Faith Nyasuguta
The Ugandan government has announced plans to reduce external borrowing by 98% by June 2026, a drastic move aimed at addressing the country’s escalating debt crisis. The Finance Ministry unveiled this measure as part of a broader strategy to stave off potential sovereign default and economic turmoil.
Over the past decade, Uganda’s public debt has surged, drawing sharp criticism from economic analysts and international bodies. By June 2024, Uganda’s debt had climbed to $25.6 billion, representing 48.6% of its GDP, raising serious questions about the nation’s capacity to meet its repayment obligations. Concerns over potential default have intensified, exacerbated by recent credit rating downgrades and warnings from economic watchdogs.
A significant factor impacting Uganda’s external financing has been its controversial Anti-Homosexuality Act, signed into law in May 2023. This law has led to a freeze on aid from key Western donors and has complicated access to external funding and partnerships. The United States and several European countries halted or redirected aid, citing human rights concerns. This shift has compounded the strain on Uganda’s finances, as the country grapples with diminishing foreign assistance alongside rising debt.
The Finance Ministry aims to stabilize the situation by slashing overall government spending by over 20% for the 2025/26 financial year, bringing it down to 57.4 trillion shillings from the 72.1 trillion planned for the current year. Additionally, domestic borrowing through Treasury bonds will be reduced by 54%, easing pressure on the local financial market and allowing for a more sustainable fiscal path.
Minister of Finance Matia Kasaija emphasized that this drastic reduction in borrowing and spending is essential to avert a full-blown debt crisis. “The objective is to ensure our debt remains sustainable while safeguarding economic growth and development,” he noted.
Uganda’s reliance on borrowed funds has historically been justified by the government as necessary for infrastructure projects and economic stimulation. However, the rapid accumulation of debt without commensurate revenue growth has prompted alarm. Stagnant tax revenues and declining export earnings have further strained public finances, necessitating urgent reforms.
Analysts argue that while the decision to curtail borrowing is prudent, Uganda’s path to fiscal stability will be challenged by the dual impact of reduced aid flows due to its anti-LGBTQ policies and a need for more robust domestic revenue strategies. Mitigating these challenges will be crucial as the government seeks to regain financial credibility and secure the economic future of the nation.
