Determinants of Government Debt Sustainability in Uganda for the Period 1960-2015

Abstract

Unquestionably the impact of government debt sustainability, especially the external debt on economic growth in developing countries in particular can never ever over emphasized enough. The status of external debt in many of the developing countries has been an issue of concern among both bilateral and multilateral lending agencies like the IDA for the World Bank, ADF for the African Development bank and other emerging infrastructure financers like China and also among scholars and policy makers since the start of the early 1980’s debt crisis. The ability of the government to sustainably service its debt obligations will depend on how much it borrows in the first place, but most importantly the purpose of the loan, because it argued if funds are well invested then returns are high which ae then utilized in paying back debts. In this paper we examine this notion of debt sustainability considering real values on economies output such as real GDP, real exports and imports, total government revenue and how much government spends and finally the inflation rate. This is done by using data from world development indicators about Uganda’s economic performance since 1990 to 2015, linear imputation is adopted in years with missing observations for certain variables like inflation, total revenue and government expenditure. The results from the estimation show a one unit improvement in real GDP and total revenue and real export will significantly improve government debt sustainability status by 87.3, 46.8, and 2% respectively, while an increase in real imports, government expenditure and inflation will reduce government sustainability by 84.9, 66.0 and 06.0% respectively. A review of debt statistical figures showed that most highly indebted countries are not paying more 95% of debt obligations, this was clearly highlighted in BOU’s 2017 report of the economy. The policy message is that government should cut down on its wasteful spending and direct borrowed funds in infrastructure spending like hydropower projects, roads and investing in human capital which can enhance revenue collection to service debts. Government should also improve export status of the country concentrate in production of agricultural products in which it seems to have a comparative advantage.