Govt carries debt burden  into new financial year  

Government spends at least Shs30 on debt servicing on every Shs100 mobilised through domestic taxes. Photo / File

What you need to know:

  • Uganda goes into a new financial year next month with a debt load of Shs93.3 trillion, which is expected to increase further

It is already a tough balance. The 2023/24 financial year has had many financing challenges and will continue into the new financial year. 

Donor funding has been declining, while domestic revenue mobilization, despite increased vigilance, has been registering shortfalls. 

Thus, government will have to steer Ugandans through a new financial year that is characterised by expensive debt due to a reduction in official international debt sources, an increase in debt commitment, yet local revenues have not been increasing as planned. 

Data indicates that government now spends at least Shs30 for every Shs100 collected revenue – an equivalent of 30 percent - which tells of a heavier burden when it comes to priority allocation to key sectors of the economy such as education, agriculture and health, among others. 

Public debt continues to place a burden on tax resources with money allocated to debt servicing growing by an average of 5 percent annually. 

For instance, during the period ended December 2023 the share of public debt servicing or expenditure on public debt expanded by 10 percent, increasing from $1.7b as of December 2022 to $1.9b (Shs7.16 trillion). 

Data further indicates that the share of external debt servicing rose by 34 percent in the period from $360.83m (Shs1.36 trillion) to $544.82m (Shs2.05 trillion), while that of domestic debt stood at $1.4b (Shs5.27 trillion). 

However, even as debt servicing puts pressure on government resources, the Ministry of Finance argues that public financing remains prudent and the same has been followed despite current national and global challenges that have necessitated increased borrowing to finance the budget.  

Interestingly, government says it will continue to contract more financing - but largely on concessional terms - while at the same time, it will do less domestic and commercial borrowing.  

In a report on public debt, grants, guarantees and other financial liabilities for the 2023/24 financial year presented to Parliament in April, Finance Minister Matia Kasaija said the public debt sustainability analysis conducted in December 2023 revealed that whereas there was an increase in the stock of public debt from $20.9b (Shs79.1 trillion) in the 2021/22 financial year to $24.6b (Shs93.3 trillion), the debt to gross domestic ratio reduced due to growth in nominal gross domestic product.

“The ratio of total debt service to domestic revenue amounted to 32.6 percent in 2022/23 [financial year] and thus debt service burden remains a key area of concern for debt sustainability,” he said.  

The stock of public debt has increased by Shs12.6 trillion in just one year, rising from $21.74b (Shs80.7 trillion) in December 2022 to $24.6b (Shs93.3 trillion) by December 2023. 

Of this, at least $14.6b (Shs55.37 trillion) is external debt, while $9.96b (Shs.38.01 trillion) is domestic debt. 

The growth has been a key challenge to domestic revenue mobilisation and international reserves, which have remained unstable in the last three financial years due to rapid growth in debt financing commitments. 

Bank of Uganda has previously conceded that mounting public debt eating into foreign exchange reserves, which in the six months to January has reduced by $450m. 

The reserves have been declining, falling by about 14 percent from $4.1b to $3.5b in the six months to January 2024, equivalent to just 3.4 months of import cover, which is below the four months. 

These challenges, and more, are presenting themselves at a time when Uganda, just like many other countries in sub-Saharan Africa are struggling with a reduction in financing and a surge in interest rates.   

The International Monetary Fund (IMF) has previously warned that much of sub-Saharan Africa is facing a funding squeeze partly due to a reduction in traditional funding sources, particularly official development assistance. 

Thus, governments are now seeking alternative financing options, which are typically associated with higher charges, less transparent, and shorter maturities. 

Therefore, the cost of borrowing - both domestic and external - has increased and continues to be elevated. 

“In 2023, government interest payments took up 12 percent of revenues (excluding grants) for the median sub-Saharan African countries, more than doubling from a decade ago. The private sector has also started to feel the pinch from higher interest rates,” said the IMF, noting that there have been heightened vulnerabilities, with 19 out of 35 low-income countries in the region either in debt distress or at high risk of distress as of the end of 2023. 

However, the IMF notes that many countries are working on mitigation measures. 

For instance, besides fiscal consolidation, some countries have adopted additional measures such as enhanced debt reporting, refinancing, and - in collaboration with creditors – extended loan maturities and spread out repayments. 

Other measures include improving public financial management and risk management, boosting fiscal transparency, and monitoring state-owned enterprises.  

In April, Dr Abebe Aemro Selassie, the IMF director African department, however, said as “global financial conditions ease, a few countries have been able to return to international debt markets, ending a two-year hiatus. These are encouraging signs. But the region is not out of the woods yet”. 

However, he said, “borrowing costs remain high, and funding sources curtailed, while government interest payments now account for about 12 percent of revenues, which is more than double the level a decade ago.   

What does this mean?  

Of course, it is a question that speaks to one issue – there is an elevated demand for funds, yet, my countries in sub-Saharan Africa have exhausted their capacity to mobilize enough funds that can ably fund other services beyond interest payments. 

This has weakened their ability to withstand shocks, thus, such countries, the IMF says, must find a balance to sustain reforms that are important for macroeconomic improvement because it is the only way to build resilience, generate jobs, diversify, and improve living standards.

Therefore, Selassie says, governments should work hard to improve public finances, with emphasis on domestic revenue mobilization to help meet vast development needs in a context of scarce concessional financing and high borrowing costs, sustain focus on reducing inflation below target, and implement reforms that enhance skill development, spur innovation, improve the business environment, and promote trade integration to secure affordable financing. 

On the other hand, for the case of Uganda, the IMF resident representative Izabela Karpowicz, says the country is at a moderate debt distress level but is worried because of heightened debt servicing. 

“The interest payment on the external and domestic rate is taking out a large chunk of money, which would have been used in other developmental programs,” she said.

Public debt service as of December 2023 

Loan purpose 

Dec 2022 ($m)

Dec 2023 ($m)

External principal 



External Interest 



External commissions  



Total external debt service 



Total external debt service as a percentage of total debt service 

20 percent

27 percent

Domestic interest 



Total domestic debt service 



Domestic debt service as a percentage of domestic debt service 

80 percent

73 Percent

Total debt service