Debt repayments take lion’s share of Uganda’s FY2025/26 Budget

As Uganda unveiled a UGX 72.4 trillion national budget for the Financial Year 2025/26, a critical revelation stands out: statutory interest payments on public debt will consume the largest single portion of the budget, surpassing allocations to any individual social or productive sector.

According to the Budget Speech delivered by Finance Minister Matia Kasaija, interest payments for the upcoming financial year are projected at UGX 11.33 trillion, which constitutes 20.6% of the total government spending. This is higher than allocations to education (UGX 5.04 trillion), health (UGX 5.87 trillion), and even development expenditure (UGX 6.91 trillion from domestic sources).

This ballooning cost of debt servicing highlights growing fiscal pressure, driven largely by increased domestic borrowing. Of the UGX 11.33 trillion allocated to interest, over UGX 9.47 trillion is earmarked for domestic debt, while foreign debt interest is projected at UGX 1.85 trillion.

Debt Crowding Out Key Sectors

Analysts have raised concerns that such high interest payments are crowding out critical public investments. For instance, despite widespread calls for improvement in public healthcare and education infrastructure, these sectors are receiving significantly lower funding than debt servicing.

Furthermore, the government is allocating an additional UGX 10.03 trillion to domestic debt refinancing and UGX 4.98 trillion to debt amortisation, bringing the total debt-related allocations to over UGX 26 trillion, or roughly 36% of the entire budget.

Why Interest Is So High

Uganda’s reliance on domestic borrowing—often at higher interest rates than concessional external loans—has raised the cost of maintaining public debt. Finance Minister Kasaija acknowledged this risk, noting that going forward, the government intends to prioritise concessional financing and boost domestic revenue to manage debt sustainability.

What It Means for the Economy

While the government argues that borrowing is financing growth-enhancing investments, the burden of servicing that debt is becoming increasingly unsustainable. Public debt as a percentage of GDP is projected to remain high, with the fiscal deficit for 2025/26 estimated at 7.6% of GDP.

Despite efforts to ramp up tax collection—including digital enforcement through EFRIS and rental tax tracking—the large portion of funds diverted to interest payments could limit service delivery, reduce social protection coverage, and slow progress toward development goals.

Conclusion

Uganda’s FY2025/26 budget reveals a sobering reality: managing debt, not expanding services, is consuming the country’s largest fiscal space. While investment in education, health, and infrastructure remains a government priority on paper, the arithmetic of the budget suggests a country increasingly held hostage by its borrowing obligations.