Ugandan Economy Solid, Says Minister

Despite Uganda facing high prices for sugar, fuel, food, transport, increasing exchange rate and general households’ consumption commodities, Uganda’s minister of finance over the weekend assured the nation that the economy is strong and manageable.

Mr. Fred Omach the state minister for finance in charge of general duties while addressing the media in Kampala, about the state of the economy, indicated that Uganda’s external debt stock, amounting to Ush4.8b (about $19.2m) remains very low and sustainable that shows that the country is not at all in danger of a debt crisis.

“The net present value of debt to GDP is currently 8.9%, which is much lower than the sustainable benchmark of 50%, while total debt service to export ratio is 1.4% against the sustainable benchmark of 25%,” stressed Omach before adding that in absolute terms, the ratio of debt to GDP is only 27%, which is much lower compared to many countries around the world like Greece whose ratio is about 150%.

Debt sustainability is a comparison of a country’s export performance, GDP and domestic revenue collections.

“On the basis of this, Uganda’s debt is sustainable and is projected to be sustainable over the medium and long term. This is due to the positive outlook on economic growth, exports and domestic revenue performance,” he added.

A foreign debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank.

Omach said that since January this year, the economy has witnessed rapid increases in food and fuel prices both domestically and internationally, and the depreciation of the Uganda Shilling against the US Dollar among other currencies. He was hopeful that the country will overcome them given the strong underlying fundamentals of the Ugandan economy such as GDP growth, sustainable external public debt, revenue performance and the level of reserves.

The balance of payments which is the sum of the balance of trade (exports minus imports of goods and services), net income (like interest and dividends) and net transfers (like remittances and foreign grants) has deteriorated over the last three years. It was noted that this is due to import growth that has outstripped the growth of exports, tourism revenues and remittances.

Inflows, which include exports, services, income of Ugandan companies investing abroad and current transfer (remittances, donor grants and NGO transfers) increased by 33% from $4.4b to $5.8b. The out flows such as imports, payments for services, income of foreign companies and current transfers increased by 40% from $5.3b to $7.4b. This has resulted in a deficit of over $1.6b.

Omach said that Uganda’s foreign reserve level as of July 2011 was about $2.5b. It is equivalent to 4.4 months worth of imports of goods and services. “This is comparable with the average for the other sub-Saharan low income countries excluding fragile states which was 3.4 months of imports of goods and services in 2010 and is projected to fall to 3.3 months in 2011,” he stressed.

About the fiscal performance, Omach said that the fiscal performance during financial year 2010/11 was in line with the fiscal targets on overall resources and expenditures. Domestic revenue collections by the Uganda Revenue Authority during the year amounted to Ush5.2 trillions, performing at 102% against the target.Total approved government expenditure for the financial year 2010/11 was in line with resources and did not contribute to observed inflation, he said.