By Ben Musanje
The Bank of Uganda has warned that Uganda’s projected public debt path could come under pressure if economic growth falls short of expectations, borrowing costs rise or Government delays its planned fiscal consolidation.
In its assessment of the proposed Charter of Fiscal Responsibility for FY2026/27 to FY2030/31, the central bank said the macro-fiscal framework is broadly credible, but described the growth outlook as optimistic given elevated uncertainty in the global economic environment.
BoU said the debt trajectory should be revisited, particularly for FY2026/27, because the starting point used in the Charter may not fully reflect the country’s debt position.
As of July 2026, total public debt stood at about Shs137.2 trillion at face value, according to BoU. If projected net domestic financing of about Shs12.2 trillion and external financing of approximately Shs9.2 trillion are added, total public debt could rise to about Shs158.6 trillion.
The central bank estimates that this would amount to approximately 57.7% of non-oil GDP, substantially above the level provided in the Charter.
BoU warned that if the starting point is inconsistent, the entire projected debt path could become unattainable.
Shs7.6 trillion in securitised arrears
The central bank also wants the Charter to adopt a broader definition of public debt.
BoU said arrears accumulated after Covid-19 and subsequently securitised through bond issuance currently stand at Shs7.6 trillion, including principal and interest. The amount, it said, should be treated as domestic borrowing.
A separate Shs2.62 trillion was owed to BoU as of September 17, 2026, arising from matured Treasury securities and interest payments made by the central bank on behalf of Government.
These advances are treated as temporary cash-management liabilities rather than new domestic borrowing for budget financing. However, under the Service Level Agreement between BoU and the Ministry of Finance, they attract market interest rates if they remain unpaid for three months and automatically become domestic debt if they are still unpaid at the end of the financial year.
BoU said the Charter should use the nominal value of debt, which reflects what Government owes at a particular date.
It also said domestic arrears that remain unpaid at the end of the financial year should be included, alongside loan guarantees, contingent liabilities and fiscal risks from state-owned enterprises and local governments.
For FY2026/27, planned net domestic financing of 4.6% of non-oil GDP is equivalent to approximately Shs12.7 trillion.
That is lower than the Shs15.1 trillion recorded in FY2025/26.
BoU said Uganda’s domestic financial system currently has the capacity to absorb the projected financing requirement, citing adequate banking-sector liquidity, lower yields on Government securities and continued investor appetite for Treasury securities.
The central bank said private-sector credit grew by an average of 11.5% in FY2025/26, compared with nominal GDP growth of 9.9%.
For FY2026/27, private-sector credit growth is estimated at at least 13% after incorporating the planned domestic financing.
However, BoU warned that higher-than-projected Government borrowing could put upward pressure on yields and lending rates, weaken credit supply and crowd out productive private-sector activity.
Growth outlook remains a concern
The central bank said the debt path remains sensitive to several risks, including exchange-rate depreciation, higher domestic interest rates, a weaker global economic environment and tighter global financial conditions.
Other risks include lower-than-projected oil inflows, weaker export receipts, more frequent and intense climate shocks and delays in fiscal consolidation.
BoU therefore wants the Charter to require annual reporting on the domestic financing strategy, including auction performance, bid-to-cover ratios, yield developments, debt maturity structure, banking-sector liquidity and institutional investor participation.
It also wants sensitivity analysis showing how the debt path would respond to exchange-rate depreciation, higher domestic and external interest rates, weaker exports, lower oil inflows and delayed fiscal consolidation.
The central bank has further proposed automatic stabilisers that would allow temporary deviations from the fiscal path during major economic downturns or national emergencies.
BoU said the fiscal framework can remain broadly credible if fiscal consolidation proceeds as planned, domestic financing remains consistent with market conditions and broader fiscal risks are transparently monitored. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
