12 August 2018

East Africa: Regional Countries Have Accumulated $651.8 Million in Development Loans

The EAC partner states have rolled over more than $651.8 million of their loan repayments to the Burundi-headquartered Trade and Development Bank (TDB).

The money was meant to finance infrastructure projects.

Trade and Development Bank, with a $4 billion asset base, had offered more than $2.62 billion in project development lending to its member countries, with $1.65 billion approved by the regional bank's board going to the five EAC members.

Kenya had the highest loan approved, receiving $$651.8 million, followed by Rwanda at $361.02 million.

Uganda at $226.83 million, and Tanzania received $191.67 million. Burundi received the lowest, at $26.13 million.

Kenya took a two-year $250 million "bridging" loan from the bank last year. The repayment of $402.3 million is due by July next year.

Debt maturity

Projects funded by the bank are usually long-term, requiring more than two years to reach technical and commercial completion before they can generate revenue.

More than $2.2 billion of Kenya's concessional and non-concessional debt matures next year. This year, the country expects $1.8 billion of this debt to mature.

Last November, Kenya took a 10-year, $750 million, syndicated loan from TDB to pay off one of the 2015 syndicated loans of $104 million.

The TDB loan is now an eight-year facility that will mature in 2025, but comes with a high interest rate of 6.7 per cent above the prevailing six-month London Interbank Offer Rate.

Rwanda is expected to pay $291.9 million to the bank in the next two years.

It is understood that TDB was part financier of Rwanda's $350 million, 80MW peat-to-power project, which is expected to increase the country's installed electricity capacity by 40 per cent.

RwandAir was set to sign three aircraft lease agreements this year worth $300 million, guaranteed by the government, as it seeks to operate new routes across Africa and introduce longer haul connections to Europe, America and Asia.

In a letter to the managing director of the International Monetary Fund Christine Lagarde, seeking an increase in its ceiling on new external debt, Rwanda stated that in the first quarter of this year RwandAir contracted a lease for additional aircraft for the expansion of its fleet.

This breached the indicative target on the $500 million ceiling on external debt by public enterprises by $87 million.

Rwanda is now expected to turn to TDB to finance the acquisition of new aircraft.

"Although the initial plan was to acquire two aircraft next fiscal year, an opportunity arose to acquire new aircraft following the folding of a European airline company, so RwandAir management quickly engaged the lease contracts.

Going forward, leases for three additional aircraft are likely to be signed this year, including the replacement of two ageing aircraft.

Hence, the government requests an increase in the indicative limit to $800 million to accommodate these leases," Rwanda's Finance and Economic Planning Minister Uzziel Ndagijimana said in the letter.

Three years ago, Rwanda borrowed $160 million from TDB to acquire two aircraft for RwandAir to increase its fleet to eight.

The aeroplanes, Airbus A330-200 and an A330-300 fitted with Rolls-Royce Trent 772B engines, were delivered in July 2016.

RwandAir is already servicing a loan of $60 million taken in 2011, maturing in 2021.

Scandal

Uganda which is expected to pay $109.8 million by the end of next year is currently caught up in a $226.83-million loan scandal after it emerged that the facility from TDB could have been used for purposes other than what it was borrowed for.

The Parliamentary Public Accounts Committee censured Finance Minister Mattia Kasaija for "misleading" the government in 2106 when obtaining the loan, which went into covering the country's revenue shortfall.

The borrowing was against the advice of central bank governor Emmanuel Tumusiime-Mutebile. Uganda's dues to the regional bank now stand at $153.16 million.

"The Minister of Finance, by false pretence, impressed upon parliament the justification for the loan, stating that the critical area for funding was medical supplies by the National Medical Stores. The Finance Minister thus received the money fraudulently," reads part of the conclusion of the committee report.

Uganda could be angling to borrow a further $350 million from TDB later this year to revive its national airline.

Last month, Tanzania secured more than $400 million from TDB to fund part of its central standard gauge railway and 318MW gas plant.

The country will repay $40.1 million over the next two years. It's current loans to the bank stand at $154.08 million.

Tanzania had received $191.67 million by last December from TDB to finance its projects, attracting an interest of $1.85 million.

"So far our bank has allocated $200 million for the SGR Central corridor project and another $200 million that will go towards the gas power plant. We are ready and willing to support Tanzania in its execution of various development projects in the country.

"As at March this year, we had implemented more than 10 projects worth $285 million in Tanzania in the banking, agriculture, manufacturing and infrastructure sectors," TDB president Admassu Tadesse said in Dar es Salaam last month.

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