Is Uganda-China debt relationship sustainable?

By Admin

These loans are to be repaid in a short period of averagely 10 years yet they are invested in long term projects

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By Richard Ssempala

Uganda like other developing countries does not wholly finance its Financial Year National budget, hence is necessitating borrowing domestically and externally.

Historically, Uganda has had a poor trend of public debt management which prompted a debt campaign by civic groups like Uganda Debt Network and Development partners including IMF and World Bank inter alia and the subsequent relief worth $2b in 1990s through the Highly Indebted Poor Countries initiative (World Bank, 2000).

However, Uganda’s public debt is gradually rising based on bilateral relations. For instance between January 2010 and June 2016, the Government signed 96 loan agreements worth $8.8b with China’s EXIM Bank being the largest creditor at 29% of the total loans, followed by the World Bank (27%) and African Development Bank (21%). Other creditors account for 23% (BADEA, EIB, France, Germany, IFAD, Japan, Kuwait, OPEC, South Korea and Saudi Arabia). 

Loan agreement performance data (2016) according to Ministry of Finance, Chinacommitted $350m for Entebbe-Kampala Expressway, $100m to improve road networks, $483m for Isimba hydropower plant and $1.4b for Karuma Dam, among others in the said period.

China alone has a loan commitment totaling to $2,588,078,279.  Over, the last four years, Uganda has seen an increasing share of Chinese loans in roads and energy projects in excess of $3b.

This is slightly above 10% of Uganda's current GDP at $27.53b (World Bank, 2015). However, the greatest worry underlies the conditions and terms for which these loans are contracted i.e. either non concessional basis or as semi concessional terms.

In addition, these loans are to be repaid in a short period of averagely 10 years yet they are invested in long term projects.

This implies that if Uganda does not comply with the debt obligations, the country is likely to undergo debt distress in the near future, given the fall in GDP growth from 7.3% between 2000 and 2010, to an average of about 5% , low foreign earnings, unstable exchange rates among other macro-economic constraints. 

More so the 10th Parliament has passed about 10 loans in its short period and about five loans are currently under considerations.

However, according to the Auditor General’s report (Dec 2016), challenges in utilisation and absorption of externally acquired loans like low disbursement rate, increasing commitment fees, delayed execution of projects etc. were cited which are likely to raise the debt burden for ordinary Ugandans. 

Since there has been a drastic shift to borrow from traditional to commercial creditors, the question remains whether Uganda will get a relief from these new players in financing its development in case of default.

Therefore, technocrats should thoroughly scrutinise the terms and conditions attached to loans especially those to be contracted on concessional terms otherwise Uganda might become debt distressed.

Writer is a research associate with Uganda Debt Network