Uganda’s public debt remains sustainable in the medium term, but the country is entering a tighter fiscal phase marked by rising domestic borrowing, higher interest costs and reduced room for budget flexibility, according to the Debt Sustainability Analysis (DSA) for FY2024/25 released by the Ministry of Finance, Planning and Economic Development.
The report shows that while Uganda is still assessed to be at moderate risk of debt distress, key debt indicators are edging closer to policy thresholds, largely due to continued fiscal deficits and a growing reliance on domestic financing. This shift is reshaping the cost of government borrowing and placing new pressure on public finances.
Domestic Borrowing Emerges as the Pressure Point
A central finding of the DSA is the changing composition of Uganda’s debt. With access to cheap concessional external financing becoming more constrained, government has increasingly turned to the domestic market through Treasury bills and bonds to fund infrastructure, energy and oil-related projects.
While this strategy has helped sustain public investment, it has come at a cost. Domestic debt carries significantly higher interest rates than concessional loans, raising annual debt service obligations and competing with social and development spending for scarce budget resources. The report notes that although government has improved the maturity profile of domestic debt by issuing longer-dated bonds, the overall cost of servicing this debt remains a key fiscal risk.
Debt Remains Sustainable but Vulnerable to Shocks
Under baseline projections, Uganda’s debt remains within internationally accepted sustainability thresholds over the medium to long term. However, stress tests in the DSA indicate that the debt outlook is highly sensitive to adverse shocks.
Slower-than-expected economic growth, weaker revenue performance, or tighter global financing conditions could significantly worsen debt indicators. The analysis warns that without sustained growth and disciplined fiscal management, Uganda’s debt ratios could rise faster than projected, increasing vulnerability to debt distress.
Revenue Mobilisation Is the Decisive Factor
The DSA places strong emphasis on domestic revenue mobilisation as the linchpin of debt sustainability. Government projections assume that tax revenues will gradually increase as a share of GDP, driven by tax policy reforms and improvements in administration under the Domestic Revenue Mobilisation Strategy.
If revenue targets are missed, borrowing needs would increase, pushing debt levels higher and intensifying debt service pressures. The report underscores the importance of broadening the tax base, curbing leakages and strengthening compliance to reduce reliance on borrowing.
Investment-Led Growth Must Pay for Itself
Uganda’s borrowing strategy is closely tied to an investment-led growth model, with large allocations to transport infrastructure, energy generation and oil and gas-related projects. The DSA stresses that the sustainability of public debt ultimately depends on whether these investments generate sufficient economic returns to expand the tax base and foreign exchange earnings.
Delays in project implementation, cost overruns or underperformance of growth-enhancing investments could weaken the link between borrowing and growth, raising questions about debt affordability over the long term.
Managing the Next Phase of Debt
The Ministry of Finance says the findings of the DSA will guide borrowing decisions, including the balance between domestic and external financing, the pace of new debt accumulation and the prioritisation of high-impact projects. Strengthening public investment management, improving project appraisal and enhancing transparency in debt reporting are highlighted as key safeguards.
