How Uganda plans to finance its 2023/24 budget

Uganda is facing a significant financial challenge as it gears up to finance its 2023/24 budget. By the end of June, the country will owe lenders a staggering Shs88.9 trillion, nearly twice the Shs52.7 trillion budget allocated for the upcoming fiscal year. Stephen Kaboyo, Managing Director of Alpha Capital, discussed Uganda's financing plans with CNBC Africa, shedding light on the intricate balance the government must strike to navigate the country's economic landscape. The budget for the 2023/24 fiscal year amounts to UGX 53 trillion, with a funding structure that includes 60% from domestic sources and 40% from external sources, including concessional and commercial loans. However, challenges loom on both fronts, with domestic revenue targets proving difficult to achieve amidst an economy still reeling from the impacts of the COVID-19 pandemic. Additionally, Uganda's debt levels have almost reached a threshold that could hinder further borrowing, especially from commercial sources. As a result, the government faces tough decisions on prioritizing critical projects, such as infrastructure development essential for the country's economic growth. Kaboyo highlighted the focus on key infrastructure projects like electricity transmission and critical roads, signaling potential limitations in realizing all planned budget allocations. The government's aspirations for Uganda to achieve middle-income status are largely pinned on the anticipated revenues from the country's substantial oil reserves. With projections of a significant economic boost from the oil sector in the coming years, the government aims to leverage this growth trajectory towards attaining middle-income status. However, fiscal constraints pose challenges in creating the necessary incentives to drive private sector participation, leaving limited room for expansive economic stimuli. The forthcoming oil production, expected around 2024-2025, is anticipated to catalyze economic activity and pave the way for increased vibrancy in Uganda's economy. Addressing security concerns in light of recent events, Kaboyo downplayed the impact of isolated incidents, such as the incident at Kasese School, on overall investor confidence. While acknowledging sporadic security threats, notably from ADF rebel activities, he emphasized that such events are isolated and unlikely to significantly deter investor interest in the country. Inflation, a key economic indicator, has shown a positive trend with a decline to 6.2% from a previous 10%, largely driven by favorable food prices due to good harvests. The Central Bank's efforts to stabilize inflation have been commendable, with expectations that inflation will hover around the targeted 5% rate in the coming months. Kaboyo expressed optimism in Uganda's economic growth prospects, foreseeing a growth rate between 6% and 7% supported by a robust services sector, manufacturing, and agriculture. While acknowledging disparities across sectors, particularly in uneven growth patterns, the strong performance of the services sector underscores the optimistic outlook for achieving the projected 6.3% growth target. Despite the challenges ahead, Uganda remains poised to navigate a complex economic landscape and strive for sustained growth in the upcoming fiscal year.