Based on the joint Low-Income Country Debt Sustainability Framework of the World Bank and the IMF, Uganda is assessed to be at low risk of debt distress. Its debt ratios have improved substantially over the past few years on account of HIPC and MDRI debt relief. To accelerate and sustain high economic growth, the authorities plan to continue to address infrastructure constraints. Under the baseline scenario, external debt is expected to remain well below the thresholds over the medium and long term, while public debt exhibits stable debt dynamics. However, a permanent shock to real GDP growth under which growth is on average smaller by roughly 1 percent of GDP compared to the baseline scenario and where the path of nominal fiscal expenditure is not adjusted, results in a marked deterioration in public debt. This highlights the risk should the growth dividend from investments undertaken be lower than expected.
Prepared by the IMF and World Bank staff in consultation with the authorities. This DSA updates the DSA that the authorities had prepared in September 2008 to reflect the impact of the current financial crisis and the projected global slowdown. DSA assumptions and results have been discussed thoroughly with the authorities. All debt indicators refer to Uganda’s fiscal year (July-June).
Total MDRI relief (including future interest) delivered in 2005/06 and 2006/07 was about US$3.6 billion.
The World Bank’s Country Policy and Institutional Assessment (CPIA) ranks Uganda as a “strong performer.” Debt burden thresholds for strong performers are NPV of debt to GDP ratio of 50 percent, NPV of debt-to-exports ratio of 200 percent, NPV of debt-to-revenue ratio of 300 percent, debt-service-to-exports ratio of 25 percent, and debt-service-to-revenue ratio of 35 percent.
Updated export data contributed to the lower ratios compared with the 2007 DSA.
Improved national statistics have resulted in an upward revision of the GDP and the current account balance that contributed to better debt sustainability indicators.
While the baseline already incorporates lower forecasts, the downside risks are significant, as the impact of the financial crisis on global demand is still unfolding. Uganda’s export opportunities could be reduced to the extent contagion across countries and sectors is worse than under the baseline. In the event that foreign investors unwind their position in Uganda, more costly access to private capital and downward pressure on the exchange rate would have an adverse effect on debt ratios.