Uganda’s debt jumps 26% in 2024/25, driven by domestic borrowing. Learn how fiscal policy, infrastructure spending, and international funding shape economic stability.
Uganda’s Debt Surge: Political Choices, Economic Consequences
Debt Jumps 26% in 2024/25
KAMPALA — Uganda’s public debt surged 26% in the 2024/2025 financial year, climbing from $25.6 billion to $32.3 billion. This sharp increase is largely due to a 52.7% rise in domestic borrowing, as the government sought to finance ambitious infrastructure projects under President Yoweri Museveni. External borrowing, by comparison, grew only modestly at 6.2%.
Economists and central bank officials warn that rising debt service costs are putting pressure on funding for essential sectors such as education, healthcare, and social protection. The heavier reliance on domestic borrowing has led to higher debt service expenses, as local lenders demand higher yields. Consequently, Uganda’s debt-to-GDP ratio climbed to 51.3%, up from 46.9% the previous year, when public debt surged by 9% to 107 T.
Domestic Debt and Political Context
The rise in domestic debt coincides with the passage of the Anti-Homosexuality Act in May 2023, which imposed life imprisonment and, in certain cases, the death penalty for “aggravated homosexuality.” The law triggered an international backlash: the World Bank and other lenders suspended new loans, cutting Uganda off from cheaper foreign financing.
After nearly two years, the World Bank resumed funding in June 2025, approving three major projects focusing on social protection, education, and support for displaced persons and refugees. Safeguards were included to prevent discrimination against LGBTQ individuals. These initiatives are expected to inject hundreds of millions of dollars into Uganda’s economy, offering relief to sectors hardest hit by the previous funding freeze.
Plans to Curb Domestic Borrowing
The government aims to reduce domestic borrowing by 21.1% and trim public spending by 4.1% in the 2026/27 fiscal year. The proposed budget totals 69.4 trillion Ugandan shillings ($19.9 billion), down from 72.4 trillion shillings the previous year. Officials argue that these steps are essential to maintain fiscal sustainability and to lower the proportion of revenue spent on debt interest.
Economists warn that continued high domestic borrowing could crowd out private sector lending, raise interest rates, and slow economic growth. “The government’s borrowing strategy is pushing up local yields, which could discourage private investment and hamper economic expansion,” said a Kampala-based financial analyst.
Infrastructure Projects Depend on Local Debt
Uganda’s ambitious infrastructure agenda—including roads, energy, and urban development—remains heavily reliant on domestic financing. With local interest rates higher than those for external debt, servicing costs have increased, limiting funds available for education, healthcare, and social protection.
This scenario highlights the delicate balance between domestic fiscal policy and international relations. While World Bank funding provides some relief, domestic borrowing continues to dominate Uganda’s fiscal strategy.
Adopting Blended Financing Approaches
To ease pressure on domestic debt, the government plans to attract commercial loans from international banks. These large loans are intended to support priority sectors without significantly raising interest costs, signaling a move toward blended financing that combines domestic and international sources.
Such strategies are particularly relevant for renewable energy projects and urban infrastructure. By leveraging commercial loans alongside development funding, Uganda seeks to bridge financing gaps while maintaining fiscal stability.
Long-Term Economic Risks
Despite these measures, Uganda faces challenges in balancing economic growth with debt sustainability. Rising domestic borrowing, coupled with higher interest rates, could constrain fiscal flexibility. Experts warn that without strong debt management, diversified financing sources, and policies encouraging private sector participation, long-term stability may remain fragile.
“The key for Uganda is not only controlling the debt stock but ensuring that borrowed funds generate productive returns that stimulate growth,” said a senior economist at a Kampala-based think tank.
International Implications
Uganda’s experience underscores how domestic policy decisions can influence international financing. The temporary halt in foreign loans following the Anti-Homosexuality Act illustrated the economic consequences of politically sensitive legislation. The World Bank’s eventual resumption of funding demonstrates cautious re-engagement, contingent on adherence to anti-discrimination safeguards.
Analysts emphasize that careful debt management, alongside reforms in revenue collection and targeted public spending, will be vital to sustaining economic stability and maintaining investor confidence.