Uganda: Payments on external debt rose by Sh864bn in one year

Uganda's Ministry of Finance has recently reported a significant increase in the amount of money spent on external debt servicing for the period ended June 2023. Interest payments on public debt now account for about 23.5 per cent of tax revenues. This spike in debt servicing costs has shed light on the country's financial situation and raised concerns about the impact on the economy. CNBC Africa recently spoke to Alan Lwetabe, Director of Investments at Deposit Protection Fund Uganda, to gain more insights into the matter. Lwetabe explained that the surge in debt servicing can be attributed to the maturity of several infrastructure project loans that were acquired five years ago. These loans, obtained in Remimbi, came with grace periods that are now expiring, leading to higher debt servicing obligations. Additionally, during the COVID-19 pandemic, Uganda took on foreign-denominated debt from local lenders, further contributing to the rise in debt servicing costs. Lwetabe emphasized that the increase was anticipated and should not come as a surprise, as it was part of the government's financial planning. He noted that the Ugandan economy has grown over the past five years, and it is crucial to maintain a growth rate of six to seven percent to sustainably manage the debt repayments. While the current situation poses challenges, Lwetabe remains optimistic about Uganda's ability to navigate its debt obligations by focusing on economic growth.