Uganda’s credit growth slows as govt borrowing rises
Bank of Uganda headquarters in Kampala. PHOTO/FILE
What you need to know:
- While monetary conditions remain stable, analysts caution that rising debt may undermine long-term private sector development unless the government reins in domestic borrowing.
Credit growth to Uganda’s private sector has slowed, with the central bank warning that rising government borrowing is crowding out loans to businesses, placing pressure on economic momentum.
In its latest monetary policy statement issued on Tuesday, the Bank of Uganda said private sector credit (PSC) expanded by 7.9% in the three months to March 2025, down slightly from 8.0% in the previous quarter.
Loans denominated in Ugandan shillings decelerated to 10.0%, compared to 10.3% in the previous period. However, foreign currency loans saw a modest increase, rising to 2.3% from 2.0%.
“Excessive government borrowing continues to limit the private sector’s access to credit,” the bank said, citing the latest findings from its Quarter 3 Bank Lending Survey, in which 97.7% of commercial lenders expect interest rates to remain stable in the near term amid muted inflation and relatively steady economic indicators.
Borrowing costs ease slightly
Average lending rates dropped to 17.7% in the March quarter, compared to 18.3% in the previous three months, driven mainly by increased demand for credit in the telecom sector.
The European Investment Bank warned in a separate report that Uganda’s rising domestic debt burden was choking private sector growth, with the country posting the slowest private sector credit expansion in East Africa.
Uganda’s rate of 8% compares with a regional average of 23.25%, the report noted.
Mounting debt, slower lending
Uganda’s domestic public debt rose 15% year-on-year, climbing from Shs 34.5 trillion to Shs 40.6 trillion by June 2024, according to central bank data.
“The scale of domestic borrowing has severely constrained businesses’ access to loans,” the European Investment Bank warned, echoing concerns raised by Ugandan economists and lenders.
Shilling holds firm
Despite tight global financial conditions, the Ugandan shilling remained broadly stable, supported by strong inflows from coffee exports, remittances, portfolio investments and NGOs, as well as a weaker US dollar.
The currency appreciated 4.0% year-on-year and 0.15% quarter-on-quarter in April 2025, with minimal movement on a monthly basis. The average mid-market rate was Shs 3,669.61 per dollar, slightly stronger than March’s Shs 3,667.86.
Meanwhile, the Bank of Uganda slightly revised its inflation forecast downward, now projecting core inflation to range between 4.5% and 4.7% in the coming quarters, citing lower oil prices and a steady exchange rate.
Growth projections remain unchanged at 6.0% to 6.5% for FY 2024/25, with expectations to surpass 7.0% in the medium term, assuming credit conditions improve and global risks ease.
While monetary conditions remain stable, analysts caution that rising debt may undermine long-term private sector development unless the government reins in domestic borrowing.
“The slowdown in credit growth is a warning sign,” said one economist familiar with the matter. “If left unchecked, it could derail Uganda’s economic momentum in the years ahead.”
