economy 21 September 2026 Parliament of Uganda
Bank of Uganda Cautions Against Over-Borrowing, Cites Private Sector Risk
The Bank of Uganda has cautioned that excessive government borrowing beyond the planned levels could lead to increased interest rates, potentially hindering the private sector's access to credit. However, the central bank affirmed that the domestic financial market currently possesses the capacity to absorb the government's intended borrowing. Source: https://www.parliament.go.ug/index.php/news/4624/bou-warns-excess-government-borrowing-could-crowd-out-private-sector
Governor of the Bank of Uganda, Michael Atingi-Ego, has issued a stern warning to the government regarding its borrowing practices. Speaking before the Parliamentary Committee on the Budget, Atingi-Ego highlighted that exceeding the projected domestic borrowing limits could have detrimental effects on the Ugandan economy.
While the domestic financial market is deemed capable of handling the government’s current borrowing plans, the Governor emphasized the risk of “crowding out” the private sector. This occurs when increased government borrowing drives up interest rates, making it more expensive for private businesses to access loans needed for investment and growth.
Atingi-Ego presented the Charter of Fiscal Responsibility, noting it was “broadly credible” but contingent on maintaining fiscal discipline, prudent management of petroleum revenues, and adherence to borrowing targets. The projected net domestic financing for the 2026/2027 fiscal year is approximately Shs12.7 trillion, a decrease from the previous year.
The Governor pointed to improved banking liquidity, lower yields on government securities, and strong investor interest as indicators that the market can absorb the planned financing without negatively impacting private sector credit growth, which was projected to be around 13% for 2026/2027.
However, he stressed that a deviation towards higher borrowing could reverse these positive trends. “The risks are that government may be tempted to go for higher than projected domestic borrowing, and it could reverse the gains by placing upward pressure on the interest rates and therefore crowding out the private sector,” Atingi-Ego stated.
He also clarified the management of petroleum revenues, assuring that the Petroleum Revenue Investment Reserve would remain a government asset, operationally managed by the Bank of Uganda, and offshore investments would not immediately impact domestic liquidity. The Governor also pledged that the Bank of Uganda would take necessary actions, including potential interest rate adjustments, to maintain price stability if government fiscal actions threatened it.
Committee members, led by Chairperson Gabriel Okumu, echoed concerns, urging closer scrutiny of government borrowing to prevent negative consequences for the nation. They stressed the importance of vigilance over the next five years to guide government fiscal policy effectively.
Source: Parliament of Uganda