Uganda has reverted to borrowing from commercial banks, accumulating nearly $2 billion in debts. Seeking to finance energy and transport projects, the government is pursuing loans to settle claims from Umeme Ltd and recapitalize the Uganda Electricity Distribution Company. The increase in reliance on commercial loans may elevate the country’s debt-to-GDP ratio temporarily, as external debt servicing costs rise significantly.
Uganda is experiencing a renewed reliance on commercial banks for financing, as alternative credit options diminish. The nation’s debt owed to commercial banks has escalated to nearly $2 billion, primarily as it seeks to fund critical energy and transport projects. This week, Uganda is pursuing a $190 million loan from local banks to settle claims related to Umeme Ltd’s power distribution concession, which concludes this month.
Stanbic Bank Uganda Ltd has been designated as the lead arranger for this loan; however, specific details regarding other banks involved and applicable interest rates remain unclear. The Ugandan Parliament granted approval for this loan request last week. Additionally, the government requires $50 million for recapitalizing the Uganda Electricity Distribution Company Ltd and over $1 billion for financing the standard gauge railway project, which will also come from commercial lenders, as disclosed by government sources.
According to the debt sustainability analysis report of September 2024, commercial banks represent 12 percent (approximately $1.73 billion) of Uganda’s external debt. In contrast, bilateral creditors, such as China, hold 23 percent (around $3.41 billion), while multilateral creditors, including the World Bank and International Monetary Fund, possess the bulk, accounting for 65 percent (about $9.77 billion).
Patrick Ocailap, Deputy Secretary to the Treasury, indicated that additional commercial borrowing is necessary to fulfill project execution and spending commitments. These new loans are anticipated to elevate the debt-to-GDP ratio to 46.8 percent temporarily. Uganda’s total external debt increased from $14.59 billion in June 2024 to $14.91 billion by the end of September 2024.
As of the end of September 2024, Stanbic Bank Uganda contributed the most significant share of commercial debt facilities issued to the government, totaling $760 million. A significant proportion of these loans are associated with floating interest rates. Previously, a $400 million loan was secured from Standard Chartered Bank for the installation of security surveillance cameras nationwide, along with a $2 million loan extended for procuring vital medicines through National Medical Stores in 2021.
The costs related to servicing external debt rose notably from $240.5 million recorded from April to June 2024 to $363.8 million during the period of July to September 2024. This increase is partly attributed to debt repayment obligations linked to the Karuma and Isimba hydropower projects.
In summary, Uganda’s growing reliance on commercial banks for financing reflects the diminishing options for credit alternatives. With significant loans planned, alongside increasing external debt servicing costs, Uganda faces mounting financial responsibilities. The emphasis on commercial borrowing underscores the urgency to fund essential infrastructure projects while maintaining economic stability amidst a rising debt-to-GDP ratio.
Original Source: www.zawya.com
