UGANDA

UGANDA
bump in several debt burden indicators. The severity of the export shock, driven by the large export growth
volatility over the last ten years, might also overstate the vulnerabilities. In particular, the conflict in
neighboring South Sudan has reduced the level of exports and contributed to the volatility of export
growth. However, the vulnerability to export shocks is projected to be gradually reduced by the current
scaling-up of infrastructure that should support Uganda’s exports. Indeed, over the long-term, all debt
burden indicators are comfortably below the relevant thresholds. Staff, therefore, assesses that the external
debt sustainability risk is low.
7. Nevertheless, risks to debt sustainability have increased. The scaling-up of investment
spending and related increases in semi-concessional borrowing lead to increased vulnerabilities. In turn,
failure to realize the envisaged growth dividend from the increased investment is a key risk as the historical
scenario illustrates. The muted export performance remains another important risk, with the large impact of
the shock scenario relative to the baseline being due to the significant volatility in export growth, which
exceeds the historical average growth rate of exports. This highlights the importance of enhancing the
country’s competitiveness to boost exports over the medium term, including through effective public
investment to fill infrastructure gaps. If growth and exports prospects were to be revised down in the future,
this could adversely affect Uganda’s risk rating, as could additional reliance on non-concessional borrowing
that would not lead to higher growth rates.
8. Risks stemming from the uncertainty about oil production remain limited (customized
scenario). In the baseline, it is assumed that the government uses half of its oil revenue to finance
additional public investment—conceptually considering part of public investment directly tied to the
existence of oil revenue. In the no-oil scenario, public investment is thus reduced by the amount tied to half
of the “lost” oil revenue. However, the the fiscal deficit is still higher than in the baseline. As a result, the debt
burden and debt service indicators over the long-term are somewhat higher than in the baseline scenario.
Nevertheless, all external debt indicators remain below their respective thresholds with large margins,
indicating a limited increase in debt sustainability risks. Moreover, as oil production licenses have now been
awarded and the pipeline route agreed on, the uncertainty about oil production has declined. Nonetheless,
given the high uncertainty of oil prices, keeping a prudent fiscal plan that does not overly rely on oil
proceeds is warranted.
PUBLIC DEBT SUSTAINABILITY
9. Total public debt (external and domestic) is also assessed to be sustainable over the
projection period. The PV of public debt-to-GDP ratio is projected to peak at about 36 percent in FY2021,
well below the benchmark level of 56 percent associated with heightened public debt vulnerabilities for
medium performers (Figure 2, Tables 2 and 4). However, the relatively short average maturity of domestic
debt combined with a low revenue base continues to be a matter of concern. The debt service-to-revenue
ratio (including grants) is projected to stay close to 40 percent until FY2022, among the highest in lowincome
countries, indicating high rollover and interest rate risks. These risks need to be mitigated by a
combination of stronger revenue mobilization and determined efforts to extend average maturities over the
medium term. In the latest Medium Term Debt Strategy released in June 2016, the authorities commit to
keeping the average maturity of domestic debt above three years and reduce the ratio of short term bills to
6 INTERNATIONAL MONETARY FUND