Uganda to Cut Nearly All External Borrowing in 2025/26, Finance Ministry Announces

Uganda’s Finance Ministry has announced plans to reduce nearly all external borrowing for the fiscal year 2025/26 as part of a broader strategy to address the country’s growing debt burden. The move comes amid increasing concerns over Uganda’s rising external debt levels, which have been a significant point of discussion in the nation’s financial management and economic planning.
Key Points:

Debt Management Focus: Uganda has been grappling with a growing debt-to-GDP ratio, and the decision to cut external borrowing is seen as a crucial step toward improving the country’s fiscal health. By curbing external loans, the government aims to avoid further debt accumulation and reduce the risks associated with borrowing from international creditors.
Domestic Borrowing Strategy: While external borrowing will be minimized, the government plans to rely more on domestic borrowing to finance its budget. This shift is expected to help mitigate some of the foreign exchange risks associated with external debt while supporting local financial markets.
Economic Sustainability: The decision is part of a larger effort to improve Uganda’s economic sustainability, with a focus on enhancing revenue generation, improving public financial management, and ensuring that economic growth can continue without becoming overly reliant on external borrowing.
Government’s Long-term Vision: Uganda’s fiscal policies are shifting toward greater self-reliance, with a focus on boosting domestic savings and encouraging foreign direct investment (FDI) to support long-term development goals.

Why This Matters:
Uganda’s decision to scale back external borrowing comes at a time when many African nations are facing debt distress. Rising debt servicing costs have become a key challenge, especially with the global economic uncertainty and tightening financial conditions. By cutting external loans, Uganda aims to stabilize its fiscal outlook and reduce the pressure on its foreign reserves. This move is part of a broader effort to manage the country’s finances more prudently and ensure that economic growth is not hampered by unsustainable borrowing practices.
Implications for Uganda’s Economy:

Short-term Strain: The reduced reliance on external borrowing could result in short-term financing challenges, particularly if domestic borrowing does not fill the gap. However, the government hopes that this approach will ultimately lead to a more sustainable fiscal situation.
Investor Confidence: By taking proactive steps to manage debt and reduce borrowing risks, Uganda could boost investor confidence, particularly among those concerned about the country’s fiscal health. In the long term, this could help attract more investment and foster economic stability.
Long-term Development: The focus on domestic borrowing and reducing reliance on external debt may help Uganda lay the groundwork for a more resilient economy, though achieving the desired results will require careful management of both domestic resources and foreign investments.

As Uganda seeks to balance fiscal responsibility with continued development, this move to cut external borrowing is a clear indication of the government’s commitment to managing its financial future with greater care. The policy shift reflects a desire to steer the country toward a more sustainable economic path, even as global economic conditions remain volatile.