Uganda is borrowing from commercial banks as alternative financing diminishes. Debt from these banks is approaching $2 billion, primarily for energy and transport projects. The government seeks $190 million for Umeme Ltd’s exit claims and $50 million for the Uganda Electricity Distribution Company Ltd’s recapitalization. Overall external debt has risen, along with servicing costs attributed to infrastructure project repayments.
Uganda is turning back to commercial banks for borrowing as alternative financing options diminish. The nation’s debt to commercial banks is nearing $2 billion, primarily to fund energy and transport projects. Recently, Uganda sought a $190 million loan from local banks to settle claims from Umeme Ltd, related to a 20-year power distribution concession approaching its expiration.
Stanbic Bank Uganda Ltd is the lead arranger for this loan; however, details regarding other participating banks and the interest rate remain unclear. The Ugandan Parliament approved the loan request last week. Additionally, the government needs $50 million for the recapitalization of the Uganda Electricity Distribution Company Ltd, Umeme Ltd’s successor, and over $1 billion for financing the standard gauge railway project.
Commercial banks contribute a 12 percent share, amounting to $1.73 billion, of Uganda’s external debt, as noted in the September 2024 debt sustainability analysis report. In contrast, bilateral creditors, including China, represent 23 percent ($3.41 billion) of the debt, while multilateral creditors account for 65 percent ($9.77 billion), involving entities like the World Bank and International Monetary Fund.
Deputy Secretary to the Treasury, Patrick Ocailap, stated, “The message we are sending to investors is that more commercial borrowing is required to execute certain projects and spending commitments.” He highlighted that these new commercial loans will elevate Uganda’s debt-to-GDP ratio to 46.8 percent in the short term.
Uganda’s total external debt increased from $14.59 billion in June 2024 to $14.91 billion by the end of September 2024. Stanbic Bank Uganda has issued $760 million to the government in commercial debt by September 2024, with a large portion linked to floating interest rates. Furthermore, a previous loan of $400 million from Standard Chartered Bank was secured for the installation of security cameras nationwide, and the same bank also provided a $2 million loan for National Medical Stores in 2021 for essential medicine procurement.
External debt servicing costs have risen from $240.5 million between April and June 2024 to $363.8 million between July and September 2024, a rise attributed partly to repayment obligations related to the Karuma and Isimba hydropower projects.
In summary, Uganda’s financial strategy entails increased reliance on commercial banks as alternative funding sources diminish. The government is actively pursuing loans to support various infrastructure projects while managing a significant external debt. This trend raises concerns regarding the debt-to-GDP ratio and reflects the challenges faced in securing diverse financing avenues to meet the nation’s development needs.
Original Source: www.zawya.com
