The impact of domestic resource mobilization on debt sustainability: evidence from Uganda.

Abstract

Uganda’s public debt burden has risen by 12.7% in the last four years from 25.9% in FY 2012/13 to 38.6% as at the end of FY 2016/17. This figure is expected to continue rising and is projected to peak at 42.6% in FY 2019/20 before declining to 28.4% by FY 2024/25 which may hamper its future debt servicing capacities. This dissertation therefore, investigates the impact of Domestic Resource Mobilisation on Debt Sustainability. Five variables - tax revenue, savings, domestic credit, GDP per capita and inflation were used to capture Domestic Resource Mobilisation phenomena. Employing the ARDL approach to cointergration, finding suggests that all variables were significant but have varying effect on debt sustainability therefore, an improvement in domestic revenue mobilisation will boost Uganda’s ability to achieve debt sustainability. To control the country’s debt with in a manageable range (below the 50% threshold), there is a need for policy measures to aim at improving Domestic Revenue Collections, controlling Inflation, Domestic Credit as well as increasing the country’s GDP per capita.