Uganda Gets IMF OK to Raise Debt Limit

KAMPALA — The International Monetary Fund has cleared Uganda to increase its debt ceiling on non-concessional borrowing by up to 47%, to allow the East African nation to fund ambitious hydroelectric projects aimed at addressing chronic power shortages.

The country’s borrowing limit has been increased to $2.2 billion from $1.5 billion, a boost for the country’s efforts to access funds to meet its widening budget deficit, Ana Lucia Coronel, the IMF’s senior resident representative in Uganda, said Monday.

The development is a relief for Africa’s top robusta coffee grower and fledging oil producer; Uganda has been grappling with a widening budget deficit for the past two years, as spending has increased while funds from donors waned.

“The allowed increase is expected to finance electricity projects that are critical to close the acute infrastructure gap that makes Uganda one of the countries with the lowest levels of electrification in Africa,” Ms. Coronel said.

Rating firm Standard & Poor’s Corp. recently lowered Uganda’s credit rating to B from B+, citing the widening deficit.

The country’s largest donors, including the European Union and the World Bank, froze aid in 2012, citing high levels of corruption in government. Until 2012, donors were funding around 30% of the country’s annual budget.

China’s Sinohydro Group Ltd. 601669.SH -1.06% is building the 600 megawatt Karuma hydro power plant on the River Nile, while China International Water and Electric Corp. is implementing the 183 megawatt Isimba hydro power projects, both located along the White Nile, a tributary of the Nile.

The projects, being funded by concessional loans provided by Exim Bank of China, are expected to enable Uganda to meet rising local and regional electricity demand.

Ms. Coronel said the IMF expects Uganda to get favorable borrowing terms in the continuing negotiations with the Chinese lenders.

“If well managed, the projects look commercially viable according to the information provided to the IMF,” she said. “The terms of this financing will compare favorably to a potential issue of a bond in international markets and to issuance of domestic debt.”

– WALLSTREET JOURNAL

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