Summary: A central bank report released Wednesday projects Uganda's fiscal deficit will fall to 3% of GDP by the 2030/31 financial year, from an estimated 6% of GDP in the current year. The report links the fiscal consolidation path to a revised debt strategy that increases reliance on comparatively cheaper external borrowing.
The central bank assessed the country's public debt outlook as a moderate risk. While the planned shift toward external credit is expected to ease interest burdens, the report highlighted vulnerabilities tied to rising debt service costs and limited capacity to absorb economic shocks.
Official figures show Uganda's total public debt stock rose by 8% to $34.9 billion during the second half of last year, a jump the finance ministry attributed mainly to higher issuance of domestic debt. The central bank report reiterated these numbers and framed them within the broader strategy to contain interest payments by changing the composition of borrowing.
On the growth front, the central bank reported that GDP expanded by 8.5% in the second quarter of the 2025/26 fiscal year, compared with 5.3% in the same quarter a year earlier. The report credited oil-related investments, strong export performance, and agricultural output for supporting that acceleration.
In March, the finance ministry published a new debt management strategy indicating a deliberate move to increase external borrowing while reducing reliance on costlier domestic credit. The stated aim in that strategy is to lower rising interest payments that have accompanied heavier domestic issuance.
Taken together, the central bank and finance ministry material outline a path toward a smaller fiscal deficit driven by a shift in funding mix. However, the central bank's moderate-risk designation underscores that higher debt service costs and limited shock absorbers remain risks to the outlook.
Implications:
- Public finances: The debt strategy could reduce interest burdens if external credit proves cheaper as anticipated.
- Markets and funding: A change in the borrowing mix affects domestic bond markets, with potential implications for yields and bank funding.
- Growth sectors: Recent GDP gains tied to oil investment, exports, and agriculture provide near-term support for the fiscal outlook.