2025/26 Budget: How debt could blow out collections    

This means that the government will now face the tough choice of either servicing its debts or investing in education, infrastructure, or health, among other priority sectors.

 According to the Finance Ministry's fiscal risk statement for the Financial Year (FY), as of mid-year of 2024/25, public debt stood at $29.1 billion or slightly more than Shs106 trillion. This means Uganda has surpassed the 50 percent threshold considered sustainable by the International Monetary Fund (IMF) for low-income nations like Uganda.

Uganda faces a critical financial challenge as interest payments on loans are consuming a substantial portion of the budget and domestic revenues. Going by the December 2023 report from the Bank of Uganda, escalating debt servicing costs are straining tax revenue collection, with Shs32 out of every Shs100 collected going towards debt servicing.
 In the next financial year (FY) 2025/26, less than three weeks away, it is projected that about 40 percent of each Shs100 collected in revenue will be used for debt servicing.  

 Not a debt budget
Last month, Parliament approved the Shs72.3 trillion budget for the financial year 2025/26. The approved budget is a slight increase from the previous year's amount of Shs72.1 trillion. This budget, according to the deputy secretary to the Treasury at the Finance Ministry, Mr Patrick Ocailap, reflects the government's commitment to the priorities outlined in the National Development Plan IV.

In an exclusive interview with Mr Ocailap, it also emerged that the next budget, just days away, is not debt ridden contrary to what many people, including debt experts, believe.  

“Everybody thinks we have nothing to spend our budget on. That is not true. I would like to debunk the idea that the next budget is debt-heavy,” says Mr Ocailap.

He continues: “Money that is available for expenditure is Shs62.3 trillion. About 60 percent of the budget will be financed by resources generated locally, including Shs33.9 trillion that URA will collect. So, where is that claim that our budget is debt-heavy coming from?”
“Tell those who argue that our budget will be eaten by debt that almost 60 percent of the budget next year will be financed with very little debt.”
But slightly more than Shs3 trillion under budget support will be borrowed.

Cold facts
According to the Budget Committee report, the total nominal public debt to GDP is projected at 53.34 percent in the financial year 2O25/26, which is inconsistent with the Charter of Fiscal Responsibility target of 49.3 percent. 

When contacted, the director of research and policy at Bank of Uganda, Dr Adam Mugume, said: Out of the total budget of slightly more than Shs72.3 trillion, you have about Shs10 trillion for domestic debt rollover, Shs11 trillion for interest payment, and about Shs5 trillion for debt amortisation.
“Shs26 trillion is not available for spending. If you subtract other statutory obligations, the money available to spend falls further to about Shs43 trillion. The financing is from revenues, that is, taxes and non-taxes revenues, which is about Shs36.8 trillion, and the remaining is debt, both domestic and external, and budget support,” Dr Mugume says.

“Shs43 trillion out of the total budget of about Shs73 trillion is available to spend on wages/ salaries and development projects. This points to the need for a higher level of efficiency in executing government expenditures, otherwise service delivery will be challenged.”
In an interview, Ms Madina Guloba, a senior research fellow at the Economic Policy Research Centre (EPRC), argues that domestically collected revenue remains the most logical means to finance the budget despite dwindling collections.  

She also notes that development aid, along with loans and grants, will remain the most viable sources of budget financing until the country can fund most or all of it independently.

 However, she says: “With debt servicing absorbing a significant share of the budget, the pressure on domestic collections will intensify.
“The government must not only broaden the tax base but also improve efficiency in tax administration. Development aid and concessional loans will remain necessary—but must be better targeted towards growth-enhancing sectors to avoid a vicious cycle of borrowing,” Guloba says.

Way below
As for the executive director of Civil Society Budget Advocacy Group (CSBAG), Mr Julius Mukunda, financing the 2025/26 budget will be constrained by the growing debt burden, impacting public spending in both the immediate and medium term. With the external debt to Gross Domestic Product (GDP) surpassing the 50 percent mark, he says there are concerns over revenue sustainability, particularly as debt servicing costs increase, limiting credit availability for the private sector.

“We can only finance up to 47 percent of our budget. The rest will be financed through borrowing and other forms of external budget support, and that is a challenge. The government has fewer resources in the budget to work with because the first obligation is to service debt, and all other things come after that,” says Mr Mukunda, before adding: “The other worry I see is government borrowing domestically on a non-concessional rate to finance the budget. This is akin to giving with one hand and taking with another. It will deepen our debt burden.”

 The total public debt in the estimated range of between Shs106 trillion and Shs110 trillion, translating to more than 55 percent of GDP. This means that if each Ugandan were to pay off the accumulated debt today, every citizen would part with at least Shs2.5 million, according to Uganda Debt Network.  
 
As the government looks to finance the FY2025/26 budget through a mix of domestic revenue mobilisation and borrowing, Ms Jane Nalunga, budget and public debt analyst, says the government should not lose sight of the fact that debt servicing obligations take precedence and will consume approximately Shs27.58 trillion.

This, she says, leaves less than Shs10 trillion from domestic revenue for discretionary expenditure, which is significantly below the projected allocation of Shs11.3 trillion for the Human Capital Development (HCD) programme alone.

To close the financing gap, the government plans to borrow an additional Shs11.381 trillion from the domestic market. However, this level of domestic borrowing risks crowding out private sector credit, potentially dampening investment and economic growth.
 Furthermore, Shs11.3 trillion and Shs2.08 trillion will be mobilised through external borrowing and budget support, respectively, bloating the budget with debt.

Way out
As a way out of the financial constraint bedeviling the budget, just like Mr Mukunda, Ms Nalunga, recommends enhancing tax administration to widen the tax base. This should be in addition to minimising tax and related leakages. 

Mr Mukunda also believes that Rationalisation of Government Agencies and Public Expenditure (RAPEX), a government policy looking to enhance institutional harmony and eliminate duplication, should be extended to all recruiting commissions. For instance, he says there should be one commission in charge of all public sector recruitment instead of sector recruitment agencies such as the Judicial Service Commission.

By reallocating resources towards critical and high-impact programmes such as human capital development, this can be achieved by curbing non-essential expenditures, including travel, workshops, and meal allowances, thereby optimising the use of limited public funds.

Public investment efficiency is the other proposal Mr Mukunda concurs with, saying ensuring that borrowed funds deliver tangible outcomes is like an early Christmas gift.
“These measures will enhance fiscal sustainability while maintaining service delivery commitments,” says Mr Mukunda.

As for Ms Guloba, with up to 40 percent of “our budget expenditure deviated from the approved allocations—either through overruns or off-budget activity,” a plan anchored in realistic costing, with a firm commitment to fiscal/revenue discipline, is a must.

According to Ms Guloba, frugality and alignment of budget lines to actual deliverables to guide implementation are prerequisites. The government must also enhance transparency to restore public and investor confidence.