In a hamlet, 7km south-west of Uganda’s capital Kampala, a group of cyclists rests under the shade of a flyover under construction. They watch as heavy-load vehicles full of building materials race past. “I can’t wait to ride on this road when it’s complete,” says one of the group.
The flyover forms part of the 51km Kampala-Entebbe espressway, linking the city and Entebbe international airport. It is costing $476m (£383m) and is due to be finished in 2018, one of the major infrastructure projects taking shape in east Africa’s third largest economy.
Another is the 600MW dam being built on the Nile in Karuma, 264km north of the capital, for an expected cost of up to $1.65bn (£1.33bn).
Meanwhile, discussions are continuing about the construction of a $3.2bn railway from Kampala to the Kenyan port of Mombasa, 1,152km to the east. And Uganda will soon begin construction of a $4bn refinery and a $3.5bn crude oil pipeline to support its nascent oil and gas sector.
All these projects have one thing in common: they depend on borrowed money, mainly from China.
The infrastructure boom has increased Uganda’s exposure to debt and there are fears the country could be headed for a financial crisis.
Enock Nyorekwa, an infrastructure economist for the EU delegation in Kampala, says: “The [debt] risks have become more pronounced. The question remains whether [this kind of] debt is generating the growth or dividends.”
The country’s external debt has grown rapidly. It was estimated at $10.7bn at the end October, according to the Bank of Uganda.
Uganda’s public debt (pdf) burden has risen by 12.7% from 25.9% of GDP in 2012-13 to 38.6% in 2016-17. It is projected to rise to 45% by 2020.
In a December 2016 report (pdf), Uganda’s central bank warned: “There are perceptions in the market that Uganda may not be able to service its rising debt levels.”
While the International Monetary Fund (IMF) says Uganda remains at low risk of debt distress (pdf), it…