Uganda appears muted on preparations for repayment of a Ush1.8 trillion ($488.7 million) loan obtained from the International Monetary Fund (IMF) last year to counter negative economic effects caused by the coronavirus pandemic as Parliament warms up for budget debate.

In a time of growing taxpayer agony, the loan facility carries a five-year repayment period and is interest-free, according to IMF records.

A portion of the debt funding was allocated towards foreign currency market interventions executed by the Central Bank during times of significant trading volatility that often cause sharp depreciation against the local currency.

Debt portfolio

The balance was meant to boost financial stimulus packages targeted at struggling local businesses and healthcare services.

Whereas the IMF has reportedly sought clarity on developing countries’ plans to repay huge loans obtained last year, Treasury insists there are no ongoing discussions over the matter.

“But we believe debt cancellation opportunities offered by major lenders like the European Union and China would benefit us more than the current G20 debt service suspension initiative. We are engaging donors on ways of reducing our debt burden,” said Dr Albert Musisi, Commissioner for macroeconomic policy in the Ministry of Finance, Planning and Economic Development.

Concerns over Uganda’s surging debt levels are likely to dominate budget debates that commence this month following a report by the Auditor General’s Office that raised alarm about rapid growth in the country’s debt portfolio and limited ability to service its debt obligations.

The country’s overall debt portfolio rose from $12 billion in 2018/19 to $15 billion in 2019/20 while Ush4.3 trillion ($1.2 billion) alone was borrowed for anti-Covid-19 interventions.

Recent budget allocation proposals show the defence and security sector is positioned to receive a lion’s share of the 2021/22 budget in spite of various funding cuts experienced in many sectors. Uganda registered a tax revenue deficit of Ush1.3 trillion ($352.9 million) for the first six months of 2020/21 according to URA data.

Proposed budgetary allocations to defence and security are expected to increase from Ush4.4 trillion ($1.19 billion) to Ush7.17 trillion ($1.9 billion) for year 2021/22.

However, proposed tax measures targeting the transport sector and individuals subjected to tax investigations have raised worries about competitiveness in the former and human rights abuses instigated by the tax agency.

“The proposed motor vehicle possession fee will create multiple taxes in the transport industry and make it less competitive. Uganda currently charges more than 100 per cent of the value of old cars in import duty while excise duty levied on fuel keeps going up every year,” argued Jet Tusabe, Tax Director at BDO Uganda Office.

“Besides, commercial vehicles are subject to advance income tax and are exposed to taxes imposed on spare parts. The sector directly affects the cost of doing business in other sectors like education, leisure and hospitality and manufacturing and any instability might push up inflation,” Tusabe added.