debt Strategy, 2007: 30)
In addition to the issuing of government security papers to mop up excess money supply in the
economy, the development of a well functioning market for Government of Uganda (GoU)
securities has also been the other driver of domestic debt growth in the country. Until the
2002/03 fiscal year, treasury bills were the main sterilization instrument used by the Bank of
It is reported that this was due to heightened donor confidence resulting from prudent macroeconomic management
of the country
4
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Uganda. However, during the second half of 2003/04, government treasury bonds in the
tenors of 2, 3, 5 and 10 years were introduced and issued. The main aim of these issues was
to support monetary policy implementation by further improving liquidity management and
promoting market development and deepening. It was also envisaged that these securities
would help by extending not only the maturity of the instruments traded, but also the yield
curve as well as provide additional saving instruments in the country. These bond issues have
continued over the recent years, under the Bank of Uganda’s monetary and financial policies
to support the development of financial and money markets.
Proportion of Domestic Debt in the Total Public Debt Portfolio
External debt was predominant in the country’s total public debt portfolio up to 2006 as
shown in Fig.1 above. This reflects the Government of Uganda’s long standing policy that
external debt financing will continue to constitute an important part of budget finance as long
as domestic revenues fall significantly short of expenditures and donor grants alone cannot
meet the shortfall. However, the Multilateral Debt Relief Initiative (MDRI) of 2006 significantly
reduced the country’s external debt burden, resulting in a near split balance of external and
domestic debt as of end 2006/07. By the end of 2007/08, domestic debt stock was more
dominant at 52.4% of the country’s total public debt. However, as the country continued to
implement its strategy of borrowing externally on concessional terms to finance infrastructure
development, external debt once again gained its dominance starting from 2008/09 as
shown again in Fig.1 above.
Domestic Government Debt vs. Domestic Private Sector Debt
A high level of borrowing on Uganda’s thin domestic capital market could result in the
reduction of private investment by pushing up interest rates. As the Government increased its
level of dependence on domestic loans to finance the budget, the share of domestic debt to
GDP increased to more than 14.2% during FY 2013/14, up from 11% at the end of FY
2012/13. As a result, constituting 7.8% of the budget, the allocation of financial resources for
interest payments is equivalent to the total value of allocations to the health sector. Moreover,
the high level of domestic debt has an impact on interest rates and credit. The fact that the
level of the issuance of Government securities was far higher than had been planned could be
one of the reasons why commercial banks have been reluctant to significantly reduce lending
rates, despite the Bank of Uganda gradually reducing the CBR over the past two years. In
fact, total private sector credit, denominated in shillings, has been declining since FY 2011/12,
from the equivalent of 8.2% of GDP to the equivalent of 7.6% in FY 2013/14.
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Fig. 7 Domestic Government Debt vs. Domestic Private Sector Debt (in % of GDP)
Source: Ministry of Finance Planning and Economic Development 2014
8. Sustainability of Domestic Debt
Unlike the case for external debt, there are currently no internationally agreed benchmarks
for assessing domestic debt sustainability. However, the Debt Relief International (DRI) has
suggested some provisional benchmarks that can be used as a rule of thumb in domestic debt
sustainability analysis. These thresholds which are based on the DRI’s experience in the HIPC
Capacity Building Programme are as shown in Table.4 below:
Table.4: Preliminary Benchmarks for Domestic Debt Sustainability
Domestic Debt indicator
Debt/GDP
Debt/Revenue
Debt Service / Revenue
Interest / Revenue
Threshold range (%)
20-25
92-167
28-63
4.6-6.8
Source: Debt Relief International (2001): key Issues for analysing Domestic Debt Sustainability
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Based on these thresholds, countries with debt ratios at, or near, the top of the threshold range
set out in Table 4 above will have already accumulated payment arrears and will be facing
an unsustainably high domestic debt burden. Those with ratios below, or near, the bottom of
the range do not have arrears and hence their debt can be considered sustainable. Countries
with ratios falling within the range can be considered to have potentially unsustainable
domestic debt burdens.
In their own efforts to ensure sustainability of domestic debt in Uganda, the 2007 Uganda
Debt Strategy states that the sustainability of the domestic debt burden for the Government of
Uganda and the economy is from the point of view that:

Too high a debt burden directly undermines Government fiscal operations and the
stated macroeconomic aim of fiscal consolidation, due to high interest payments; and

The issuing of debt in the domestic market could undermine growth by reducing the
availability of credit to the private sector.
