Uganda has turned back to commercial banks for borrowing as credit alternatives diminish, with a current debt nearing $2 billion. The government is pursuing a $190 million loan from local banks to manage Umeme’s concession exit claims and needs additional funds for energy and infrastructure projects. Overall, Uganda’s external debt has risen recently, prompting concerns about the debt-to-GDP ratio.
Uganda is resorting to commercial bank borrowing as credit alternatives diminish, with debt nearing $2 billion. This situation arises as the government seeks financing for critical energy and transport projects. This week, Uganda is pursuing a $190 million loan from local banks to address claims from Umeme Ltd, a power distribution company whose concession is concluding. Stanbic Bank Uganda Ltd is facilitating this loan, but specifics on other banks involved and the interest rate remain unclear, despite parliamentary approval.
Additionally, the government requires $50 million to recapitalize the Uganda Electricity Distribution Company Ltd, Umeme’s successor. This funding, along with over $1 billion needed for the standard gauge railway project, will likely come from commercial lenders. Notably, banks possess a 12% share of Uganda’s external debt, equating to $1.73 billion, as reported in the debt sustainability analysis of September 2024.
In contrast, bilateral creditors, including China, own 23% of the debt ($3.41 billion), while multilateral creditors hold 65% ($9.77 billion). “The message we are sending to investors is that more commercial borrowing is required to execute certain projects and spending commitments,” stated Patrick Ocailap, Deputy Secretary to the Treasury, highlighting concerns about the debt-to-GDP ratio, which could rise to 46.8% short-term due to new loans.
Uganda’s external debt has grown from $14.59 billion in June 2024 to $14.91 billion by September 2024. Stanbic Bank Uganda remains a prominent lender to the government, providing $760 million in commercial debt by September 2024, mostly at floating interest rates. Previous loans include a $400 million loan for security camera installations and a $2 million loan for essential medicines.
Debt servicing costs for external obligations surged from $240.5 million in Q2 of 2024 to $363.8 million in Q3, attributed to repayments linked to the Karuma and Isimba hydropower projects.
In summary, Uganda’s reliance on commercial banking has increased, owing to limited borrowing options. As the government seeks to finance essential energy and infrastructure projects, significant new loans are anticipated, impacting the overall debt ratio. The necessity for borrowing underscores Uganda’s escalating external debt and the financial pressures associated with service obligations.
Original Source: www.zawya.com
