Uganda’s Finance Ministry faced challenges after the World Bank suspended new funding due to the anti-homosexuality law. Despite the initial plan to revise the National Budget, the government opted for a borrowing spree.
The government sought additional domestic borrowing approval from Parliament, but Finance Ministry technocrats raised concerns about the increasing difficulty of debt repayment. The Permanent Secretary/Secretary to Treasury warned about potential impacts on the country’s development and services due to rising debt service costs.
As of June, Uganda’s public debt was at Shs86.7 trillion, with a debt-to-GDP ratio of 46.2 percent. Since then, the country’s public debt has surpassed Shs93 trillion with a borrowing surge.
The World Bank’s suspension did not deter Uganda from borrowing close to Shs7 trillion within a month. Notable loans include Shs3.5 trillion from local commercial banks, Shs1.2 trillion from the World Bank for climate-smart agriculture, and Shs554.6 billion from China for the e-government Internet infrastructure project.
The borrowed funds will finance critical sectors, including infrastructure. For instance, Shs692.680 billion will be allocated to projects such as the reconstruction of Masaka-Mutukula Road and rehabilitation of Nyendo-Villa Maria Road.
External loans are deemed expensive, with interest rates around 10 percent per annum. In November 2022, a parliamentary report revealed issues with a €273.03m loan from Standard Chartered Bank, leading to recommendations for consequences for breach of contract.
