South Korea’s EXIM Bank will provide a loan to Uganda for infrastructure projects, with a focus on road and energy development, according to Reuters. However, the specifics of which projects will benefit from this funding have not been disclosed by the ministry.
Experts warn that this new loan will exacerbate Uganda’s growing debt, which stood at $24.6 billion as of December 31, 2023. This financial strain comes on the heels of Moody’s recent downgrade of Uganda’s credit rating from B2 to B3. The downgrade was attributed to “diminished debt affordability” and “increasingly constrained financing options.”
Moody’s report highlights Uganda’s heavy reliance on costly domestic and non-concessional external financing sources as a key factor in the downgrade. The report also pointed out that Uganda faces high external vulnerability risks due to challenges in servicing external debt, tighter global financial conditions, and reduced adequacy of foreign exchange reserves.
Despite the downgrade, Moody’s revised Uganda’s outlook to stable. The agency noted that the B3 rating incorporates both credit challenges and strengths, acknowledging risks related to debt affordability and external vulnerabilities. However, Moody’s also mentioned that sustained improvements in revenue mobilization could support fiscal consolidation and potentially ease debt affordability issues, though these come with execution risks.
The new loan from South Korea’s EXIM Bank is intended to bolster Uganda’s infrastructure, specifically in the road and energy sectors. However, this financial support raises significant concerns about the country’s increasing debt burden and its ability to manage and service this debt amidst tightening financial conditions.
The ongoing financial strain and credit rating challenges underscore the importance of effective fiscal management and strategic use of external loans to ensure sustainable economic growth and stability in Uganda.
Picture Cred: News Central TV
