KAMPALA (Reuters) – Uganda needs to tap more of its domestic revenues to fund infrastructure development, because reliance on borrowed funds is “unworkable” and could lead to a spike in debt, IMF Managing Director Christine Lagarde said on Friday.
In recent years, Uganda has ramped up external borrowing, mostly from China, to finance ambitious infrastructure development. Chinese credit is funding projects ranging from expressways and hydropower plants to airport expansion.
Plans are underway to borrow more from China for a planned standard gauge railway, as well. Uganda is also expected to borrow to build a planned crude oil pipeline and refinery.
The borrowing from China and other lenders like the African Development Bank has stoked unease among some opposition and government officials.
Lagarde, who is on a visit to Uganda, told a business forum that infrastructure investment could help push Uganda’s growth to above 5 percent, where it has hovered in recent years. But the projects needed to be rigorously vetted and efficiently implemented, she said.
“Relying on borrowing alone to finance infrastructure will not cut the bill in and of itself, and it will be unworkable because debt will become too high,” she said. “Finance must come also from the mobilisation of domestic revenue.”
Total external debt stood at $10.3 billion in May, including disbursed funds and credit yet to be released but on which agreements have been concluded.
The Bank of Uganda, the country’s central bank, warned in July the country could face “debt distress” in as little as two years if oil production is delayed further.
Uganda discovered crude oil in its Albertine Rift basin 10 years ago, but commercial production has been repeatedly delayed by disputes with international oil companies over taxes and development strategy.
Lagarde described Uganda as “undeniably an African success story,” citing its reduction of absolute poverty to a third of the population in 30 years under incumbent President Yoweri Museveni.
If Uganda leveraged its ongoing investments in infrastructure and developed its emerging oil sector well, Lagarde said, “growth in our view could move from those five-ish to six-ish, may be even a little more than that.”
Ugandan officials have said they expect the country will start pumping crude in 2020, when the planned crude pipeline from western Uganda through Tanzania to the Indian Ocean port of Tanga is due to be completed.
(Reporting by Elias Biryabarema; Editing by George Obulutsa, Larry King)