Uganda has hinted at the possibility of approaching its major creditors to seeks suspension of debt repayments. This comes as it grapples with growing default risk. External creditors, including China and the World Bank, hold two-thirds of the country’s debt.
Over the last decade, the government has expanded its borrowing, especially from China, to fund infrastructure. This includes airports, power plants, and roads. Negotiations are currently underway with China for a $2.2 billion loan to finance a standard gauge railway project.
In 2020, the country took up large credit lines from the World Bank, the International Monetary (IMF) and other lenders in order to meet funding pressures triggered by the economic crisis induced by the global COVID-19 pandemic.
Consequently, its total public debt surged to $18 billion as of December 2020, a 35% rise from a year earlier. This was occasioned by fresh borrowing to cover revenue shortfalls as measures taken to combat the coronavirus hit the economy hard and stifled tax collections.
According to Matia Kasaija, the country’s Finance Minister, they will use up to 20% of planned domestic tax revenues to repay interest rates on public debt in the fiscal year beginning July.
Uganda’s economy contracted 1.1% last year but is forecast to rise by 3.1% in 2021, occasioned by robust agriculture sector production and recovery of industrial activity.