It’s always entirely possible that a developing country can have a debt problem. For there are those cautionary tales of places which manage to regress – always, but always, as a result of bad politics or political decisions – and it’s that very regression which makes formerly manageable debt loads into unmanageable.
It’s also true that if external debts loads are high and there’s some endogenous change then that can cause problems. Say, global interest rates rise, or the terms of trade for an export dependent nation do. Venezuela’s debt problems aren’t all and entirely about idiot socialism, the falling oil price hasn’t helped.
Concern has been expressed about Uganda’s debt position and it’s entirely true that the level itself is higher than we might all feel comfortable with. At 41% of GDP that’s low by developed country standards but that’s not the point. Uganda isn’t a developed country and so doesn’t have the economic fortitude to be able to shrug off interest rate rises or changes in those terms of trade.
However, as important to how much is owed is who it is owed to. If it’s the local branch of the Legbreaker Bank then it’s possible to get into very much more trouble than if you’ve been borrowing from an indulgent religious-style godfather instead. At which point we’d probably say that Uganda’s debt load isn’t a great problem:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] “Multilateral creditors like the World Bank have provided the largest part of government’s financing with the most favourable financing terms.” Kasaija said multilateral debt was on concessional terms, including a grant element which means it would not be burdensome to the country. “The government will continue to be cautious on taking on new projects,” he said. He said multilateral lenders accounted for 68 per cent of outstanding debt while bilateral creditors accounted for 31 per cent and commercial banks only one per cent of the external debt stock. [/perfectpullquote]
As long as there’s no grand shock to the Ugandan economy – grand here meaning more than the normal ebb and flow of the business cycle – then that should be easily supportable. After all, the multilateral lenders can be very forgiving in their terms, even if they do eventually want their money back.