By Elias Biryabarema
KAMPALA, Feb 20 (Reuters) - Uganda's government said on Tuesday its domestic borrowing would be around 75 percent higher than budgeted this year to cover wages and infrastructure projects after huge shortfalls in projected tax collections.
In his budget speech in June, Finance Minister Matia Kasaija said the government would borrow 954 billion Ugandan shillings($263 million) in the financial year to June 2018.
He said on Tuesday that figure would rise by 736 billion shillings - potentially undermining a monetary easing cycle through which the central bank is seeking to boost credit flows to the private sector.
"The purpose of this borrowing is to mitigate the revenue shortfalls being experienced this year," Kasaija said in a statement.
"The borrowing will ensure that we meet the financing obligations of on-going infrastructure projects ... as well as other statutory obligations such as wages."
Uganda is implementing infrastructure projects in the transport and energy sectors ahead of the scheduled launch of crude oil production in 2020.
Economic growth in the East African country has slowed in recent years due to weak agricultural output, red tape, corruption and weak private sector investment.
Growth fell to 3.9 percent in the 2016/17 financial year from 4.8 percent the year before. This year the central bank - which pegs the economy's potential growth rate at 7 percent - is projecting 5 percent.
The bank has been gradually cutting interest rates for about two years, and the benchmark stands at an historical low of 9 percent.
David Bagambe, trader at Diamond Trust Bank, said more government borrowing was likely to push up yields "which is contrary to what ...(the central bank) is trying to achieve."
Opposition politicians have in the past criticised excessive borrowing by the government of aging leader Yoweri Museveni and says some borrowed funds are lost to corruption.
Kasaija said the extra debt issuance would not squeeze private sector borrowing as there was a large amount of liquidity in the financial markets.
($1 = 3,632.0000 Ugandan shillings)
(Reporting by Elias Biryabarema; Editing by George Obulutsa and John Stonestreet)
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