The government faces a fiscal risk of more than 16 Trillion Shillings.
The Directorate of Debt and Cash Policy at the ministry has compiled a report that identifies 16.7 Trillion Shillings in contingent liabilities to the government, equivalent to just below 10 percent of the GDP.
This, however, does not include government obligations to public private partnerships (PPPs), meaning the liabilities to he state are higher.
A government’s contingent liabilities are potential obligations – either explicit, like loan guarantees, or implicit, like the expectation of crisis intervention – that depend on future events, potentially impacting the government’s finances.
Most of these arise from government guarantees of borrowing by its Ministries, Departments and Agencies, commitments to the private sector and legal proceedings against the government.
Examples include loan guarantees, government-backed guarantee programmes, liabilities arising from legal proceedings, and obligations stemming from PPP contracts.
Costs of delayed PPPs
The report shows that although the government has made progress in reducing loan guarantee exposure, the rapid accumulation of contingent liabilities related to state-owned enterprises, unquantified PPP commitments, and legal cases presents important challenges that require urgent policy action.
While PPP contracts present high levels of contingent liabilities, in this report, the values are not stated because, of the 40 PPPs, none of them are quantified as they are still either at concept stage, procurement of private party, feasibility study, procurement of transaction advisor, procurement stage, or on hold.
So none has reached financial closure, and of concern is that many have stalled at the feasibility stage due to financial constraints.
The current pipeline of PPP projects in Uganda includes a wide range of infrastructure initiatives across sectors such as transport, energy, ICT, education, healthcare, and tourism.
The report shows that most of PPPs are stalled at the feasibility stage due to funding constraints.
“PPPs also introduce long-term fiscal commitments and contingent liabilities, which must be carefully assessed to ensure that they do not pose undue risks to public finances,” it says.
State-owned enterprises (SOEs):On implicit contingent liabilities, the report assessed 36 state-owned enterprises. Though it is not legally bound, government intervention may be required for social or political or economic reasons when an enterprise is in distress.
“The most pressing concern is the scale of SOE contingent liabilities, which has reached a level where it could jeopardise fiscal sustainability if left unchecked,” the report says.
The five SOEs with the largest contingent liabilities are Uganda Electricity Transmission Company Limited (UETCL), Uganda Electricity Distribution Company Ltd (UEDCL), Uganda Electricity Generation Company Ltd (UEGCL), National Water and Sewerage Corporation (NWSC) and the Uganda Civil Aviation Authority (UCAA).
In particular, the report says, UEDCL and UETCL are already showing signs of financial distress, increasing the likelihood of government intervention to prevent service disruptions.
“This is further compounded by low profitability, inefficient cost structures, and high financial obligations. Without stronger financial oversight and risk management measures, these liabilities could translate into direct fiscal costs, placing additional pressure on the national budget.”
Loan guarantees Loan guarantees issued by the Government of Uganda serve as an important instrument for facilitating access to financing in key sectors such as education, trade, SME development, and industrialisation.
As of December 2024, there were 10 active government loan guarantees, a decline from 12 in the previous year, with the total value of the loans amounting to 100 Million Dollars (about 370 Billion Shillings).
These active guaranteed loans are held by two institutions: the Uganda Development Bank Limited, accounting for seven, meant for financing SMEs, agribusiness, manufacturing, and industrialisation projects.
The Islamic University in Uganda (IUIU) holds three 3 guarantees, which were for investment in higher education infrastructure.
The maximum expected loss, in the event of both UDBL and IUIU defaulting on their debts, would reach 48.3 Million Dollars (about 177.5 Billion Shillings).
Legal Related LiabilitiesAccording to the consolidated financial statements of the government, contingent liabilities related to legal proceedings grew to 4.9 Trillion Shillings by June 2024, from 4.41 trillion as at June 2023.
The bulk of these liabilities originate from Ministries, Departments, and Agencies (MDAs), with Ministries alone accounting for 91 percent (4.474 Trillion Shillings), and Agencies 424 Billion, while Public universities and self-accounting tertiary institutions contribute 2.34 Billion.
This increase underscores the growing budgetary pressure that legal disputes can impose on government resources, according to the department.
Legal cases present a significant share of contingent liabilities to the government, highlighting the risk of unexpected fiscal costs if adverse rulings materialise.
“These obligations are potential financial costs that may materialise only upon resolution of ongoing legal disputes or verdicts, whose outcomes are uncertain until the conclusion of legal processes,” the report says.
Such disputes can arise from multiple sources, including contract disagreements, regulatory breaches, or negligence claims, and resolving them often involves substantial financial exposure for the government.
The report says that the government must adopt a proactive and risk-based approach to managing contingent liabilities and set a threshold for contingent liabilities as a share of GDP, among others.