KAMPALA: The Bank of Uganda (BoU) Governor, Michael Atingi-Ego, has urged the government to manage borrowing carefully to avoid crowding out private businesses from the credit market.
Domestic borrowing is projected to fall from Shs 11.4 trillion to Shs 9 trillion next financial year, while external budget support is expected to drop sharply by 84 percent, from Shs 2.1 trillion to Shs 331 billion. Funding for externally financed projects will also decline slightly, from Shs 11.3 trillion to Shs 10 trillion.
“These measures are not about a financial crisis. They are deliberate steps to reduce borrowing, lower the fiscal deficit, and support economic stability,” Atingi-Ego said. “Lower deficits mean less borrowing is required, which frees up credit for businesses and strengthens Uganda’s fiscal position.”
The government’s proposed budget for the 2026/27 financial year is Shs 69 trillion, down from Shs 72 trillion this year. The reduction aligns with broader fiscal consolidation and debt management strategies aimed at improving Uganda’s creditworthiness and limiting arrears.
Permanent Secretary to the Treasury, Ramathan Ggoobi, said the cuts respond to declining external financing. “With fewer funds coming from abroad, we are increasing domestic revenue while reducing reliance on borrowing,” he noted.
The Ministry of Finance is targeting Shs 40 trillion in domestic revenue next year, up from Shs 36.8 trillion this year. Measures include eliminating low-value tax incentives and utilising oil revenues expected from production starting around July.
Analysts warn that reduced spending could affect critical sectors such as agriculture. However, Atingi-Ego emphasized that the strategy prioritizes sustainable medium-term fiscal management rather than short-term savings.
Reducing government borrowing is expected to free up funds for private enterprises, which currently face high interest rates of 19–21 percent. “Banks prefer lending to the government because it is safer and offers higher returns, leaving less capital available for businesses,” he explained.
The BoU governor also called on the judiciary to expedite business-related cases, highlighting that about Shs 6 trillion is currently tied up in commercial courts. “Resolving these cases promptly can unlock capital, boost investment, and accelerate private sector growth,” he said.
The budget adjustment comes as Uganda rolls out its Fourth National Development Plan and the Tenfold Growth Strategy, which aims to expand the economy to USD 500 billion by 2040. By reducing borrowing, improving revenue collection, and prioritizing key expenditures, the government hopes to create a conducive environment for private sector-led growth.
