KAMPALA - Uganda has shelved plans to issue a Eurobond as it can borrow money more cheaply from China, a finance ministry official said on Monday.
Permanent Secretary Keith Muhakanizi said launching a sovereign bond was no longer a priority while Asia's economic powerhouse was providing loans at favourable rates.
"We have shelved the Eurobond plans for now because China is willing to give us cheaper money," Muhakanizi told Reuters by telephone.
Uganda had not set a date for a Eurobond issue but had touted the idea for a while as it gears up to becoming an oil producer as early as 2016.
Last month, Uganda received support from the International Monetary Fund to lift its ceiling on non-concessional borrowing to $2.2 billion from $1.5 billion. The IMF said this was to help fund electricity generation projects needed to close an acute power deficit.
The IMF said on Monday that despite the projected increase in external debt, Uganda's public debt would remain manageable and that the risk of debt distress remained low.
"The purpose of the financing is a good one. A more stable electricity supply would lower production costs and lead to job creation and poverty reduction," Ana Lucía Coronel, the IMF's country representative, told Reuters in an email.
Credit agency Standard and Poor's this month cut Uganda's rating to B from B+ with a stable outlook, raising its forecast for the country's budget deficit this year.
Coronel said the increase in non-concessional borrowing was related to a financing package from Eximbank China that would be at "relatively soft commercial terms."
Even though the IMF backed Uganda's increased spending plans, the Washington-based body advised the Kampala authorities to avoid fuelling inflation or crowding out the private sector, Coronel said.
Last year Uganda granted two Chinese companies contracts to build hydropower dams on the river Nile.
Government officials have said China, which has sharply stepped up investments across Africa, will help fund both projects.
One, the Karuma dam, is expected to cost $1.65 billion and will generate 600 megawatts.