Uganda confident it can pay back Chinese loans

By Nelson Rukuuta Kasigaire Source:Global Times Published: 2017/8/17 20:58:40

Illustration: Peter C. Espina/GT



 

Recently, there have been reports from different sources concerned about the huge loans from China to finance infrastructure development in several African countries including Uganda, and about these countries' capacity to repay their debts.

However, Uganda and other African countries aspire to develop their economies and create opportunities for their citizens. Some of the bottlenecks to address include inadequate infrastructure, lack of affordable financing and human resource constraints.

The government of Uganda has prioritized developing infrastructure such as energy, dams, roads and railways to transform the economy. Indeed, with financing from the Export-Import Bank of China (EXIM Bank), several development projects have started, including the Entebbe-Kampala expressway, and work has begun on the Karuma and Isimba hydro power projects and expansion of the Entebbe airport. The progress has been encouraging. As a result of this and other measures adopted to achieve the goal of reaching middle income status by 2022, the economy is expected to rebound to annual growth rates of 7 percent in the medium term.

In this pursuit, China has been a reliable partner in a mutually beneficial relationship. China is currently the leading source of foreign direct investment in Uganda, and several enterprises from China are involved in implementing a number of projects, sharing their experience and technologies in various fields. For example, the Belt and Road (B&R) initiative offers opportunities. At the regional level, there have been concerted efforts by East African leaders to deepen integration, eliminate non-tariff barriers and engage in joint development of inter-linked infrastructure projects that will reduce the cost of doing business and improve trade. The B&R initiative, which espouses a similar vision of connectivity, is a very welcome initiative and it is not surprising that it has been widely embraced.

Including the borrowing needed to finance several infrastructural projects, Uganda's external and domestic public debt amounted to $8.7 billion as of December 31, 2016, equivalent to 33.8 percent of the country's GDP. But public debt is believed to be sustainable over the medium to long term, according to Uganda's debt sustainability analysis report for 2015-2016.

The Ugandan government recognizes that delays in project implementation lead to cost overruns if contractors are unable to deliver the project on schedule. It would also delay economic benefits reaching citizens and may ultimately affect the country's ability to repay its debts. There are efforts geared toward improving project implementation across the entire project cycle, including the production of high quality feasibility studies. Projects are scrutinized and evaluated by national agencies and financing institutions to determine their feasibility, including cost analysis, expected benefits and risks. The financing institutions also undertake vigorous feasibility studies. For instance, the construction of the Malaba-Kampala Standard Gauge Railway (SGR) Project by EXIM Bank will follow detailed feasibility studies prior to financing the construction. The construction of the high-speed railway is very necessary and the benefits such as lower transport costs and transit time for freight will contribute to reducing the cost of doing business, increasing regional connectivity and enhancing regional integration.

In addition, the government development plan is promoting Public-Private Partnerships (PPPs) as an important tool for infrastructure development. The PPP policy ensures value for money through optimal allocation of risks to private parties and maximization of the benefits to be obtained from the expertise and financing by private parties. There are some successful cases in Uganda such as Umeme in the energy sector. Chinese enterprises are encouraged to also consider this model in investing in the economy.

The development of infrastructure will ease the development constraints facing Uganda. Financing for the projects comes both from internally generated revenues and external sources. However, with high quality feasibility studies, more financing on concessional terms, proper project implementation and promotion of PPPs, the debt stress will be mitigated. Therefore the sustainability of long-term debt will be the focus of government work in the coming years.

The author is first secretary of the Embassy of the Republic of Uganda in China. bizopinion@globaltimes.com.cn



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