Uganda Finance Ministry defends €169m solar irrigation loan as public debt pressures rise

KAMPALA — Uganda’s finance ministry has defended plans to borrow up to €168.97 million to fund the second phase of a nationwide solar-powered irrigation programme, arguing that the financing will not undermine debt sustainability despite a sharp rise in public debt levels.

The proposed loan, tabled before parliament by the Ministry of Finance, Planning and Economic Development, combines a €148.5 million facility backed by UK Export Finance with a €20.46 million commercial loan from Citi Bank. The project will be executed by UK-based Nexus Green Limited and will see 427 solar irrigation systems installed across the country.

Officials say the investment is critical to safeguarding agricultural output against climate change, prolonged dry spells and erratic rainfall that continue to undermine farm productivity. Government data indicates that climate-related events destroy roughly 800,000 hectares of crops each year, exposing the vulnerability of farmers who rely almost entirely on rainfall.

Although Uganda has an estimated irrigation potential of 3.03 million hectares, less than 1% is currently irrigated. The ministry argues that expanding solar-powered irrigation is a cost-effective way to unlock this potential while reducing dependence on diesel-powered systems and rainfall.

The project is expected to focus on coffee, Uganda’s largest foreign exchange earner, with officials projecting that managed irrigation could lift average yields from 1.3 kilograms of dried cherries per tree to 6.5 kilograms. The ministry estimates that 2,562 households will directly benefit, generating average annual revenues of about Shs66.7 billion.

Concerns over the loan come as Uganda’s public debt stock reached $34.86 billion in December 2025, equivalent to 52.7% of gross domestic product. Finance officials told parliament that the new borrowing has already been factored into the medium-term fiscal framework and the 2026–27 budget, and remains within approved debt ceilings.

The irrigation programme was initially planned to cover 700 sites following a December 2021 directive from President Yoweri Museveni, but was scaled back to 427 systems to preserve fiscal space. The ministry said the downsizing reflects a more cautious approach to borrowing amid tightening fiscal conditions.

Under the proposed terms, the UK Export Finance-backed facility will carry a 13-year tenor with a three-year grace period at a fixed interest rate, while the Citi loan will have a seven-year tenor with a two-year grace period, linked to a six-month Euribor rate plus a margin.

Implementation will rely on existing local government agricultural extension services for farmer selection and training, with formal land consent agreements required at both individual and communal sites to avoid ownership disputes before construction begins.