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Uganda borrowing from China against expected oil output

15 August 2013, 10:30

Kampala - Rising government borrowing against projected oil revenues is inflating Uganda's debt and worsening poverty in east Africa's third biggest economy, legislators said on Wednesday.

Uganda is borrowing against its crude oil reserves, mostly from China, even before it starts production, legislators and economists say. China could be using its generous loan packages to gain substantial leverage in the country.

The Asian giant has lately emerged as a major source of cheap credit for Uganda, funnelling huge amounts of loans into highways, hydro power dams to fibre optic cables. While the terms of the loans are not known in detail, concessional loans usually carry relatively lower interest rates.

Uganda borrowed $105 million between March 2012 and March 2013 compared with $840 million borrowed in the year ago period, bringing total external indebtedness to $5.8 billion, according to a ministry of finance report seen by Reuters.

However, the figure doesn't include an additional $1 billion in recent borrowing from China to finance two hydro power dams on River Nile that are meant to sharply improve power supply.

Semujju Ibrahim Nganda, a legislator who heads the House's committee that scrutinizes all government loans, told Reuters that financing for all infrastructure project was borrowed.

"They're on rampage borrowing because they have oil but that's squandering the resource already and fuelling the cycle of poverty ... paying back these loans will be a nightmare," he said on Wednesday.

The oil curse unfolds

In July Uganda said it wanted China to take up and finance all major infrastructure projects in the country and that it would pay later with oil money.

"This is already an oil curse unfolding," said Godbar Tumushabe, executive director at Advocates Coalition for Development (Acode), a Kampala based think tank, referring to oil-producing nations that are still stuck in a poverty cycle.

Jim Mugunga, the finance ministry spokesman said the country's debt was still manageable.

"We don't borrow for consumption, but for core strategic areas of the economy like infrastructure and secondly our debt is very manageable," Mugunga told Reuters.

"We borrow mostly from the World Bank which has strict guidelines on responsible borrowing so they wouldn't be giving us money if they were concerned about our ability to pay back or there was a crisis."

According to the finance ministry report, the World Bank remains Uganda's biggest external creditor but its share of Uganda's debt is declining against the "emergence of economic powers such as China."

Uganda discovered an estimated 3.5 billion barrels of crude oil in the Albertine rift basin in 2006 and commercial production is now expected to commence in 2016 after repeated delays.

- Reuters

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