Ugandan Central Bank Warns of “Debt Distress” over Delayed Oil Production

A senior official with the Ugandan central bank issued a dire warning if delays continue to beset the start of oil production, according to Reuters.

“We should start now getting worried about debt distress,” claimed Adam Mugume, executive director for research at Bank of Uganda, in an interview on Wednesday.

For Mugume, the crisis could come as soon as 2018 if oil revenues do not come in to the east African nation.

“We have pushed oil very far, every now and then we're not ready,” Mugume, a member of the central bank's monetary policy committee, mentioned.

Uganda located major oil reserves a decade ago including an estimated 3.5 billion barrels at the Albertine rift basin along the border with the Democratic Republic of Congo. But a date for large-scale pumping has been pushed back on multiple occasions over a variety of reasons, including disagreements over field development strategies and friction over taxation.

In anticipation of Ugandan oil production, officials have upped foreign borrowing and allowed the external debt to accumulate to US$10.3 billion last May. The focus is on funding infrastructure projects with China serving as the main debtor.

Mugume warned that these infrastructure plans including highways, a railway, hydropower dams and an airport would take too much time to open and help pay back Uganda’s foreign debt. For example, the government believes a pipeline through neighboring Tanzania will start after 2020.

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The delays could also harm Uganda’s relations with nearby states and pose greater obstacles towards starting and maintaining steady oil output. On 23 June, Kenyan President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam signed a series of bilateral deals that included bypassing Uganda for the construction of an oil pipeline under the LAPSSET project.

Despite Mugume’s worries, Finance Minister Matia Kasaija told Reuters earlier this month there were no concerns over debt levels. A World Bank analysis in June believes oil production will commence in 2018, which will likely transform the Ugandan economy and allow it to reach “upper middle income by 2040.”

Another recent report from the International Monetary Fund last month noted how “structural reforms have lagged and need to be revitalized to enhance competitiveness, promote economic diversification, and foster sustained and inclusive economic growth.”

By Erwin Cifuentes for Oilprice.com

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