Uganda is heading into the 2026/27 budget with a widening gap between what the country needs and what government can comfortably raise.
Over time, public spending demands have piled up. From the Kampala-Jinja Expressway to the standard gauge railway, and an exploding youthful population, the list of needs is endless.
Domestic revenue has been rising, but more slowly than the needs. For years, borrowing bridged that gap. But Finance Minister Matia Kasaija says the debt environment has shifted sharply.
On the domestic market, interest rates on government debt are high, with every bond auction pitting government against investors seeking high returns. The result is elevated yields, a rising debt-service bill, and growing pressure on the budget.
Abroad, the story is equally tight. Global interest rates remain elevated, risk appetite is more cautious, and lenders demand stronger guarantees, clearer project pipelines, and stricter repayment terms.
Concessional finance is limited, while commercial loans are costlier and carry heavier foreign-exchange risk. In short, the space to borrow has narrowed, amid rising financing needs.
Thus, government is rolling out measures: Innovative Financing Solutions for the 2026/27 financial year. In the National Budget Strategy, Kasaija describes innovative finance as a diversified toolbox that mobilises additional resources and improves efficiency of financial flows beyond loans and grants.
The Ministry of Finance is speeding up implementation of the Public Investment Financing Strategy to tap non-traditional channels, deepen domestic markets, and secure financing that is affordable and sustainable.
Islamic finance is one of the clearest alternatives being pursued. Government plans to issue a Sukuk bond, an instrument based on shared returns rather than interest alone, to co-finance large projects.
Kasaija says a Request for Proposal has already been issued to banks and non-bank institutions, due diligence completed, and a lead Sukuk structuring advisor is being procured to open a fresh investor pool when standard borrowing is pricey.
Government is also widening local participation in its securities market through the Okusevinga Mobile Money Investment Platform, where small retail investors will buy government securities directly on their phones.
Airtel has already integrated and tested the system, while Kasaija says MTN is being onboarded.
On the external side, the Ministry is preparing a Panda bond in the Chinese market, which Kasaija says, a roadshow in China has already identified potential investors, with discussions ongoing to secure guarantees from the African Development Bank, World Bank, Afreximbank, and Asian Infrastructure Investment Bank, to lower the risk premium investors charge.
Government is also exploring green bonds, and Kasaija says the Ministry has completed the terms of reference for a National Green Bond Framework and is procuring a consultant to finalise and operationalise it.
The framework will build a credible pipeline of eligible projects and connect Uganda to climate-aligned capital that is often cheaper and longer-term than commercial debt.
Diaspora financing is also being pursued in parallel. Government is developing a National Diaspora Policy led by the Ministry of Foreign Affairs to build a robust diaspora database and automate account opening for banking and Central Securities Depository investment accounts.
Kasaija says that diaspora bonds can convert steady remittance flows and patriotic savings into structured development capital, creating a more stable funding source that is less sensitive to global market moods.
Infrastructure bonds, supported by an existing framework, are also planned, starting with PPP financing for the Kampala-Jinja Expressway.
These are designed to mobilise long-term funds and reduce refinancing risk by aligning repayment with project life rather than repeated short-term rollovers.
Kasaija places these innovations inside a wider financing posture, where government will reprioritise spending toward high-impact investments, strengthen domestic revenue mobilisation, and attract more foreign direct investment.
Widening private sector lending
Development finance institutions such as Uganda Development Bank and Uganda Development Corporation will be capitalised to crowd in private capital, while domestic markets are deepened and maturities lengthened to reduce rollover pressure.
The strategy also stresses better absorption of existing loans and grants by prioritising counterpart funding for land acquisition and compensation, streamlining procurement, and shortening approvals so that projects start on time.
Medium-term reforms in pensions, insurance, and capital markets are expected to unlock larger pools of long-term domestic savings, easing dependence on costly debt.
Taken together, the 2026/27 Innovative Financing Solutions agenda is a plain response to a tight debt market characterised by high interest rates.
Funding needs are surging, revenue growth is slower, and borrowing, whether home or abroad, now carries higher costs and risks.