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Uganda’s Debt Surges 26%: Why Domestic Borrowing Is Raising Alarms

  • Writer: Derry Thornalley
    Derry Thornalley
  • Sep 24
  • 2 min read

Uganda’s latest fiscal numbers paint a stark picture. In the past year, the country’s public debt has jumped by 26.2%, climbing from $25.6 billion to $32.3 billion. What makes this surge especially worrying is the source: most of it is domestic borrowing, which has grown by more than 50% in just twelve months.


On the surface, this reliance on local borrowing may seem safer than piling on external debt. After all, Uganda avoids foreign exchange risks, and local institutions such as banks and pension funds can absorb the demand. But look deeper, and the risks are clear: crowding out the private sector, higher interest rates, and tighter liquidity across the economy.


Why Domestic Debt Matters

When governments borrow heavily at home, it often leaves less room for businesses to access affordable credit. Banks prefer to buy government securities — safe and lucrative — rather than lend to SMEs and entrepreneurs.


This means the very engine of Uganda’s job creation and innovation risks being starved of capital. Add to that the rising cost of servicing local debt, and fiscal space for health, education, and infrastructure starts to narrow.


Government’s Response

Recognising the danger, the government has pledged to cut public spending by 4.1% and reduce domestic borrowing by 21.1% in the upcoming 2026/27 financial year. It’s a welcome step, but the challenge lies in execution. Spending cuts must not undermine essential services, and the government will need to strike a careful balance between fiscal discipline and economic growth.


The Bigger Picture

Uganda isn’t alone in this struggle. Across Africa, governments are increasingly squeezed between rising debt costs, weaker currencies, and limited external financing options. Many are leaning more on domestic debt markets, but the long-term risk is the same: a cycle where governments and private sectors compete for scarce capital, slowing growth.


Uganda’s story is therefore not just a local headline — it’s part of the wider narrative of how African economies navigate fiscal sustainability in an era of high borrowing costs.


My Take

Uganda’s decision to lean so heavily on domestic borrowing is a double-edged sword. It avoids some external risks but introduces new internal ones. The fact that policymakers are already signalling restraint is positive — but delivery will be everything.


If Uganda can rein in borrowing without strangling growth, this could be the start of a more sustainable path. If not, the crowding out of private enterprise may prove an even bigger obstacle than external debt.

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