Overview:

Uganda’s domestic debt landscape undergoes a major transformation as long-term pension capital replaces short-term bank lending as the government's main funding source.

KAMPALA, Uganda — Pension and provident funds have surpassed commercial banks as the primary source of Uganda’s domestic debt, signaling a major shift in how the government finances its deficit.

The move marks the end of a long-standing reliance on commercial banks. According to the Ministry of Finance Debt Sustainability Analysis for 2024-25, pension and provident funds accounted for 31.5% of total domestic debt in the year ending June 2025. This is an increase from 30.5% during the same period in 2024.

Commercial banks, which previously dominated the market, saw their share fall to 28.6%.

The shift reflects a move toward long-term institutional investors. Analysts say retirement savings are naturally growing, creating a larger pool of funds available for Treasury bills and bonds. Because pension funds have long-term liabilities, they are considered better suited for longer-dated government securities than commercial banks.

The report also noted a significant increase in holdings by the Bank of Uganda, which rose to 15.4% from 3.5% the previous year. This jump was largely attributed to the securitization of 7.8 trillion shillings in central bank advances.

Offshore investors held 10% of the debt, up from 7.5%, indicating continued foreign interest in the Ugandan market.

The government has increasingly leaned on domestic borrowing over the last three years to cover fiscal deficits. Domestic lenders now hold 52.1% of Uganda’s public debt, up from 42.8%. Meanwhile, the share of external debt fell to 47.9% from 57.2%.

For much of the past decade, commercial banks were the dominant force, often holding up to 40% of domestic debt. Between the 2020-21 and 2023-24 financial years, banks consistently held between 37% and 40%, while pension funds typically held between 29% and 33%.

Economists have long warned that heavy government borrowing from commercial banks “crowds out” the private sector by making credit more expensive and harder to obtain for local businesses. The pivot toward pension funds could potentially ease this pressure on the banking sector, making more credit available for private enterprise.