Government domestic borrowing and private sector credit in Uganda : a time series analysis

Abstract

In Uganda for example, by the end June 2015, the total stock of outstanding government domestic debt at cost was UGX 9.93 trillion (or USD 3.31 billion) compared to the stock of Shs.7.2 trillion (USD 2.82 billion) by the end of June 2014. This represents an increase of 38% in the stock of domestic debt. Right back from 2012/13, Uganda has used domestic securities explicitly for fiscal policy purposes, and her domestic debt stock has been on an upward trend averaging a growth rate of nearly 30%. This project examined the impact of public domestic debt on private credit levels in Uganda over the period 2008-2016, an investment function with three independent variables, namely treasury bills, bonds, and central bank overdraft. The dependent variable is private sector credit. Secondary data obtained from Bank of Uganda (BOU) and Uganda National Bureau of Statistics (UBOS) was used. SPSS Software was used in running linear regression. The results indicated that high levels of domestic borrowing have negatively affected private sector investment. The results also showed that the impact of public investment on private investment was not as significant as public domestic debt variably suggesting that public investment has not been complementary on private investment. Variability in interest rates has negatively impacted on private investments while regarding GDP, economic growth has induced more private investments. The findings of this paper call for designing appropriate policies that deal with the ever-rising domestic public debt and the sale of domestic debt in Uganda. The results have important implications for fiscal management in the context of the country's crying need to generate faster employment growth, meet the Millennium Development Goals (MDGs), and attain middle class income status.