Uganda’s rising public debt and the increasing cost of servicing that debt are emerging as major concerns for policymakers and economists, who warn that the trend could undermine the country’s long-term economic growth and development ambitions. The warning comes as the country’s debt stock continues to grow, driven largely by increased government borrowing to finance infrastructure projects, support economic recovery following the Covid-19 pandemic and bridge persistent budget deficits.
According to the Bank of Uganda’s State of the Economy Report for March 2026, Uganda’s provisional total public debt stock increased by 21.2 percent to Shs130.22 trillion by the end of January 2026, compared to the same period in January 2025. The Central Bank cautions that while Uganda’s debt remains sustainable, the growing burden of debt servicing is placing significant pressure on public finances.
‘High borrowing costs continue to bear down on the budget, even as emerging geopolitical tensions could exert pressure to spend,’ the Bank of Uganda noted in the report. The report projected interest payments on public debt to rise to 4.7 percent of Gross Domestic Product (GDP) in the 2025/26 financial year, up from 3.7 percent in 2024/25. This increase was expected to crowd out spending on critical sectors such as health, education and infrastructure.
Fiscal space under pressure
Debt servicing is consuming an increasingly large share of government revenue. The Bank of Uganda estimates that debt service obligations amounted to 35.7 percent of domestic revenue in the 2024/25 financial year and are projected to peak at 45.3 percent in 2025/26, before averaging about 40 percent over the medium-term. ‘This is unsustainable and calls for fiscal prudence going forward,” the Central Bank warned. Economists argue that the growing debt burden leaves the government with fewer resources to respond to economic shocks and limits its ability to invest in development priorities.
The Bank of Uganda further notes that high debt service costs can interfere with broader economic activity by increasing the cost of capital, complicating monetary policy implementation and potentially threatening financial stability if investors begin to doubt the government’s capacity to meet its obligations. Nevertheless, Uganda’s debt sustainability assessment for the year ending June 2025 classified the country as facing a moderate risk of debt distress, with public debt remaining sustainable in the medium to long-term. The Central Bank maintains that Uganda retains the capacity to meet its debt obligations without requiring exceptional financial assistance or defaulting on repayments.
Public debt, measured in present value terms, is projected to peak at 49.4 percent of Gross Domestic Product (GDP) in the 2025/26 financial year, remaining below the 50 percent threshold set under the East African Community convergence criteria. However, the favourable outlook depends on continued fiscal discipline, the timely commencement of commercial oil production, prudent management of oil revenues and successful implementation of the government’s ten-fold growth strategy.
A decade of rising debt
Uganda’s public debt has grown steadily over recent years. In December 2021, the country’s total public debt stood at Shs73.5 trillion, equivalent to approximately $20.7 billion. External debt accounted for Shs45.72 trillion, while domestic debt stood at Shs27.77 trillion, representing a debt-to-GDP ratio of 49.7 percent. The government attributed much of the increase to financing pandemic-related interventions, cushioning households and businesses from economic shocks, and covering revenue shortfalls.
By December 2022, public debt had risen to Shs80.8 trillion ($21.7 billion), with projections indicating an increase to Shs88.9 trillion by June 2023. At the end of December 2023, Uganda’s total public debt had climbed further to Shs93.38 trillion ($24.69 billion), comprising Shs55.37 trillion in external debt and Shs38.01 trillion in domestic debt. The Finance Ministry projected public debt to reach Shs97.64 trillion by June 2024, equivalent to $25.7 billion. The latest figures from the Bank of Uganda now place the debt stock at over Shs130 trillion, highlighting the rapid pace at which government obligations have expanded.
Debt servicing largest budget item
The growing debt burden is becoming increasingly evident in Uganda’s National Budget. For the 2026/27 financial year, the government plans to spend approximately Shs33.4 trillion on debt servicing alone, representing nearly 40 percent of the Shs84.3 trillion national budget. Interest payments are projected at Shs12.4 trillion, driven largely by domestic borrowing, while principal repayments will push total debt servicing costs above Shs33 trillion, making it the largest expenditure item in the budget.
In a minority report presented during parliamentary debate on the 2026/27 budget, former Kira Municipality Member of Parliament Ibrahim Ssemujju Nganda highlighted the growing fiscal burden. The report indicated that the government plans to borrow Shs11.27 trillion externally and Shs25.78 trillion domestically, while debt servicing will consume Shs33.6 trillion, equivalent to 39.8 percent of the total national budget.
Economists raise alarm
Economists warn that the increasing share of resources devoted to debt repayment could significantly undermine Uganda’s growth prospects. Dr John Mutenyo, a senior lecturer at the College of Business and Management Sciences, said in an interview with the Daily Monitor at Makerere University on June 10 that borrowing itself is not necessarily harmful, but excessive debt servicing can become a serious obstacle to development. ‘Borrowing is not bad per se, but high debt servicing is dangerous because it eats into public resources. When borrowing becomes excessive and debt servicing obligations increase, the government is left with limited resources for service delivery, roads, and other development projects.
This will seriously affect the country’s growth prospects,’ he argued. Dr Mutenyo observed that an increasing share of government revenue is being directed toward debt repayments, leaving less money available for productive investments. ‘All you are left with is money for paying salaries, Parliament, administration and other recurrent expenditures. Money for development projects becomes limited because the government must first meet its debt obligations,’ he said. He warned that reduced investment in infrastructure and other productive sectors could slow economic growth. ‘If you are not investing, you cannot grow. It is very dangerous for the economy.’
Dr Mutenyo argues that the most practical solution is to reduce new borrowing, while gradually paying down existing debt. He further stated: ‘If borrowing is reduced, the government can progressively pay off old debt, both principal and interest. Eventually, less money will be spent on debt servicing, creating room for investment in infrastructure and other services.’ He cautioned that continued borrowing would only increase future repayment obligations and make it more difficult to achieve Uganda’s long-term development goals.
Efficient use of borrowed funds critical
Dr Brian Sserunjogi, a research fellow in the Macro-economics Department at the Economic Policy Research Centre, agrees that debt remains a concern, but argues that the quality of spending matters just as much as the level of borrowing. ‘Countries such as China, Japan and the US borrow extensively. The issue is whether borrowed funds are invested efficiently and generate economic returns,’ he said. Dr Sserunjogi emphasised the need to strengthen public investment management, reduce project inefficiencies and ensure that borrowed resources finance projects capable of generating economic growth and future revenues.
He also identified low national savings as another obstacle to Uganda’s economic transformation. Many Ugandans still save through informal investments rather than formal financial institutions, while low household incomes limit the ability to save. ‘If people can go for a week without handling money, building a savings culture becomes difficult,’ Dr Sserunjogi observed.
Balancing growth and sustainability
Despite concerns over debt levels, Uganda’s debt indicators remain within internationally accepted thresholds, and the government maintains that borrowing has been necessary to finance infrastructure development and support economic recovery. The government has introduced various initiatives aimed at promoting savings, including voluntary savings schemes and efforts to deepen capital markets.
However, both the Bank of Uganda and independent economists agree that maintaining debt sustainability will require greater fiscal discipline, improved domestic revenue mobilisation, efficient public spending and careful management of future borrowing. As Uganda prepares for the anticipated oil production era and pursues its ambitious economic transformation agenda, the challenge for policymakers will be balancing development financing needs with the imperative of preventing debt from becoming a constraint on future growth.
The coming years will determine whether public borrowing serves as a catalyst for economic transformation or evolves into a growing burden that limits Uganda’s development potential.