The impact of public debt on the economic growth of Uganda

Abstract

Uganda’s public debt has been on the rise for quite a while and that trajectory is not about to discontinue as seen from forecasts of public debt by the Ministry of Finance, Planning and Economic Development. Empirical evidence from the study of impacts of public debt on the economic growth of Uganda shows a weak negative significant correlation after analyzing the Pearson’s correlation test using STATA. Due the relationship between the two variables being weak and negative, it means the effect of public debt on economic growth may not easily felt especially in the long run but that effect is significant in the short run.

The study employed the Autoregressive Distributed lag (ARDL)-bounds testing approach because of its efficiency and suitability for this sample. Other procedures involved included the Augmented Dickey Fuller unit root test, Daniel’s test for stationarity which revealed that our series is stationary hence there is no trend in it. Johansen co-integration was also used see if there existed co-integration within the series. Granger causality test was also performed on the series. Uganda’s debt situation has in place since around 2006 after it had received 100 percent debt forgiveness under Multilateral Debt Relief Initiative (MDRI). Before that Uganda’s debt since the 1980’s had increased magnificently thus the need for the 2006 forgiveness. But now the public debt has been on the rise and even though initiatives are taken to structure both internal and external debt so as ease up its payment a heavy burden is still placed on the future generation in terms of tax imposition on them the government. The findings of the study especially of the negative relationship between public debt and economic growth did no deviate from its expectations that is, it is not a surprise that we find out from the study that public debt has a negative impact on economic growth in Uganda as many studies in various countries especially low-income economies had come to the same conclusion.