Uganda on Monday said it could approach its major creditors, including China and the World Bank, to negotiate a possible suspension of loan repayments amid mounting default risk after its debt swelled by 35% in only one year.
The East African country gobbled up significant lines of credit from the World Bank, International Monetary Fund (IMF) and other lenders in 2020 to respond to funding pressures triggered by the economic crisis induced by the COVID-19 pandemic.
The loans have considerably inflated an already rapidly increasing indebtedness for the country which had long worried some, in particular the central bank and the IMF.
Uganda’s total public debt jumped to $ 18 billion in December 2020, a 35% increase from the previous year, fueled by new borrowing to cover revenue shortfalls as measures taken to tackling the coronavirus have hit the economy hard and stifled tax revenues. External creditors hold two-thirds of the country’s debt, according to finance ministry data.
The country’s debt is expected to exceed 50% of GDP by the end of the current fiscal 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, the World Bank, the IMF and others.
“I won’t hesitate to approach them and say, you guys can we put these loans on hold for, say, maybe two years?” “”
Uganda joins other African countries such as Ethiopia, Zambia, Chad and others who are facing debt pressures triggered or exacerbated by the effects of COVID-19. Read more
In the fiscal year starting in July, the country will use 20% of all its planned domestic tax revenue to pay down interest rates on public debt, Kasaija said.
“It makes me uncomfortable … It’s not an acceptable idea,” he said, adding that debt repayments were swallowing up an increasingly disproportionate share of the country’s public resources.
Kasaija did not say whether Uganda would seek relief under the G20 Debt Service Suspension Initiative (DSSI), which other countries have used, or as part of the G20 Debt Service Suspension Initiative (DSSI). a different mechanism.
The country’s economy, which contracted 1.1% last year, is expected to grow to 3.1% in 2021, thanks to robust production in the agricultural sector and a resumption of industrial activity.
Uganda’s external indebtedness was almost wiped out in the mid-2000s as part of the World Bank and IMF debt cancellation programs for poor and heavily indebted countries.
But over the past decade, President Yoweri Museveni’s government has significantly expanded borrowing, primarily from China, to finance expensive infrastructure, including roads, airports, power plants, and other projects.
The country is currently negotiating a $ 2.2 billion loan with China to finance a much delayed standard gauge railway project.
An agreement for this credit was delayed by a demand from China that Uganda pledge to repay the loan with the proceeds from the sale of its crude oil, among others, according to government officials.
“The one we refused, the one we totally refused. We cannot mortgage our oil, it is a very sensitive resource, we cannot,” Kasaija said.
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