Uganda is increasing borrowing from commercial banks, with debts reaching $2 billion, as access to alternative financing diminishes. A $190 million loan is being negotiated for Umeme Ltd’s exit claims, while further loans are planned for energy and transport projects. Commercial banks hold a significant share of Uganda’s external debt, adding pressure on fiscal sustainability.
Uganda is again resorting to borrowing from commercial banks due to a reduction in alternative credit options. Currently, the nation owes approximately $2 billion to these banks as it seeks to finance key energy and transportation initiatives. This week, Uganda is actively negotiating a $190 million loan from local banks to cover claims from Umeme Ltd, linked to its expiring power distribution concession.
Stanbic Bank Uganda Ltd is leading this loan arrangement; however, little information is available regarding other participating banks or the projected interest rates. The country’s Parliament approved the loan last week, a crucial step in addressing immediate financing needs. Moreover, an additional $50 million is anticipated for the recapitalization of Uganda Electricity Distribution Company Ltd, Umeme’s successor, and over $1 billion is required for the development of the standard gauge railway project, as indicated by government sources.
According to Uganda’s debt sustainability analysis report from September 2024, commercial banks represent 12 percent ($1.73 billion) of the nation’s external debt. In contrast, bilateral creditors, such as China, account for 23 percent ($3.41 billion), while multilateral creditors, including the World Bank and International Monetary Fund, hold 65 percent ($9.77 billion) of Uganda’s external debt.
Patrick Ocailap, Deputy Secretary to the Treasury, stated, “The message we are sending to investors is that more commercial borrowing is required to execute certain projects and spending commitments.” He mentioned that this new wave of commercial loans may elevate the country’s debt-to-GDP ratio to 46.8 percent in the near future. Notably, Uganda’s external debt grew from $14.59 billion in June 2024 to $14.91 billion in September 2024.
At the end of September 2024, Stanbic Bank Uganda had issued $760 million in commercial debt facilities to the government, the largest share noted. Many of these loans have floating interest rates, reflecting a shift in financial conditions. Additionally, a previous $400 million loan was obtained from Standard Chartered Bank for security enhancements nationwide, along with a $2 million loan for National Medical Stores in 2021 for essential medical supplies.
The total costs of servicing external debt have increased markedly, rising from $240.5 million between April and June 2024 to $363.8 million between July and September 2024, largely due to obligations tied to the Karuma and Isimba hydropower projects.
In summary, Uganda’s renewed reliance on commercial banking for financing critical infrastructure and energy projects underscores an ongoing trend of increasing external debt. The government’s approach involves borrowing significant amounts to cover immediate fiscal responsibilities while managing its debt burden, which is projected to rise in relation to the GDP. With a substantial portion of this debt contracted from commercial banks, the financial landscape appears increasingly precarious, necessitating careful management of obligations to avoid exacerbating the economic strain.
Original Source: www.zawya.com
