Uganda's Borrowing Costs Soar Amidst Shifting Debt Landscape

Uganda is grappling with a rising cost of borrowing, a situation exacerbated by the increasing scarcity of affordable loans and a notable shift in its debt portfolio. The country is relying more heavily on domestic borrowing, which carries considerably higher interest rates compared to much of its external debt.

Data from June 2025 indicates that the average interest rate on domestic debt stood at 14.4 percent, a stark contrast to the 2.3 percent for external debt. This shift has pushed the overall weighted average interest rate on Uganda’s public debt to 8.6 percent, up from 7.5 percent in the previous year. This trend is further strained by the fact that domestic debt now constitutes a larger portion of the public debt, accounting for approximately 52 percent.

Adding to the financial pressure, research suggests that Uganda is only recouping about $0.80 for every $1 invested in public projects. This inefficiency in debt-funded investments means that the projects are not generating sufficient economic value to justify the borrowing costs, creating a difficult cycle for the nation.

Factors contributing to the increased reliance on domestic borrowing include higher financing requirements and shortfalls in anticipated external disbursements. Furthermore, delays in project implementation and potential issues with feasibility studies and oversight are contributing to cost overruns and commitment fees, impacting the overall return on investment.

Parliamentary oversight on public debt management faces challenges, including limited stakeholder dialogue, political constraints, and inadequate technical capacity, which can hinder effective scrutiny of borrowing proposals. The rising interest payments are also squeezing the national budget and making debt rollover more challenging, increasing refinancing risks.