Uganda's to Receive $500 Million Loan from South Korea

Uganda signs $500 million loan agreement with South Korea for infrastructure building
Loan to be provided by South Korea's EXIM Bank for road and energy projects
Experts caution that the loan may worsen Uganda's already high debt

According to Reuters, South Korea's EXIM Bank will provide the loan, which is expected to be used for road and energy projects. The ministry did not specify which infrastructure projects the funds would support.

Experts have cautioned that this new loan will exacerbate Uganda's already increasing debt, which amounted to $24.6 billion as of December 31, 2023. This development could further affect the country's financial standing, following Moody's recent downgrade of Uganda's credit rating. Last month, the ratings agency lowered Uganda’s rating from B2 to B3, citing "diminished debt affordability" and "increasingly constrained financing options."

In the report, Moody’s pointed out that the downgrade reflects Uganda's reliance on more expensive domestic and non-concessional external financing sources. It added that the country's external vulnerability risk remains high, with challenges in external debt servicing, tighter global financial conditions, and reduced foreign exchange reserve adequacy.

Despite the downgrade, Moody’s revised Uganda’s outlook to stable, noting that the B3 rating level incorporates both the credit challenges and strengths. The rating agency emphasized risks related to debt affordability and external vulnerabilities, while also noting that sustained improvements in revenue mobilization could support fiscal consolidation and eventually alleviate debt affordability challenges, albeit with execution risks.