Members of Parliament and other leaders follow proceeding during the reading of the 2025/2026 National Budget at Kololo Independence Grounds in Kampala yesterday. Photo/Michael Kakumirizi
The Private Sector Foundation-Uganda has welcomed the increase in funds allocated to clear domestic arrears in the 2025/2026 financial year budget, and tasked the government to ensure the money is actually paid out to the owed entities. About Shs1.4 trillion has been allocated to clear domestic arrears in the next financial year 2025/2026, a significant rise from Shs200 billion this financial year ending June 30, 2025.
This will boost liquidity in the private sector. While delivering the budget speech yesterday, Minister for Finance Matia Kasaija said the government has put in place a strategy to eliminate domestic arrears in three financial years starting FY2025/2026. “Payment of domestic arrears will prioritise suppliers of goods and services, contractors, and compensations for land and to war claimants,” he said “To prevent accumulation of new arrears, starting next financial year, my ministry shall implement the following measures: (i) enforcement of the commitment control system; (ii) sanctioning Accounting Officers responsible for creation of any new arrears; and (iii) providing and ring-fencing adequate counterpart funding for multi-year projects,” he added.
By the end of December 2024, Shs217.4 billion had been spent on domestic arrears against a budget of Shs199.9 billion, implying an over expenditure of Shs17.499 billion according to the Budget committee report. Domestic arrears are the government’s financial obligations that remain unpaid beyond the fiscal year in which they were incurred and due. Mr Stephen Asiimwe, the executive director of Private Sector Foundation Uganda (PSFU), commended the government for the increased allocation. The Foundation, which brings together different private sector players, also at the forefront of advocacy and policy support sector, said they have been lobbying the government to step up its commitment to clear the stock that has been on an upward trajectory, and a strain to many businesses. “That is a very welcome intervention. In the business community, we are excited about it. Because arrears are, you know, when a business cannot pay its obligations, then it goes into borrowing.
And that constrains the cost of doing business,” Mr Asiimwe said. With a poor track record of paying domestic suppliers, Mr Asiimwe wants Parliament to ensure the allocated money is actually distributed to the businesses “It's important that Parliament become the ombudsman of this and follow through. And it works both ways. Once people have money, that money is invested, it creates jobs, and it pays taxes and translates into economic growth.
So it's a chicken and egg thing, but it's more important that they implement that provision,” he added. Domestic arrears have been on an upward trajectory, growing by almost 700 percent between FY2006/2007 and FY2019/2020. The arrears increased from Shs8 trillion in 2022 to more than Shs10 trillion in 2023. The total stock was valued at Shs13.8 trillion in FY2023/2024, reflecting a 32 percent rise. This accumulation has been attributed to inadequate budgeting, cash flow challenges, and competing government priorities, among others.
The Parliament Committee on Budget, which processes the annual budgets in its report, revealed that the total arrears stock totaling Shs13.188 trillion as stated by Auditor General also included Shs8.3 trillion for the Bank of Uganda redemptions, which were provided for in the budget. This leaves a balance of Shs5.254 trillion owed for goods and services, pension and gratuity, contributions to international organisations, court awards, as well as rent and utilities.
The allocated Shs1.4 trillion will go to payment of part of this debt, reducing the arrears to Shs3.8 trillion. “The committee commends government for increasing on the provision for domestic arrears. However, government should adhere to the Commitment Control System and sanction Accounting Officers who perpetually commit government expenditure without resources and outside the approved budget,” Parliament recommended.
In 2019, Ernst & Young (E&Y), on the review of Uganda’s arrears, revealed failures in the system, including tracking and recording of arrears. For example, the report indicated that out of Shs4 trillion in arrears then, the total amount of valid arrears was Shs2.3 trillion, Shs710 billion was contestable, while Shs517 billion was rejected. In 2022, the government released a consolidated report on domestic arrears where it owes several businesses funds from as low as Shs800,000 to billions of shillings. Some of these debts date back to 2014.
The findings indicate that local governments, as well as ministries, departments and agencies, accumulate these debts, particularly by defaulting on rent, utilities, and other recurrent expenditures. The government also owes several former civil servants millions in unpaid pensions and gratuities.
“By the time small companies that supply at the district level are paid, the money cannot even cover the interest accrued,” Deputy Speaker Thomas Tayebwa said during the budget scrutiny process in April. These delayed payments lead to the accumulation of arrears, which in turn, attract interest and raise the government's spending obligations.
This growing fiscal burden poses a serious risk to the private sector, as businesses struggle to maintain daily operations amid delayed payments. In 2021, the Ministry of Finance, Planning and Economic Development launched a strategy to Clear and Prevent Domestic Arrears to address the perpetual problem of arrears for the Government of Uganda. In the strategy, government admitted poor management of arrears in the past. “The accumulation of domestic arrears calls into question our ability to effectively manage the resources of the country.
The economic implications are also great. The consequences are far reaching in that it impacts the operations of small and medium sized businesses, results in a higher cost of doing business for us and perpetuates the reputation that we are poor fiscal managers and leaders,” the strategy states. It adds: “Arrears impacts the implementation of the budget which results in the potential delay of planned services to the public. It also disguises the true level of the liabilities the government has to resolve… The escalation in the arrears stock signifies the lack of fiscal discipline, poor financial management and leadership, and weak system controls.”
The Public Finance Management Act, 2015, the law that streamlines fiscal management in the country, also cautions on domestic arrears barring any vote from taking any credit from any local company or body unless it has no unpaid domestic arrears from a debt in a previous financial year; and it has capacity to pay for the expenditure from the approved estimates as appropriated by Parliament for that financial year. To realise their goal, the government laid out measures to address arrears including the establishment of a database to reflect all arrears, constitution of an oversight team, ensuring budget realism, and sanctioning accounting officers who accumulate arrears, among others.
The acting assistant commissioner for projects at the Finance ministry, Ms Gertrude Basiima, warned accounting officers causing domestic arrears that they will face penalties as the government enforces stricter fiscal discipline. “Projects usually face a challenge, one being the capacity of project managers. Before the comprehensive framework, project managers were not defined. They did not have a particular skill; anyone could become a project manager. That is going away. You could be a good engineer, you could be a good banker, you could be good at finance, or you could be a good doctor, but it doesn't make you a project manager,” she explained. The warning was sounded during the 2025 National Project Management Conference in Kampala, where it was revealed that 40 percent of Uganda’s infrastructure projects are delayed or over budget.
Mr Jim Mugunga, the spokesperson at the Ministry of Finance, told this publication yesterday that “Finance will provision the money to the different entities, which then follow the given criteria to make payments.” “According to the Appropriation Bill, when the money is appropriated, it will be spread. But some are flagged at the centre, some are judgments of court, which will have to be upheld in such and such a time,” he said The Minister of State for General Duties, Mr Henry Musasizi, told Parliament last month that the ministry has a plan to clear all verified domestic arrears in three years, adding that the increment in allocation of funds to clear the arrears is a good sign. The clearance of validated arrears will target the most overdue arrears first for payment, he said.
Arrears.
To prevent accumulation of new arrears, starting next financial year, my ministry shall implement the following measures: (i) enforcement of the commitment control system; (ii) sanctioning Accounting Officers responsible for creation of any new arrears; and (iii) providing and ring-fencing adequate counterpart funding for multi-year projects– Matia Kasaija, Minister for Finance
