The government has been warned against taking international commercial loans, especially the Eurobonds, to finance its programmes.
Economic experts said recently that despite there being a financial gap for the planned projects, the interest and costs to be paid could weigh heavily on the economy. At the National Development Policy forum, held at the office of the president, to discuss different borrowing options to meet the infrastructure plans, experts cautioned against borrowing money from volatile international investors.
Over the next five years, Uganda is expected to undertake major infrastructure projects such as the oil refinery, Karuma dam, Isimba dam and various major other road and railway projects. The question is how the country will find the money for these projects.
The experts believe that government should stick to concessional borrowing from countries with huge appetite to invest in Uganda. They believe Uganda does not have the "absorptive capacity" to take on all these major projects at once and in such a short time.
In a paper titled Uganda Public Sector Borrowing Requirements, Financing Options and the Implications for Economic Performance, Dr Albert Musisi of the ministry of Finance, Planning and Economic Development, noted that the government needed investment capital of $12bn between 2014/15 and 2019/20. The country, however, has only $1.7bn committed to infrastructure projects in the Public Investment Plan.
Musisi said government must consider the implications that such projects have on the general macroeconomic stability of the country. With total government spending expected to increase to an average of 24 per cent of the GDP between 2014/15 and 2017/18, there is fear that going for commercial loans could overcrowd private sector investments.
Oil production is not expected to start in 2018.
"The indirect costs, stemming from the exchange rate effects of foreign exchange inflows, are likely to be mitigated with the inflows used to import intensive infrastructure projects," Musisi said.
Dr Ezra Suruma, a former Finance minister, believes that the failure to execute projects on time means that Uganda cannot risk looking at the bond market.
"Uncertainty involved in the execution of projects makes me wonder if we are ready for commercial borrowing," he said.
For Suruma, the country would rather continue with the safe option of engaging with countries such as China.
"We have reached a point where semi-concessional loans are the way to go. Certainly for the Chinese, I find them forthcoming," he said.
According to Fred K. Muhumuza, an economist at the Finance ministry, the country still lacks the relevant institutions required to take care of the projects in plan.