Uganda’s Debt Pivot: The Domestic Borrowing Surge Reshaping East Africa’s Fiscal Outlook

Uganda’s public debt has entered a new phase, with the country’s borrowing stock rising sharply as the government turns increasingly towards domestic markets to finance its budget requirements. By the end of June 2026, Uganda’s total public debt had climbed to approximately US$37.1 billion, compared with US$32.3 billion a year earlier, representing an increase of 14.8 per cent. The latest figures underline how rapidly domestic borrowing is becoming a central feature of Uganda’s fiscal strategy.

The increase comes at an important moment for Uganda’s economy. The government is attempting to finance infrastructure, development programmes and public expenditure while preparing for a period in which oil revenues are expected to become increasingly important. Yet the latest debt figures demonstrate that the transition towards stronger domestic revenue and future oil income has not eliminated the immediate need for borrowing. Instead, a greater proportion of the financing burden has moved towards Uganda’s own financial markets.

According to Uganda’s Ministry of Finance, Planning and Economic Development, public debt reached about Shs143.92 trillion by June 2026, compared with Shs125.23 trillion in June 2025. Domestic debt accounted for the largest share of the increase, rising to around Shs80.72 trillion. This represented approximately 56.1 per cent of the country’s total public debt, compared with Shs60.34 trillion a year earlier.

The shift has been driven largely by increased issuance of government securities. Uganda has expanded its use of Treasury bonds as it seeks to finance the budget deficit while also extending the maturity profile of its domestic obligations. Treasury bonds outstanding increased from approximately Shs52.62 trillion to Shs68.81 trillion during the financial year, while Treasury bills declined slightly. The figures point to a deliberate preference for longer-term domestic borrowing rather than relying predominantly on shorter-term instruments that require more frequent refinancing.

This strategy has a clear financial rationale. Longer-dated bonds can reduce the frequency with which the government needs to refinance maturing obligations, potentially lowering rollover pressures. Uganda introduced a 25-year Treasury bond during the period, with issuance reaching about Shs1.048 trillion at cost. The government has described the longer maturity structure as part of its effort to support development financing while reducing refinancing and rollover risks.

However, greater reliance on domestic markets also creates a different set of economic considerations. Government securities compete for capital with private borrowers, particularly banks and businesses seeking financing for investment and expansion. The Bank of Uganda has recently warned that borrowing beyond planned levels could put upward pressure on interest rates and constrain private-sector access to credit. The central bank expects net domestic financing of approximately Shs12.7 trillion in the 2026/27 financial year, down from around Shs15.1 trillion in the previous year.

The distinction is significant for Uganda’s broader growth ambitions. Private-sector credit grew by 16.1 per cent year-on-year to June 2026, according to the Bank of Uganda, suggesting that demand for financing remains substantial. If government borrowing absorbs a larger share of available domestic liquidity, companies could face higher financing costs or reduced access to credit. Conversely, if fiscal consolidation progresses and government borrowing remains within planned limits, pressure on domestic interest rates could ease.

The debt increase also needs to be considered in relation to Uganda’s economic growth. The government’s debt-to-GDP ratio rose from 51.3 per cent in June 2025 to 54.3 per cent in June 2026, according to the Ministry of Finance. Domestic debt represented about 30.5 per cent of GDP, while external debt represented roughly 23.9 per cent. Despite the increase in the overall ratio, external debt relative to GDP declined, partly because nominal economic growth outpaced the accumulation of external obligations.

External borrowing nonetheless remains important. Uganda’s external debt stood at approximately US$16.3 billion at the end of June 2026. During the financial year, external debt increased partly because new disbursements exceeded principal repayments, while exchange-rate movements also contributed to the change. At the same time, the stock of committed but undisbursed external financing rose substantially, indicating that Uganda still has access to financing commitments that could become important for future infrastructure and development expenditure.

The International Monetary Fund has highlighted the broader fiscal pressures behind Uganda’s rising debt. In its 2026 Article IV assessment, the IMF said debt-related vulnerabilities had increased amid relatively stagnant government revenue as a share of GDP and rising current expenditure. It also noted that financing had relied significantly on domestic sources and non-concessional external borrowing, contributing to elevated real interest rates. The IMF projected public debt at around 55.1 per cent of GDP for FY2025/26 in its assessment, while noting that debt-service pressures had also increased.

Debt servicing is therefore becoming an increasingly important part of Uganda’s fiscal equation. Domestic debt service rose from approximately Shs17.58 trillion to Shs18 trillion between FY2024/25 and FY2025/26. Although the increase was relatively modest compared with the expansion of the debt stock, the underlying trend matters because interest and refinancing costs can gradually restrict the government's room for other expenditure.

Uganda’s future fiscal position will also be closely linked to the expected development of its oil sector. Petroleum revenues could eventually provide the government with an additional source of financing and investment capacity. Yet the timing and scale of those revenues remain important variables. The IMF has stressed the importance of prudent management of petroleum income and stronger fiscal controls as Uganda seeks to create room for development spending without allowing debt vulnerabilities to rise further.

For investors, Uganda’s expanding domestic debt market presents a more complex picture than simply a rising debt headline. Increased Treasury issuance can deepen the local capital market, create additional investment instruments and help establish a longer domestic yield curve. The introduction of the 25-year bond, for instance, provides evidence of efforts to develop longer-term financing capacity. At the same time, sustained heavy government borrowing could influence yields, liquidity conditions and the cost of capital across the wider economy.

The challenge for policymakers will therefore be to balance development financing with fiscal sustainability. Uganda needs investment in infrastructure, energy, transport, health and productive capacity to support long-term economic expansion. Borrowing can play an important role when it finances projects capable of strengthening future productivity and revenue generation. The pressure becomes greater when debt accumulates faster than the economy’s capacity to generate revenues capable of servicing it comfortably.