Government Turns to Domestic Financing Amid Reduced External Borrowing

Facing reduced external borrowing options, the Ugandan government is increasingly relying on domestic financiers to bridge funding gaps. Domestic public debt has surged, rising from 13% to 18%, with total debt reaching UGX 40.6 trillion by June 2024. The government is now issuing more Treasury bills and bonds, using them as key tools to meet financing needs.

Despite this, the Central Bank’s lowered rates have slightly reduced borrowing costs. However, domestic debt servicing has become more expensive due to higher borrowing needs, leading to increased financial pressure.

To address this, policymakers may need to rethink their approach to domestic borrowing. While it has helped close gaps, the growing cost of servicing this debt, coupled with rising demands on domestic resources, could strain the economy further. With external borrowing declining, careful management of domestic finances will be crucial in sustaining long-term growth.