The Big Deal About The Big Debt

On the 14th of June 2018, Uganda's finance minister read the budget for the financial year 2018/19 and so did his counterparts of the other East African states. Being part of several post-budget engagements I listened in while the experts discussed away. I pride myself of being a disciplined tax accountant who does not cross lanes. I have always left economics for the economists.

However in the eyes of the majority, an accountant should also have answers to questions directed to economists. I got several calls seeking my comments on the 2018/19 budget especially the debt, so I have seized the opportunity to provide an economist's opinion. To simplify our discussion let us define some concepts.

GDP (Gross Domestic Product)

Gross domestic product is the total value of everything produced within the boundaries of a country in a financial year. The nationality of those in production does not matter as long as the production is within the country. Economists say that GDP is the best way to measure the size of a country's economy.

Public Debt (National Debt)

If government spending in a financial year is greater than what it collects in revenue, the difference is normally financed by debt which in some cases accumulates over the years. The amount outstanding at any one moment is what is referred to as public debt

According to the finance minister our public debt is seated in the neighborhood of UGX 38 Trillion and the Gross Domestic Product (GDP) at UGX 102 Trillion or there about. In the minister's view debt in absolute terms even if bigger than our annual budget (about UGX 33 Trillion), does not call for worry.

In his remarks after the budget reading, the president resonated with his delegate but in a different fashion. According to him the debt as a percentage of GDP (about 38%) is a ratio we should only worry about if it goes to the 50% zones.

Compared with the other East African states whose debt to GDP ratios are in the 40-60 percent range, and also since I have learned that for some of the world's biggest economies this number was even higher than 90, I will agree with the president and the finance minister that indeed there is no cause for panic. However there is concern about Uganda's acceptance of loans with high interest rates with no or very short grace periods (non-concessional loans).

My feelers signal a climbing trend of taking on more expensive debt than previously. The non-concessional debt as a percentage of total public debt is...