Uganda to Cut External Borrowing by 98% to Curb Rising Debt

Uganda’s government has announced significant fiscal measures to address its escalating public debt, including a drastic reduction in external borrowing by 98% for the financial year 2025-26. The Finance Ministry also revealed plans to slash overall government spending by more than 20%, with domestic borrowing through Treasury bonds set to decrease by 54%.

These measures come as Uganda’s public debt continues to grow, reaching $25.6 billion in June, up from $23.7 billion the previous year. In 2023, Uganda’s public debt accounted for 52% of its GDP, triggering concerns about the potential for a debt crisis unless immediate steps are taken to curb the trend.

Aiming for Fiscal Consolidation Amid Debt Crisis

Despite the rising debt levels, the government asserts that the borrowed funds have been directed towards stimulating economic growth. However, this surge in public debt has led to credit rating downgrades, which have fuelled public apprehension over the country’s financial stability.

Ramathan Ggoobi, Uganda’s Permanent Secretary of the Ministry of Finance and Treasury Secretary, emphasised that Uganda has managed to weather several shocks, including high inflation and interest rates. He assured the public that the government is working diligently to ensure that the high public debt does not hinder economic growth.

“The economy has expanded to about $53 billion, and foreign direct investments have grown significantly due to sound economic management,” Ggoobi said. “One of our key priorities is to ensure that the public debt does not undermine the growth we have achieved.”

Uganda’s Economic Outlook

In its recent International Debt Report, the World Bank warned that high interest rates combined with rising debt levels are putting many developing countries at risk of financial distress. The report highlighted that developing nations are increasingly faced with the difficult decision of choosing between servicing debt or investing in critical sectors like healthcare, education, and infrastructure.

To prevent this scenario, Uganda’s finance ministry has committed to reducing external borrowing drastically, with external debt set to fall from 1.394 trillion Ugandan shillings to just 29.9 billion shillings (around $8.15 million). Domestic borrowing through Treasury bonds will also be scaled back by 54% in the upcoming financial year, as part of the government’s broader strategy to maintain fiscal consolidation.

Controlling Debt Growth and Ensuring Economic Stability

The Ugandan government’s decision to cut borrowing and reduce spending is a critical step in managing the nation’s increasing debt burden. Although the country’s economic growth has been faster than many of its African peers since the COVID-19 pandemic, concerns over the long-term impact of the debt remain significant.

As Uganda continues to focus on fiscal consolidation, ensuring that the economy remains on a growth trajectory will be key in preventing the country from falling deeper into debt. The government’s actions are aimed at achieving a balance between debt management and sustaining economic expansion, which will be crucial for Uganda’s future financial health.

Impact on Public Services and Future Investments

While the government’s efforts to curb debt may alleviate fiscal pressure in the short term, the ongoing challenge will be to maintain the momentum of economic development. As the World Bank’s report suggests, many countries in Uganda’s situation face difficult choices, with limited resources for public investment.

The challenge for Uganda will be to ensure that reductions in borrowing and spending do not compromise essential public services, and that long-term investments in infrastructure and social welfare continue to meet the needs of its growing population.