Uganda is currently facing a significant financial challenge as the country grapples with rising public debt. This development has raised concerns among economists and international lenders alike. The country’s public debt has surged to $25.6 billion as of June 2024, drawing criticism from the opposition and leading to credit rating downgrades.
The escalating public debt has put a strain on Uganda’s finances, with a substantial part of its budget and domestic revenues being consumed by interest payments on loans. This, coupled with stagnant tax revenues and declining export revenues, has pushed the country towards debt distress and a potential crisis.
As of 2023, Uganda’s public debt had reached unprecedented levels, amounting to shillings (UGX) 96.1 trillion ($25.3 billion or 52% of GDP). The total public debt as a share of GDP stands at 48.6%, raising concerns about the country’s ability to make debt repayments.
Although the government has stated that the borrowed funds have been utilized to drive economic growth, the escalating public debt has raised alarms among the public. There are worries about a potential sovereign default and a full-blown debt crisis if urgent action is not taken to reverse the current trend.
In response to the debt crisis, the Finance Ministry has announced significant reductions in government spending and domestic borrowing for the 2025/26 financial year. Overall spending will be slashed by over 20% to 57.4 trillion shillings, down from the initially planned 72.1 trillion shillings for the current financial year.
Additionally, the ministry plans to reduce domestic borrowing through Treasury bonds by 54% in the next financial year compared to the previous period. This move aims to alleviate the pressure of debt and prevent a crisis from escalating further.
The decision to implement these austerity measures comes at a critical time for Uganda, as the country grapples with the challenges posed by its rising public debt. It is essential for the government to take proactive steps to address the debt crisis and ensure sustainable financial management for the future.