In regard of the above possible effects of domestic debt on the economy, benchmarks were
proposed in the strategy to ensure that the level of domestic debt is consistent with the stated
Government objectives of pursuing fiscal consolidation and private sector led economic
growth. The suggested benchmarks are as follows:
Table.5: Suggested Benchmarks for Assessing Domestic Debt Sustainability5
Domestic Debt Stock/GDP
Domestic Interest Cost
/Domestic Revenue (excluding
grants)
Domestic Debt Stock/Private
Sector Credit
Sovereign Credit Rating
Suggested Benchmark
<15%
<15%
<100%
Maintain or improve
Source: Ministry of Finance, Planning and Economic Development 2013
Public Debt Management Framework
The Domestic Debt Stock/GDP measures the level of domestic debt relative to the size of the economy. However, it
is stated that taken in isolation, this ratio can be misleading. The Domestic Interest Cost/Domestic Revenue captures
the budget sustainability of the debt burden. Similar to the Domestic Debt/GDP ratio, this measure does not take into
account the extent of the external debt interest cost. It also requires that room be left to accommodate the possibility
of a rising interest rate environment. The achievement of the Domestic Debt Stock/Private Sector Credit benchmark is
said to be hinged on the growth of private sector credit which at the time of the development of the strategy was
very key given the underdeveloped nature of the country’s financial sector
5
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Furthermore, as indicated in the country’s debt strategy, the Domestic Debt/GDP measure has
one limitation that it does not really capture the budget sustainability of the domestic debt
burden, especially in a country with inadequate domestic revenue mobilisation capacity as
indicated above. For instance, even though the country’s Domestic Revenue to GDP ratio has
been on a positive trend, increasing from 12.4% in 2009/10 to 15.7% as of June 2013, it
was well below that of the other East African Community (EAC) members as shown in fig. 8
below. According to the 2012/13 Government Annual Performance Report, domestic revenue
mobilisation in the country is low due to the narrow tax base, limited compliance levels, as well
as a number of tax exemptions and generous investment incentives. In this regard, the current
sustainability of the Domestic Debt/GDP ratio has to be viewed vigilantly, taking note of its
shortcomings.
Fig.8: Domestic Revenue to GDP for EAC Member Countries as of 2013
40%
35%
30%
25%
20%
15%
10%
5%
0%
Burundi
Kenya
Rwanda
Tanzania
Uganda
Source: Office of the Prime Minister cited in Ministry of Finance and
Economic Planning (2013): Uganda Debt Sustainability report
Sovereign Credit Rating
When Uganda adopted its current Debt Strategy in 2007, its sovereign credit rating by Fitch
was at ‘B’ with the suggested benchmark for measuring domestic debt sustainability from this
perspective as the need to either maintain or improve this rating. As of October 2013, Fitch
Ratings affirmed Uganda's Long-term foreign and local currency Issuer Default Ratings (IDR)
at 'B' with a Stable Outlook and Short-term foreign currency IDR at 'B'. The country’s domestic
debt is thus sustainable from this point of view.
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9.
Summary and Conclusions
Uganda’s public debt continues to be assessed at a low risk of debt distress based on the lowincome country debt sustainability analysis (LIC DSA), despite recent challenges to the
economy from high inflation, weakening external demand and slower growth. However,
adapting another working definition of debt sustainability, which according to Mutasa
(2005:3) debts are only considered sustainable when the debt service burden leaves the
HIPCs with sufficient funds to meet their human rights obligations under the internationally
agreed Millennium Development Goals, the country’s debt sustainability under the LIC DSA
needs to be observed with caution. This is particularly so taking note of the fact that the
country has actually been spending more on debt servicing (particularly on domestic debt
servicing) than it has been spending on the education and health sectors.
10.
Reference and Bibliography:
Africa Statistical Year Book 2014, United Nations Economic Commission for Africa
http://www.uneca.org/sites/default/files/publications/african_statistical_yearbook_2014.pdf
AfDB (2015): Africa Economic Outlook
http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/CN_data/CN_Long_
EN/Uganda_GB_2015.pdf
Bank of Uganda (2015): Challenges in debt management: Uganda’s debt status,
Bank of Uganda, 2003/04 – 2011/14 Annual Reports
Central
Intelligence
AgencyThe
World
Factbookhttps://www.cia.gov/library/publications/the-world-factbook/geos/ug.html
Uganda
Macro Economic Policy Department, Performance of the Economy Report, August 2013 –
Uganda Ministry of Finance and Economic Planning
Ministry of Finance and Economic Planning (2013): Uganda Debt Sustainability report
Semi Annual Report on External Assistance to Uganda, (2013), – Ministry of Finance and
Economic Planning
UNDP (2014): Uganda Human Development Report 2014, Sustaining Human Progress:
Reducing Vulnerabilities and Building Resilience
World Bank 2015: Global Development Finance- External Debt of Developing Countries;
World Bank (2015): The Growth Challenge: Can Ugandan Cities get to Work? Uganda
economic update 5th edition Report No. 94622 Feb 2015
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Compiled by:
Chipo Mbawu: Policy Research Assistant, External Debt, AFRODAD
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