World Bank remains main source of Uganda’s loans

Although there have been concerns of increasing debt from Chinese banks, Uganda still draws most of its loans from the World Bank.  PHOTO/FILE

What you need to know:

  • Al though there has been concerns of increased non-concessional borrowing from China, Ministry of Finance indicates that Uganda sources much of its loans from World Bank and African Development Bank.   

The World Bank remains the biggest source of Uganda’s loans, according to details from the Ministry of Finance. 

The bank, which lends through the International Development Association, by February, had the largest share of approved loans followed by the African Development Bank (AfDB). 

At least, the Ministry of Finance, indicates 44 per cent of approved credit is sourced from the World Bank while 39 per cent comes from AfDB. 

However, the ministry does not indicate which other sources government draws credit. 
There has been concern of rising debt from non-concessional lenders, which in his report for the period ended June 30, 2020, Auditor General Muwanga warned that non-concessional loans, especially from China, were exposing national interests and assets to seizure in case of default. 

Government, has been increasingly, despite tough conditions, borrowing from China and local banks, which Mr Muwanga said threatens debt sustainability due to high interest payment and short repayment period.  
The Ministry of Finance also indicated that the largest portion of mobilised loans in the 2020/21 financial year, which is 50 per cent, has gone to Works and Transport while Water and Environment has taken up 33 per cent of the new loans approved. 

During the 2019/20 financial year, the Finance Ministry said, six loans worth $1.403b were mobilised from International Monetary Fund, World Bank, Stanbic Bank and Trade Development Bank to help government navigate Covid-19 related challenges as well as put together resources for budget support. 

Other loans were mobilised to support irrigation and construction and equipping of an oncology and diagnostic centre in Gulu to increase cancer screening and diagnosis. 

Uganda’s stock of public debt has been growing rapidly in the recent past, and is expected, according to International Monetary Fund (IMF), to grow from 41 per cent to 48.8 per cent by June. 
By June 2020, according to Ministry of Finance, public debt stood at $15.27b, up from $12.55b in the same period in 2019. 

The Ministry of Finance also indicated that government is negotiating a $650m loan to support unfunded budget projects for key priority sectors, whose funding has been decimated by a reduction in revenue mobilisation due to Covid-19 related disruptions. 

The increase in loan uptake, government said, has been partly due to the need to invest in infrastructure to spur industrialisation, promote trade, and develop water infrastructure and irrigation to improve agricultural yields. 

However, this has also been occasioned by “the reduction in revenues collected and the effects of to cover up a deficit”. 

Expected increase       
Government, according to the Ministry of Finance, expects stock of public debt to increase due to pending approvals, especially those that are going towards budget support. 

Government had by February 28 signed grants worth $234.56m with International Development agency committing up to 63 per cent while German Development Bank and Japan International Cooperation Agency had committed 20 per cent and 17 per cent of the expected support.  At least 71 per cent of grants were committed towards Works and Transport sector.