A leaked memo from the Office of the Prime Minister reveals that the government of Uganda plans to review and possibly approve borrowing proposals amounting to over USD 1.6 billion (UGX 5.8 trillion) during a cabinet-level meeting scheduled for Wednesday, March 26, 2025.
The meeting, convened by the Prime Minister, is expected to consider 12 separate loan requests from various ministries and government agencies, targeting key sectors such as roads, energy, water, health, agriculture, and financial services.
Loan proposals listed in the memo:
- €186.97 million and an additional €19.46 million from the African Development Bank for the Busega–Mpigi Expressway.
- €198.6 million from Citibank to finance road infrastructure in Jinja, Kamuli, and Bukungu.
- €190.98 million from Stanbic Bank and USD 100 million from Absa for the UMEME buyout and Uganda Electricity Distribution Company Ltd (UEDCL) capital expenditure.
- USD 121.96 million from the African Development Fund for the Uganda–South Sudan power interconnection.
- Two proposals, each for USD 20 million from BADEA, to finance the rehabilitation and expansion of Bugiri General Hospital.
- Two proposals, each for €214.1 million from Standard Bank and Standard Chartered Bank respectively, for the Strategic Towns Water Supply and Sanitation Project.
- A combined financing of USD 245 million from BADEA, OFID, ISDB, ICD, and ITFC to recapitalize Uganda Development Bank and secure additional guarantees.
- €9.4 million from Unicredit Bank Austria and USD 36.5 million from the Islamic Development Bank for oncology centers in Mbale and Arua.
- €199 million from Citibank to enhance agricultural production and market access.
- USD 99.56 million from IFAD for the Resilient Livestock Value Chain Project.
The loans, if approved, will be contracted from both multilateral and commercial lenders, and are intended to fund ongoing or planned government projects across the country.
Inside Uganda’s public debt: A deeper look into the Auditor General’s 2024 findings
The Auditor General’s Annual Report to Parliament for the financial year ended 30th June 2024 provides a detailed and technical assessment of Uganda’s public debt position. Through a careful review of debt levels, service obligations, and absorption performance, the report presents a complex picture of a country increasingly reliant on borrowing—both external and domestic—to meet its development objectives, amid mounting concerns over fiscal sustainability.
A rising Debt-to-GDP ratio
The report confirms that Uganda’s total public debt stock has continued to rise. As at the end of FY 2023/2024, the debt-to-GDP ratio stood at 50.1%, a notable increase from 48.2% in the previous year.
While this figure remains within the East African Community’s debt ceiling of 50%, it signals a tightening fiscal space and increases exposure to debt distress risks. The Auditor General notes that this upward trajectory places the country at the threshold of its regional fiscal convergence target.
A significant feature of the March 26 loan proposals is the increasing reliance on commercial bank loans, particularly from Citibank, Stanbic Bank, ABSA, Standard Bank, and Standard Chartered Bank.
Key proposals include:
- €198.6 million from Citibank for road construction (Jinja–Bukungu corridor).
- €190.98 million from Stanbic Bank for the UMEME buyout.
- €214.1 million each from Standard Bank and Standard Chartered for the Strategic Towns Water Project.
- €199 million from Citibank for agricultural development.
These commercial loans, often contracted on semi-concessional or market-based terms, carry higher interest rates and shorter grace periods than multilateral financing.
The Auditor General notes that the average cost of borrowing is rising due to increased use of non-concessional credit, which also exposes Uganda to greater refinancing and exchange rate risk. While these loans provide faster disbursement, they may impose tighter repayment obligations on government budgets.
This trend reflects both growing financing needs and limitations in absorbing traditional concessional financing. However, it also intensifies the need for stronger project planning, fiscal discipline, and debt service management.
Mounting interest payments and revenue pressure
One of the most critical observations relates to the cost of debt servicing. The report indicates that interest payments consumed UGX 6.34 trillion, representing 28.9% of total government revenue. This exceeds the International Monetary Fund (IMF)’s recommended threshold of 20%, which serves as a warning indicator for fiscal stress.
This implies that for every 100 shillings of revenue collected, nearly 29 shillings are being used to service interest obligations—reducing the fiscal space available for recurrent and development expenditure. The Auditor General flags this as a structural risk that requires close monitoring and policy attention.
Netflix Strikes $82.7 Billion Deal to Take Over Warner Bros., Redefining the Global Entertainment LandscapePersistent fiscal deficit
The report further highlights that Uganda’s fiscal deficit widened to 6.5% of GDP, exceeding the 3% benchmark under the East African Monetary Union’s convergence criteria. This points to a growing imbalance between government spending and domestic revenue generation, leading to increased dependence on both concessional and non-concessional borrowing to bridge the gap.
Low absorption and costly idle loans
A significant portion of Uganda’s external debt remains underutilized, a recurring issue flagged in multiple audit cycles. The Auditor General notes that despite securing substantial loan commitments, the rate of project implementation and funds absorption remains low, especially for infrastructure and social service projects.
This has led to the accumulation of commitment fees—charges imposed by lenders for undisbursed funds. Over the years, Uganda has paid a cumulative UGX 1.23 trillion in commitment fees.
In effect, the country is paying for money it hasn’t used, adding an avoidable burden to the cost of borrowing. These inefficiencies, according to the Auditor General, stem from procurement delays, weak project readiness, and coordination lapses among implementing agencies.
Debt structure and foreign exchange risk
The Auditor General also points out Uganda’s exposure to foreign exchange risk, noting that a significant portion of the national debt is external and denominated in foreign currencies. As a result, any depreciation of the Ugandan shilling could significantly increase the domestic cost of debt repayment.
While concessional loans still form a substantial part of Uganda’s portfolio, the government has increasingly turned to commercial and semi-concessional financing, including syndicated loans from banks and export credit agencies. These loans often come with higher interest rates and shorter maturities, which can strain future debt service schedules.
The also report draws attention to the rising stock of domestic arrears, which reached UGX 13.814 trillion by the close of FY 2023/24—a 31.5% increase from the previous year. New arrears (UGX 6.6 trillion) continue to outpace payments (UGX 3.7 trillion), suggesting weak commitment controls and budgeting inefficiencies. The accumulation of arrears not only affects service providers and contractors but also undermines government credibility and economic liquidity.
The Auditor General attributes this trend to inadequate budgeting, weak enforcement of commitment controls, and cash flow constraints.
Recommendations from the Auditor General
To address these issues, the Auditor General makes several recommendations such as strengthening debt planning and alignment with the Public Debt Management Framework (PDMF), ensuring that new borrowing is anchored in clear absorption and repayment capacity.
Improving project readiness and execution to reduce underutilisation and avoid unnecessary commitment fees.
Enhancing fiscal discipline through better enforcement of commitment controls to curb the growth of domestic arrears.
Reviewing debt service obligations periodically, especially in relation to changing macroeconomic variables such as exchange rates and inflation and increasing transparency and reporting, particularly in relation to commercial borrowing and the performance of loan-funded projects.
