Government has been advised to cut its current large scale investment on infrastructure because the cost of the planned projects in five years is $30 billion (about Shs108.7 trillion).
This is higher than the size of Uganda’s economy of $27 billion (about Shs97.8 trillion).
In the last seven years the government has maintained high investment in infrastructure projects such as roads and energy, among others, but these projects are financed through loans.
During his presentation at a breakfast meeting for the Investment Association of Uganda at Golf Course Hotel in Kampala yesterday, a lecturer at the School of Economics Makerere University, Dr Fred Muhumuza, said there are too many investment projects being carried out by the government, causing a lot of fiscal pressure on the economy.
“Government needs to scale back its appetite in infrastructure investment and its fiscal deficit as well. There are too many projects that have been planned by government in the space of five years which total to $30 billion, larger than the size of Uganda’s economy which is $27 billion,” he said.
Uganda’s budget for 2016/17 is Shs26 trillion, however, Dr Muhumuza said the actual budget allocation made by parliament to fund the budget is about Shs17.8 trillion and the rest of the money is for interest payments on borrowed funds.
Some of the infrastructure projects in question are Standard Gauge Railways, the oil refinery and pipeline, and the Karuma and Isimba power projects.
The economy is faced with the problem of weak purchasing power due to low levels of people’s income in form of wages and salaries.
The breakfast meeting was themed on high interest rates.
Mr Muhumuza said the interest rates are high because of high government fiscal deficit characterised by asset mismatch.
“Government borrows in the short term using Treasury Bonds of two years and invests in long term infrastructure projects of five years. This has seen interest payment weighing on government budget because big chunk of money is channeled for interest rate payments,” he said.
While addressing bankers during their Annual Dinner in Kampala recently, the governor Bank of Uganda, Mr. Emmanuel Tumusiime Mutebile, said the key challenge has been the rise in nonperforming loans (NPLs), from 3.8 per cent of the total loans in September 2015 to 7.7 per cent in September 2016.
The challenge: The chief executive officer Altx Uganda, Mr. Joseph Kitamirike, said the issue of high interest rates is not the challenge for the borrowers alone but also for the bankers because of high cost funds available in the market.