Uganda Domestic Debt Soars as Anti-Gay Law Curbs Foreign Lending

Uganda’s reliance on domestic debt ballooned after stringent anti-LGBTQI laws restricted the East African nation’s access to low-cost funding from abroad.

Public debt jumped by 26% in the financial year that ended in June to $32.3 billion after domestic obligations rose by 53% to $16.8 billion, Ministry of Finance data shows, vastly outstripping the 6% growth in the stock of foreign loans over the same period to $15.5 billion. Large loans from commercial lenders have also been announced in recent weeks.

The World Bank in June agreed to resume lending to Uganda nearly two year after it suspended new financing in response to the law. The move followed steps by the country to mitigate parts of the legislation, which can extend to the death penalty, though fresh funding flows have yet to restart.

Uganda’s reliance on domestic borrowing to plug the funding shortfall means it is raising money that is subject to less scrutiny than borrowing from concessional lenders like the World Bank, said Enoq Twinoburyo, an independent analyst.

“The absence of strong safeguards increases the risk that borrowed funds will generate limited developmental returns despite swelling the debt stock,” he said. “This weakens the quality of public investment and undermines fiscal sustainability over the long term.

Read More: World Bank Restarts Uganda Lending After Halt Over LGBTQ Law

Local borrowing also crowds out the private sector, said Arthur Bainomugisha, executive director of Kampala-based Advocates Coalition for Development and Environment.

“Uganda’s debt is growing very fast, and it is not sustainable in the long run,” said Bainomugisha.

Maris Wanyera, acting director for debt and cash policy at the finance ministry, didn’t respond to requests for comment.

Uganda is investing in capital-intensive projects including a new railway, a crude pipeline, airports and minerals exploration. This month alone, nearly $900 million of external borrowing, including from commercial lenders such as Standard Chartered Bank, Ecobank and Rand Merchant Bank, has been announced.

Infrastructure investment “will generate viable dividend for the people, business and country’s gross domestic in the outer years,” said Julius Kapwepwe, a member of the East African Budget Network, a civil society group advocating for budget accountability.

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