Policies towards external debt sustainability in Uganda(1980-2004)

Abstract

Uganda's external debt has been steadily increasing since the 1970s and has been largely attributed to excessive financing of the 1990s. this has consequently raised questions tn relation to external to external debt sustainability given the low levels of external earnings.

The aim of this study is to ascertain whether Uganda's external debt is sustainable over the period of 1980- 2004. using a simple Interpol deterministic model of debt sustainability developed by Cohen (1985), empirical results from the study indicate that Uganda's external debt was unsustainable for most of 1980s and 1990s with exception of external debt is sustainable for the years 1988- 2004 mainly because of the positive projected export growth rate and low interest rates generated. the result also suggest that from 1993 to 2004 Uganda can afford to run trade deficit on the current account

This study on the basis of empirical findings recommends that for Uganda to maintain sustainability of external debt it has to continue borrowing at a highly concessional interest rate and increase export earnings through massive investment in export sector. these recommendations will improve Uganda's solvency conditions