Business 7 September 2026 Daily Monitor (Uganda)
Bank of Uganda attributes high interest rates to government's heavy domestic borrowing
The Bank of Uganda has identified the government's significant borrowing from the domestic financial market as a primary driver of high interest rates in Uganda, creating competition for funds with the private sector. Source: https://www.monitor.co.ug/uganda/news/national/bou-links-uganda-s-high-interest-rates-to-heavy-govt-borrowing-5587262
High interest rates on loans in Uganda are largely a consequence of the government’s substantial borrowing from the domestic financial system, according to the Bank of Uganda (BoU). Governor Michael Atingi-Ego explained to Parliament’s COSASE committee that this heavy government demand for funds directly competes with businesses and individuals seeking capital, thus driving up lending costs.
“Interest rates are high in Uganda because of excessive government borrowing from the domestic financial system,” Atingi-Ego stated. He elaborated that when the government borrows heavily, it reduces the pool of available funds for private sector lending, inevitably pushing interest rates higher.
Another contributing factor highlighted by the BoU governor is government arrears. When the government delays payments to businesses and individuals, those who have borrowed from commercial banks to finance their operations struggle to repay their loans. This, in turn, leads to an increase in non-performing loans, forcing banks to make provisions for potential losses, costs that are eventually passed on to other borrowers through higher interest rates.
The structure of commercial bank financing also plays a role, as banks typically mobilize short-term deposits while borrowers often require long-term loans for projects. This mismatch makes long-term borrowing inherently more expensive. The BoU suggests that developing deeper capital markets could offer more sustainable, long-term financing options at fairer rates.
Governor Atingi-Ego emphasized that lowering lending rates requires comprehensive financial-sector reforms, not just directives to commercial banks. He rejected calls for a uniform lending rate, citing the central bank’s inability to dictate rates without understanding the diverse cost structures of individual financial institutions.
Uganda’s reliance on domestic borrowing has grown, with domestic debt making up over 54 percent of the total public debt by December 2025. Despite an increase in overall debt, domestic debt servicing costs saw a reduction in the latter half of 2025.
Source: Daily Monitor (Uganda)