Uganda slashes external borrowing by 98% to curb rising debt, eyes $500 billion GDP goal by 2040

The move comes as the government works to manage its escalating public debt, which climbed from $23.7 billion last year to $25.6 billion in June 2024, according to ministry data.

The rising debt load has sparked criticism from opposition politicians and led to a series of credit rating downgrades. However, the Ugandan government defends its borrowing practices, stating that they have bolstered economic growth, which has outpaced many African nations since the COVID-19 pandemic, as noted by Reuters.

According to the Ministry of Finance, external borrowing will plummet from 1.394 trillion Ugandan shillings (about $380 million)  to just 29.9 billion shillings ($8.15 million). 

The ministry shared in a post on the social media platform X on November 12 that the upcoming financial strategy aligns with Uganda’s fourth National Development Plan, which aims to increase the nation’s GDP tenfold, from $50 billion to $500 billion, by 2040.

In August, Fitch Ratings downgraded Uganda's credit rating, citing heavy reliance on domestic debt markets. The report revealed that in the fiscal year ending June 2024 (FY24), Uganda’s net domestic financing reached 4.2% of GDP, substantially higher than the 0.9% initially budgeted. Meanwhile, net external financing dropped sharply, reaching just 0.5% of GDP, a significant decline from 2.6% in FY24 and 2.1% in FY23.

In response to the fiscal challenges, Uganda’s Ministry of Finance announced in September that it plans to reduce overall government spending by over 20% in the 2025/26 financial year, with a budget of 57.4 trillion shillings (around $15.56 billion) compared to 72.1 trillion shillings (around $19.63 billion) for the current year. 

The government’s new debt strategy also involves borrowing 4.01 trillion shillings ($1.09 billion) from the domestic market through Treasury bonds in the coming fiscal year, marking a 54% decrease in debt issuance from the previous period.