Ugandan Politicians Ask Their Government to Not Get Loans From China

Isimba dam, constructed in eastern Uganda using loans from China. (Wifred Sanya)

KASANGATI, Uganda—Ugandan politicians are calling on the government to scale down borrowing from China, citing concerns about the burden it will place on the East African nation.

On Aug. 29, Ugandan members of Parliament on the National Economy Committee said in a statement, “The committee noted that since China’s loans are non-concessional, they increase the country’s debt burden much faster.”

According to the Uganda Debt Network (UDN), an organization concerned with national policy advocacy on debt and poverty, Uganda currently owes China more than $3 billion. The debt owed to China arose from financing for infrastructure projects, such as the construction of roads and hydropower dams, among other things.

UDN policy officer Juliet Akello told The Epoch Times that it’s unfortunate Uganda is borrowing a lot of money from China at high interest rates. Unlike traditional lenders, which have stringent conditions, Chinese money is readily available, but the loans aren’t concessional and come with unfair conditions, Akello said.

“Unfortunately, the money from China is lethal. It is very costly. It has no grant element. It is expensive and difficult for us to pay.”

She gave an example of a World Bank report that stated Chinese project loans in Uganda are four times more costly than those from traditional lenders.

“In the case of default, the Chinese can do anything, including the attachment [seizing] of key national assets, like has happened in other countries. Just last week, the permanent secretary in the Ministry of Finance warned the government against getting such unfavorable debts,” Akello said.

Records at the Ministry of Finance indicate that China, through its Export-Import (Exim) Bank, committed $350 million for the Entebbe–Kampala Expressway, $100 million to improve road networks, $483 million for the Isimba hydropower plant, and $1.4 billion for the Karuma Dam, according to the UDN. There are also other projects.

According to the UDN, between January 2010 and June 2016, the Ugandan government “signed 96 loan agreements worth $8.8 billion, with China (in particular, Exim Bank) being the largest creditor at 29 percent” of the total loans. The next biggest lenders were the World Bank (27 percent) and the African Development Bank (21 percent). Currently, China accounts for 39 percent of loans the country obtained in 2017-2018.

Most of the loans from China are non-concessional and are to be paid back over a short period of time (on average 10 years), yet they are invested in long-term projects.

Warnings

The country’s auditor general, John Muwanga, has previously warned that Uganda was at risk of losing some of its national assets because of acquiring loans with unfavorable conditions attached.

“That could lead to losing sovereignty over national assets attached to the loans,” he said.

A secret letter warning the president about bad Chinese loans leaked to the media in February. One of the most popular local magazines in the country, The Independent, published the contents of the letter in which Minister of Finance Matia Kasaija complained about the terms of the Chinese loans.

Kasaija told President Yoweri Museveni in the letter, “We have noted some critical issues in the Financing agreement.” He listed three main areas of concern, according to The Independent: “China’s insistence to supply all technology and materials for the projects, its insistence that Uganda opens an escrow account in Beijing and deposits money as security in case of default, and the holding of national assets as collateral in case of loan payment failure.”

Kasaija wrote: “Given what is happening in our peer countries as regards China debt, we strongly believe we should protect our assets from possible take over.”

However, to avert Ugandans fears, the Ministry of Finance had said in January that China will not take over Uganda’s assets because of failure to pay back loans. According to The Observer: “Kasaija said Uganda’s economy is growing at a faster pace, adding that unless there is a catastrophe, nothing will stop Uganda from servicing the Chinese loans.”

Unsustainable

Economy analyst and Makerere University professor Aaron Mukwaya said Ugandans will have to bite the bullet at the end of the day. He said that if China has already confiscated property over non-payment of debts in some countries, then it can also happen in Uganda.

“China has a plan of dominating the whole of Africa, Asia, and some parts of Europe through giving loans, constructing infrastructures, and introducing telecommunication technology 5G. It is also promoting teaching Chinese in the countries it gives aid. In addition to giving aid, many Chinese are also coming to Uganda with plans of future domination,” Mukwaya told The Epoch Times.

Member of Parliament Lawrence Bategeka told The Epoch Times, “There is need that government ensures increased transparency during the procurement process, during acquisition of Chinese loans.”

Keith Muhakanizi, Ugandan Secretary to the Treasury, warned the government against overborrowing, saying that national debt has hit 42 trillion Ugandan shillings ($11.4 billion), “just 8 percent away from hitting the International Monetary Fund’s redline, where the country’s indebtedness will be declared unmanageable,” according to the Daily Monitor.

“We are flagging to government that if we don’t water down, we may end up in unsustainable debt. ... debt is dangerous if it turns out to be unsustainable,” he said.

Henry Okwi, a mobilizer in the recently formed political organization People Power, which has plans to oust Museveni in the 2021 elections, said they will demonstrate if the government doesn’t stop receiving Chinese loans.

“We will definitely demonstrate if government does not stop getting queer loans from China. Our country is at stake. The Chinese are giving expensive loans to our country yet the country is already overburdened by debts,” Okwi told The Epoch Times.