By Spy Uganda
Uganda’s public debt remains sustainable over the medium term, but the country is entering a tighter fiscal phase characterised by rising domestic borrowing, higher interest costs and shrinking budget flexibility, according to the latest Debt Sustainability Analysis (DSA) for FY2024/25 released by the Ministry of Finance, Planning and Economic Development.
The report maintains that Uganda is at a moderate risk of debt distress, but warns that key debt indicators are steadily moving closer to policy thresholds. Persistent fiscal deficits and an increasing shift toward domestic financing are reshaping the cost of government borrowing and placing added pressure on public finances.
A central finding of the DSA is the changing composition of Uganda’s public debt. With access to cheaper concessional external financing becoming more constrained, government has increasingly relied on the domestic market—issuing Treasury bills and bonds—to finance infrastructure, energy and oil-related projects.
While this strategy has sustained critical public investment, it has come at a higher cost. Domestic debt carries significantly higher interest rates compared to concessional external loans, driving up annual debt servicing obligations. As a result, debt repayments are consuming a growing share of the national budget, potentially crowding out social and development spending. Although the government has improved the maturity profile of domestic debt by issuing longer-dated bonds, the DSA cautions that the overall cost of servicing domestic debt remains a notable fiscal risk.
Under baseline projections, Uganda’s debt levels remain within internationally accepted sustainability thresholds in the medium to long term. However, stress tests conducted in the analysis show that the outlook is highly sensitive to adverse shocks. Slower-than-expected economic growth, weaker domestic revenue performance, or tightening global financial conditions could quickly worsen debt indicators. The report warns that without sustained growth and disciplined fiscal management, Uganda’s debt ratios could rise more rapidly than anticipated, increasing vulnerability to debt distress.
The DSA identifies domestic revenue mobilisation as the decisive factor in safeguarding debt sustainability. Government projections assume a gradual increase in tax revenues as a share of GDP, supported by tax policy reforms and improvements in administration under the Domestic Revenue Mobilisation Strategy. Failure to meet revenue targets would widen financing gaps, forcing additional borrowing and intensifying debt service pressures. The report underscores the need to broaden the tax base, reduce leakages and strengthen compliance to lessen reliance on debt.
Uganda’s borrowing strategy is anchored in an investment-led growth model, with substantial allocations to transport infrastructure, energy generation and oil and gas-related projects. The DSA emphasises that long-term debt sustainability ultimately depends on whether these investments generate sufficient economic returns to expand the tax base and boost foreign exchange earnings. Delays, cost overruns or underperformance of growth-enhancing projects could weaken the link between borrowing and economic expansion, raising concerns about debt affordability over time.
According to the Ministry, the findings of the DSA will guide future 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 systems and enhancing transparency in debt reporting are highlighted as key safeguards as Uganda navigates a more constrained fiscal environment.
