Uganda is compelled to borrow from commercial banks as other options wane, with debt nearing $2 billion. The country is seeking a $190 million loan for Umeme Ltd’s exit claims, and additional funds for the Uganda Electricity Distribution Company and the railway project. The share of external debt from commercial banks is significant, raising concerns over the future debt-to-GDP ratio.
Uganda has increasingly turned to commercial banks for borrowing as other options have diminished. The government’s debt to these banks is nearing $2 billion, primarily to fund essential energy and transport projects. Recently, Uganda sought a $190 million loan from local banks to address claims made by Umeme Ltd., due to a termination of its 20-year power distribution contract set to expire this month.
Stanbic Bank Uganda Ltd is taking the lead in arranging this loan, although details about participating banks and interest rates remain undisclosed. Parliament approved the borrowing request last week. Additionally, the government is seeking $50 million to recapitalize the Uganda Electricity Distribution Company Ltd, Umeme’s successor, and over $1 billion to finance the standard gauge railway project, as reported by government sources.
The September 2024 debt sustainability analysis shows that commercial banks possess 12 percent ($1.73 billion) of Uganda’s external debt. In contrast, bilateral creditors, such as China, hold 23 percent ($3.41 billion), while multilateral creditors, including the World Bank and International Monetary Fund (IMF), hold a majority at 65 percent ($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.
Uganda’s total external debt rose from $14.59 billion in June 2024 to $14.91 billion by the end of September 2024. Stanbic Bank Uganda has issued the largest share of commercial debt to the government, totaling $760 million by September 2024, with many loans tied to floating interest rates. A $400 million loan has also been secured previously from Standard Chartered Bank for national security enhancements, alongside a $2 million loan in 2021 for medical supplies.
External debt servicing costs increased dramatically from $240.5 million in the second quarter of 2024 to $363.8 million between July and September 2024, largely due to repayment obligations for ongoing hydropower projects such as Karuma and Isimba.
In conclusion, Uganda is resorting to commercial banks for financial support as alternative funding options diminish. Significant loans have been pursued for vital infrastructure projects, leading to increased external debt and servicing costs. The emphasis on commercial borrowing highlights the country’s immediate financial priorities amidst rising debt-to-GDP ratios.
Original Source: www.zawya.com
