Uganda’s Public Debt Rises To $37.1 Billion As Government Increases Domestic Borrowing

Uganda’s public debt rose 14.8% to $37.1 billion in the year to June, up from $32.3 billion a year earlier, according to the Finance Ministry. Debt also increased from 51.3% to 54.3% of GDP, with higher domestic borrowing to finance the budget deficit and development projects driving much of the increase. The government has increasingly turned to longer-term Treasury bonds, including a 25-year bond, to reduce refinancing and repayment pressures. Fitch has maintained Uganda’s credit rating at B with a stable outlook but said rising debt and high interest costs remain constraints.

UGANDA’S DEBT CLIMBS TO $37.1 BILLION

Uganda’s total public debt has risen sharply to $37.1 billion as the government increased domestic borrowing to finance its budget deficit and development spending.
According to Uganda’s Finance Ministry, the country’s total public debt stock increased by 14.8 per cent in the 12 months to June, compared with the same period a year earlier.
The debt rose from $32.3 billion in June last year to $37.1 billion in June this year.
As a proportion of the country’s economy, public debt also increased from 51.3 per cent of gross domestic product (GDP) to 54.3 per cent.
The figures highlight the growing pressure on Uganda’s finances as the government relies increasingly on borrowing to fund its spending plans.

DOMESTIC BORROWING DRIVES THE INCREASE

The Finance Ministry said the main reason for the rise was increased domestic borrowing during the financial year that ended in June.
The government issued more Treasury bonds and other domestic debt instruments to raise money for its budget deficit and development needs.
Domestic borrowing means the government raises money from within Uganda, mainly from local banks, financial institutions and investors.
The strategy has become an increasingly important source of government financing as Uganda seeks to fund infrastructure and other development projects.
The Finance Ministry said the increased use of longer-term borrowing was part of a strategy designed to reduce the risks associated with having to repay or refinance debt frequently.

GOVERNMENT TURNS TO LONGER-TERM TREASURY BONDS

Uganda has been extending the maturity of its domestic debt to reduce pressure from large repayments coming due within short periods.
Last year, the government introduced a 25-year Treasury bond, the longest maturity among its domestic debt offerings.
A Treasury bond is essentially money borrowed by the government from investors, with the government promising to repay the principal amount with interest over an agreed period.
By issuing bonds with longer repayment periods, the government can spread repayments over many years.
The Finance Ministry said the approach would help reduce refinancing and rollover risks.
Rollover risk occurs when a government has to replace maturing debt with new borrowing, particularly if interest rates have risen or investors become less willing to lend.

EXTERNAL DEBT STILL ACCOUNTS FOR A LARGE SHARE

Although domestic borrowing was the main driver of the latest increase, Uganda also has significant external debt.
The Finance Ministry said external debt accounted for 43.9 per cent of the country's total debt.
External debt is money borrowed from foreign governments, international financial institutions and other lenders outside the country.
Uganda has used external financing for development projects and other government programmes, but foreign borrowing can expose the country to currency and repayment pressures.

DEBT-TO-GDP RATIO RISES

Uganda’s debt-to-GDP ratio increased to 54.3 per cent in June from 51.3 per cent a year earlier.
The ratio compares the amount a country owes with the size of its economy and is widely used to assess the scale of government debt.
A rising ratio does not automatically mean a country is unable to repay its debts. However, a continued increase can reduce the government's financial room to respond to economic shocks, particularly when interest payments are also rising.

CENTRAL BANK HAS RAISED CONCERNS

Uganda’s central bank has previously expressed concerns about the country’s rising debt burden.
The increase is particularly significant because higher government borrowing can raise the amount that must be spent on interest payments.
Money used to service debt cannot be spent on other priorities such as healthcare, education, infrastructure and social programmes.
The government therefore faces the challenge of balancing its need to finance development with the need to keep debt and borrowing costs under control.

FITCH MAINTAINS UGANDA’S B RATING

International ratings agency Fitch also highlighted Uganda’s debt position in August.
Fitch affirmed Uganda’s sovereign credit rating at B, with a stable outlook, but said the rating was constrained by rising public debt and a high interest burden.
A credit rating provides an assessment of how lenders and investors view a country's ability to meet its financial obligations.
Uganda's B rating places it in a category considered to carry significant credit risk, although the stable outlook indicates that Fitch was not forecasting an immediate change in the rating at the time of its assessment.

WHY THE BORROWING MATTERS TO ORDINARY UGANDANS

The increase in public debt can have consequences beyond government balance sheets.
As borrowing rises, the government may have to allocate more of its annual budget to interest and debt repayments.
That can place pressure on the amount available for public services and development projects.
Domestic borrowing can also affect the wider economy because the government competes with businesses and households for available funds in the financial system.
If government borrowing pushes up financing costs, private companies may find it more expensive to obtain loans for expansion and investment.

UGANDA’S DEVELOPMENT NEEDS REMAIN HIGH

The government argues that borrowing is necessary to finance development and improve the country's economic capacity.
Long-term infrastructure projects, transport networks, energy facilities and other public investments can require large amounts of upfront financing.
The challenge is ensuring that borrowed money supports projects capable of generating sufficient economic and social benefits to justify the cost of borrowing.
The Finance Ministry's decision to issue longer-term Treasury bonds is therefore part of a broader attempt to manage the structure of Uganda's debt while continuing to finance government programmes.

BALANCING DEVELOPMENT AND DEBT SUSTAINABILITY

Uganda now faces the difficult task of balancing development spending with debt sustainability.
The latest figures show that public debt is growing faster than it was a year earlier, while the debt-to-GDP ratio has also increased.
The government's greater reliance on domestic borrowing may help finance its immediate budget needs and reduce some refinancing risks through longer-term bonds.
However, the continued rise in debt and interest costs means that Uganda will face increasing pressure to strengthen government revenues, control spending and ensure that borrowed funds are used effectively.
For ordinary Ugandans, the long-term question is whether the additional borrowing will translate into stronger economic growth, better public services and improved infrastructure without creating an excessive repayment burden for future generations.