Uganda Draws More Cash From Oil Fund Before Producing Any Real Oil

Uganda is spending more than a third of its Petroleum Fund before the East African nation produces any oil as it struggles to narrow its budget gap while increasing infrastructure investments.

A sum of 200 billion shillings ($54 million) was removed from the fund to help finance spending plans for the year through June, leaving 288.7 billion shillings in the account, the Finance Ministry said in a report on its website. A 125.3 billion-shilling withdrawal was made the previous year.

The government of East Africa’s third-biggest economy is implementing a 32.7 trillion-shilling budget for 2018-19, partly to fund development of power plants and roads. That contributed to a fiscal deficit of 6.6 percent of gross domestic product this year, leaving the government with the need to raise funds from elsewhere to plug the gap.

The government aims to narrow the deficit to 5.6 percent in 2019-20, according to budget documents.

Given the deficit, financing from the fund is welcome provided it’s used for infrastructure projects, said Augustus Nuwagaba, director of Kampala-based Reeve Consults Ltd. It would be a problem “if the money was spent on consumption,” Nuwagaba said.

What Bloomberg’s Economist Says

“It generally reflects a realization that the start of commercial oil production is still distant and that it makes little sense to have a negative carry on the money in the Petroleum Fund in the meantime. The drawdown could be seen as a precursor of exploring other financial options, such as non-concessional foreign borrowing.”

–Mark Bohlund, economist

The government started the Fund in 2015 to receive revenue-deposits from oil-related activities including what’s generated from the output as well as pre-production transactions. It’s managed by the nation’s finance ministry.

France’s Total SA, Cnooc Ltd. of China and London-based Tullow Oil Plc are developing Uganda’s crude finds estimated at 6 billion barrels of oil resources, with production estimated to start in 2022.

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