Ugandan authorities are planning to ‘kneel before’ their major creditors including World Bank, International Monetary Fund (IMF) and China for a possible loan replacement suspension according to people familiar with the developments.
Uganda’s debt ballooned to 35% in a single year, raising default risk concerns.
According to a senior official at the Bank of Uganda, unless the country is able to sustain a growth rate of at least 7 percent—which economic projections show Uganda will not do—the country will default on its payments.
Uganda’s total public debt surged to $18 billion as at December 2020, a 35% rise from a year earlier, fuelled by fresh borrowing to cover revenue shortfalls as measures taken to combat the coronavirus hit the economy hard and stifled tax collections.
External creditors hold two thirds of the country’s debt, finance ministry data shows.
The country’s debt load is seen surging past 50% of GDP by the end of the current financial year in June, according to Finance Minister Matia Kasaija.
“I will approach them,” Kasaija told Reuters in an interview on Monday, referring to Uganda’s biggest creditors such as China, World Bank, IMF and others.
“I will not hesitate to approach them and say, ‘you guys can we suspend servicing these loans for, say, maybe two years?’”
Uganda is joining fellow African countries including Ethiopia, Zambia, Chad and others that are facing debt pressures either triggered or exacerbated by the effects of COVID-19.
In the fiscal year beginning July, the country will use up 20% of all its planned domestic tax revenues to repay interest rates on public debt, Kasaija said.
“It makes me uncomfortable. ..It is not a palatable idea,” he told Reuters adding that debt repayments were swallowing up an increasingly disproportionate chunk of the country’s public resources.
If Uganda defaults, it is unclear how China will react. Will China flex its muscles and negotiate for the rights to Uganda’s sovereign assets like it did in Sri Lanka, or ease the debt pressure, by restructuring Uganda’s loans over a longer time period as it did in Ethiopia?