Uganda's growing mountain of debt: How long will the crisis be postponed?

Thursday September 15 2022

Uganda's government is addicted to borrowing and now its public debt stands at $21 billion, about three times the government’s total annual revenue collection. ILLUSTRATION | JOHN NYAGA | NMG


Uganda’s parliamentary committee on the economy last week released a frightening report about the country’s debt situation. Now at $21 billion, the public debt is about three times the government’s total annual revenue collection. Even the politicians are worried.

Like some of our neighbours, the debt has surpassed the 50 per cent of gross domestic product (GDP) mark, raising questions about our capacity to pay.

Because of the high cost of doing business, return on investment is low and many bank loans do not perform well. So commercial banks hate lending to customers and prefer buying government papers with long-term bonds yielding a lucrative 17 per cent.

Banks apparently discourage customers from borrowing by charging them a whopping 20 per cent annual interest which is twice or thrice the inflation rate, plus loan arrangement fees, plus fees of the accountant acceptable to the bank for compiling your cash flow, plus paying for the bank’s insurance of the risk they are taking despite its holding your security hostage, plus lawyer’s mortgage management fees or whatever your bank calls it, plus other charges for which there is no space here to list.

The central bank has for some years tried to limit the Treasury bills and bonds available to the commercial banks, but the government is addicted to domestic borrowing like a juvenile hooked on narcotics who cheaply sells any movable family valuables to buy his fix for the moment. It keeps issuing those papers to service loans — digging one hole to fill another and may the future take care of itself.

It works for America; it doesn’t work for Africa


We hate the Western lenders for lecturing us about “unrelated” matters like democracy and human rights as they lend us their money. We praise the Chinese for “respecting us” and not preaching to us.

But the comrades from Beijing don’t lend us from the Treasury otherwise we would invoke our solidarity and default. They get their banks to lend us at commercial rates and shorter grace periods, unlike the World Bank “lecturers” who charge less than one percent interest and give long grace periods. There is no free lunch in the borrower’s life.

Although much of the borrowing is for infrastructure development, which is a good thing, the debt is also growing by that vague item called budget support.

The Inspector General of Government is soon losing her voice for endlessly telling us of trillions stolen from public coffers, and the “budget support” loans are also in the pot from which the stealing is done, since it is not earmarked for any project and therefore is not subject to the lenders’ monitoring.

The amounts stolen exceed the amounts borrowed for development. So if stealing can be limited, the need for borrowing would reduce.

We could choose to live with a growing public debt and let our grandchildren face the consequences, but it is not stopping at the government level. Ugandans can be reckless borrowers.

Maybe other countries also borrow, especially those with credit cards and mortgage cultures. But their interest rates are not as crazy as ours.

We blame our government for reckless borrowing but the individuals who make up the nation aren’t any different. When banks demand stiff interest, our people run to the loan shark who charge 10 percent per month!

Their best ally is Uganda Prison Services, for when you default, they cart you off to jail for six months. If there is a wannabe big spender that you haven’t seen in Kampala for a while, check Luzira Prisons — fellow could be there.

Prison management has been complaining of congestion, thanks to defaulters filling civil jails. For these days some borrow without any intention of paying. When the lender fails to collect and calls in the enforcers, the borrower goes to prison secretly laughing.

Apparently, there is peace like that of the dead in prison. There, creditors cannot bother you with phone calls and threats. And apparently after serving your six months, being compelled to pay becomes very hard, especially if you concealed the proceeds of the loan well.

So there we are, and how we arrived here is not the question, but how we get out. The government, banks, money lenders and the people are all addicted to the game.

Will something give way? How long can the crisis be postponed?

Joachim Buwembo is a Kampala-based journalist. E-mail:[email protected]