Uganda is borrowing from commercial banks as alternative financing diminishes, with debt nearing $2 billion. Currently, it is pursuing a $190 million loan for Umeme Ltd’s exit claims. Additional funding is sought for the Uganda Electricity Distribution Company Ltd’s recapitalization and the standard gauge railway project. The country’s debt management will soon elevate the debt-to-GDP ratio to 46.8%.
Uganda has resumed borrowing from commercial banks due to declining alternative financing options, with its debt to these banks nearing $2 billion. Currently, the government is negotiating a $190 million loan from local banks to address claims from Umeme Ltd related to a power distribution concession that concludes this month. Stanbic Bank Uganda Ltd is spearheading the arrangement, yet details regarding other participating banks and applicable interest rates remain elusive. Parliament approved this loan request last week.
Additionally, Uganda requires $50 million for the recapitalization of the Uganda Electricity Distribution Company Ltd, a successor to Umeme Ltd, along with over $1 billion needed for the financing of the standard gauge railway project. Commercial banks account for 12 percent ($1.73 billion) of Uganda’s external debt, as detailed in the debt sustainability analysis report from September 2024.
By comparison, bilateral creditors, including China, hold 23 percent ($3.41 billion) of the debt, while multilateral creditors, comprising organizations such as the World Bank and International Monetary Fund, control 65 percent or $9.77 billion. Patrick Ocailap, Deputy Secretary to the Treasury, noted, “The message we are sending to investors is that more commercial borrowing is required to execute certain projects and spending commitments.” He added that these new commercial loans could elevate the debt-to-GDP ratio to 46.8 percent temporarily.
Overall external debt increased from $14.59 billion in June 2024 to $14.91 billion by the end of September 2024. Stanbic Bank Uganda holds the largest share of commercial debt provided to the government, amounting to $760 million at the end of September 2024, with many loans associated with floating interest rates. Earlier, a $400 million loan from Standard Chartered Bank was secured for installing security surveillance cameras nationwide, alongside a $2 million loan extended to National Medical Stores in 2021 for vital medicine procurement.
The costs of servicing external debt rose notably from $240.5 million between April and June 2024 to $363.8 million from July to September 2024, a significant part of which is linked to repayment responsibilities linked to the Karuma and Isimba hydropower projects.
In summary, Uganda’s increasing reliance on commercial bank loans highlights the tightening financial landscape amidst significant infrastructure funding requirements. As it seeks to manage its burgeoning debt obligations, the government’s strategy to engage local banks reflects a critical moment in addressing both energy needs and transportation development. The noted rise in external debt servicing costs further emphasizes the urgency of sustainable financial management going forward.
Original Source: www.zawya.com
