Rising debt costs, unused loans expose cracks in Uganda’s growing budget

Uganda’s expanding national budget is increasingly being overshadowed by mounting debt pressures, with new revelations from Parliament’s Finance Committee pointing to inefficiencies, rising borrowing costs and growing risks to private sector growth.

The report on the 2026/27 Ministerial Policy Statement paints a complex picture: while government spending is set to increase significantly, the cost of servicing debt—and even unused loans—is rising at a faster pace.

Paying more for money not used

One of the most striking findings is the sharp increase in commitment fees—charges paid on loans that have been approved but not yet utilised.

According to the Committee, these fees will jump from UGX 63.66 billion to UGX 185.6 billion, nearly tripling in a single financial year.

This trend reflects persistent delays in project preparation and implementation, meaning Uganda is paying heavily for funds that are sitting idle.

Analysts say such inefficiencies not only waste public resources but also raise questions about planning capacity within government institutions.

Bigger budget, heavier burden

The national budget is projected to grow from UGX 72.38 trillion to UGX 84.29 trillion in the 2026/27 financial year, signalling continued expansion in government spending.

However, the report shows that a growing share of this budget is being consumed by debt obligations rather than new development.

Payments required to service old domestic debt are expected to rise by UGX 3.94 trillion, underscoring increasing strain on public finances.

This suggests that while government is spending more, less of that money is available for new investments in infrastructure, health or education.

Temporary borrowing becomes long-term debt

The Committee also flagged concerns over the conversion of a UGX 7.78 trillion “temporary advance” from the Bank of Uganda into long-term public debt.

Originally intended as short-term financing, the advance has been restructured into 10-year Treasury bonds, effectively locking the country into a decade of repayments.

Under this arrangement, Ugandans will pay approximately UGX 547 billion annually in principal alone, excluding interest.

Critics say the move raises transparency concerns and highlights the risks of relying on short-term borrowing to plug fiscal gaps.

Domestic borrowing crowds out businesses

Government’s reliance on domestic borrowing remains high, with projections showing UGX 11.97 trillion will be raised from the local market in 2026/27.

While domestic borrowing can be a useful financing tool, the Committee warns that excessive reliance is already squeezing the private sector.

With lending rates hovering around 18 percent, businesses and individuals are facing increasingly expensive credit.

“When government borrows heavily from local banks, there is less money left for businesses,” the report notes, warning of a “crowding out” effect that could slow private sector growth.

For small and medium enterprises in particular, this could mean reduced access to loans, higher interest rates and constrained expansion.

A balancing act for policymakers

The findings highlight a growing policy dilemma: how to sustain economic growth and fund development priorities without deepening debt vulnerabilities.

Uganda’s strategy has long relied on borrowing to finance infrastructure and stimulate growth, but the rising cost of debt, and inefficiencies such as unused loans, are now testing that model.

The road ahead

The Finance Committee’s report is likely to intensify scrutiny of government borrowing practices and project implementation capacity as Parliament debates the 2026/27 budget.

Experts say improving project readiness, tightening fiscal discipline and boosting domestic revenue mobilisation will be critical to easing pressure on public finances.

Without such reforms, Uganda risks entering a cycle where more borrowing is required simply to service existing debt, leaving limited room for the investments needed to drive long-term economic transformation.