Uganda’s Medium Term Debt Management Strategy for FY 2015/2015 – FY 2019/2020: What is it all about?
Here you will see what strategies and plans the Government of Uganda has made for their loans and debts. This is about how the Government will deal with it and how it can be done. The numbers tell what they can expect if they pick the certain ways of dealing with it. It shows what can happen and the shock scenarios are important.
This should be seen as important to follow especially with the growing debt and the rates that come with that. Therefore it will be something that should be monitored. From the sustainability of the ratio according the GDP should be something that also brings fear. Especially since this will have general effect on how the general economy will be hit with the down payments and strain the basic budgets of the government. There its a viable thing that should be well known by people, because this will have big importance until FY 2019/2020
“The Uganda Vision 2040 aspires to transform Uganda into a modern and prosperous society within 30 years through provision of adequate infrastructure, development of agriculture, human resources and services sectors, enlargement of markets, strengthening of the private sector and through industrialization” (…) “Implementation of the Uganda 2040 Vision will require substantial resources that will partly be garnered through the domestic and international borrowing. To ensure that our debt remain sustainable, such borrowing has to be carried out through a properly formulated Medium Term Debt Management Strategy (MTDS)” (MTDS, P: 4, 2015).
“The key aim for the MTDS2015 is to ascertain the cost and risk trade-off of financing the medium term fiscal deficit through borrowing while remaining mindful of our debt sustainability” (…) “To meet Government’s financing requirements at the minimum cost, subject to a prudent degree of risk; (ii) to ensure that the level of public debt remains sustainable, both in the medium and long term horizon while being mindful of future generations; and (iii) to promote the development of the domestic financial market (MTDS, P: 6, 2015).
- Traditional post debt relief approach of prioritizing concessional financing.
- A debut Euro-Bond: The Sovereign Bond Issuance which risks the cost and the trade-off of the International-Market and financing alternative.
- Non-Concessional borrowing and meeting with bilateral with commercial creditors negotiations.
- Reliance on Domestic-Financing establishing the cost and risk trade-offs, which risk less since it’s from the Domestic-Financial-Market.
(MTDS, P: 6-7, 2015).
External Debt Stock:
From FY2006/2007 it was Domestic Debt and Outstanding(DoD) was US$1.47 billion. And in FY 2013/2014 had risen to US$4.3 billion (MTDS, P: 13, 2015).
Domestic Debt Stock:
External debt maturity for the ATM (Average Time for Maturity) was 18.9 Years. The plan is setting that the in 2.3 years will the ATM be 11.8 years.
Aggregrate Medium Term Debt Strategy:
The outlook for the 5.3% in FY 2014/2015 and is looking to reach 5.8% in FY 2015/2016. The plan forward is to attain an average 6.3% for the fiscal framework (MTDS, P: 17, 2015).
Government expenditure is on an average to be 20.9% of the GDP for the FY 2014/2015. In the 2015/2016 it is 21.7% of the GDP. The main expenditure for the budget is the infrastructure projects like the upgrading of Entebbe International Airport, Hydro Power projects and Albertine Regional Airport. The total cost for the projects is US$7.0 Billion. There is set to be 5% target for the inflation rate and the exchange rate is set for 12.1% in FY 2015/2016 and average for 2.4% the rest of the years for the medium term (MTDS P: 17-18).
Stylized Financing Instruments:
i: International Development Association (IDA) has the interest 0.75% for the maturity of 38 years.
ii: African Development Fund (ADF) has the interest 0.75% with a maturity of 40 years.
iv: The concessional is with fixed rate loans with 23 years maturity and 6 year grace period. These terms comes from IDA-Blend, Kuwait Fund, Abu Dhabi Fund, UK-Export Credit Guarantee.
v: The fixed rate instrument on the Euro Bond which is priced on a ten-years US-Treasury interest rate.
vii: With Pure commercial loans is a instruments with a 7 years of maturity and with a 3 years grace period.
viii: One T-Bills is a domestic market debt instrument that has a maturity of 91 days, 181 days, and 364 days.
ix: Four T-Bonds is a domestic market debt instrument that has a maturity of 2, 5, 10 and 15 years.
(MTDS, P: 18-21, 2015).
Four scenarios for the Market:
First Scenario: The first thing is possible currency depreciation – is that in the FY 2015/2016 can end up with 30% depreciation and will have to work to sustain that through to 2019/2020.
Second Scenario: A sharp off increase in domestic rates for 2015/2016 and at the Interest Rate will follow the baseline of the Foreign Currency.
Third Scenario: Domestic Interest Rate still set to be baseline assumption that we’re set. And that the denomination on the Foreign Currency following the instruments set for it.
Fourth Scenario: That the Decapitation of the UGX towards the US Dollar in the amount of 15%, that can lead to a shock in the domestic yield a curve for the 2015/2016.
(MTDS, P: 23, 2015).
Analysis of the strategies:
That the total debt-to-GDP from the current level of 28.6% by the end of June 2014, if the end of the time it might end up with 50% level by 2020. This is because of substantial projected increases the fiscal deficit. With the worst strategy the interest rate can go from 1.4% in June 2014 to become 4% in 2020 (MTDS, P: 24, 2015).
Hope you have found it interesting and learn something of the Government of Uganda planning of dealing with their debt. And how they see the future for their economy. Then what kind of strategies and scenario’s that could appear and how they will appear together. The Financial Years that are ahead and how the Ministry of Finance, Planning and Economic Development thinks of their economy. Hope it give you something and also a little feeling about how the economy might progress.
Republic of Uganda/Directorate of Debt & Cash Management – Ministry of Financing, Planning & Economic Development: ‘Medium Term Debt Management Strategy’ (MTDS): 2015/2016 -2019/2020 (April 2015).