INNEFFICIENT DEBT UTILISATION, NOT THE DEBT, SHOULD WORRY UGANDA

More than 20 years ago, I interviewed the late Secretary to the Treasury, Emmanuel Tumusiime-Mutebile. He told me government would soon begin issuing bonds to support the budget. At the time, it felt almost unnecessary. Why borrow locally at higher rates?

Mutebile himself wondered aloud in a follow-up interview: why hurry to the bond market when the World Bank would lend more cheaply?

Yet in January 2004, government issued a two-year bond to raise Shs20 billion. It was modest — a dipped toe in the water. Before that, Uganda had already been issuing shorter-term Treasury bills, mainly to mop up excess liquidity and keep inflation in check. Treasury bills were about monetary stability. Bonds were something different: they were about fiscal financing through domestic resource mobilisation.

That distinction marked the beginning of a structural shift.

Fast forward two decades and the contrast is almost surreal. Last week alone, government raised roughly Shs990 billion in a single bond auction. Over the course of a year, Uganda now raises multiples of the Shs2.6 trillion equivalent it received in external support in 2004 — but this time from its own domestic bond market.

What was once an experiment has become an anchor.

In the 2024/25 financial year, domestic debt overtook external borrowing for the first time, accounting for just over 52 percent of total public debt. Uganda’s overall debt stock now stands at about $32 billion (Shs113.9 trillion), with domestic debt at roughly Shs59.3 trillion.

In many respects, this is financial maturity. Countries serious about development must mobilise their own savings. They cannot rely indefinitely on concessional capital. A functioning bond market deepens the financial system, builds benchmark yield curves and reduces exposure to exchange-rate volatility. Domestic resource mobilisation is not optional; it is foundational.

But mobilisation without discipline becomes overreach.

Domestic borrowing may shield us from foreign-exchange swings, but it is not cheap. Interest rates on government securities hover around nine percent. Debt service already consumes roughly 35 percent of domestic revenue and could rise further next year. For every Shs100 URA collects, about Shs35 goes to creditors...

That is manageable — if debt builds productive capacity.

Debt is a tool. Borrowing to build roads that reduce transport costs, power plants that energise industry, irrigation schemes that stabilise agriculture, and schools that build human capital increases the economy’s ability to repay. Investment-driven debt strengthens the future tax base.

Borrowing to finance recurrent consumption does not.

Even where borrowing is directed toward infrastructure, our execution record undermines value. Uganda’s project cycles are unnecessarily long. Delays caused by procurement disputes, weak oversight, corruption and lack of timely counterpart funding stretch timelines and inflate costs. Interest accrues while projects stall. Returns diminish.

Time is expensive when you are paying interest.

A highway completed efficiently is an economic catalyst. The same highway delivered years late at inflated cost becomes a fiscal strain. In that sense, inefficiency quietly converts productive debt into burdensome liability.

Heavy domestic borrowing also raises the risk of crowding out. When government raises nearly a trillion shillings in a month, commercial banks and institutional investors understandably prioritise Treasury securities. Credit to SMEs tightens. Yet it is private-sector growth that ultimately generates the tax revenue required to service debt sustainably.

Then there is oil.

First oil revenues are projected in the 2026/27 financial year. Officially, these revenues are expected to ease fiscal pressure and strengthen reserves. But expectation can breed moral hazard. There is a subtle temptation to borrow more comfortably today because future petroleum receipts are on the horizon.

History cautions against such optimism. Nigeria once assumed oil would guarantee prosperity; it experienced repeated fiscal volatility. Angola believed petroleum wealth would anchor transformation; governance weaknesses endured. The oil curse is not a myth. It emerges when resource expectations weaken discipline.

Oil revenues, if managed prudently, should retire expensive debt, build buffers and finance productivity-enhancing investments. They should not justify fiscal complacency.

The irony is striking. In 2004, Uganda relied heavily on $1.41 billion in external assistance and cautiously raised Shs20 billion domestically. Today, we raise multiples of that old aid envelope annually from our own bond market.

That is institutional growth.

But scale magnifies responsibility.

The journey from Shs20 billion in 2004 to Shs990 billion in a single auction is more than a story of market development. It is a test of fiscal character. Domestic resource mobilisation must be matched by efficient allocation. Projects must be delivered on time and on budget. Revenue mobilisation must improve. Expenditure must be disciplined.

Oil will not rescue weak execution. Bonds will not compensate for poor prioritisation.

Twenty years ago, we dipped a toe in the bond market. Today, we are swimming in it.

The question is not whether Uganda can mobilise domestic capital. It clearly can.

The question is whether we will use that capital to finance transformation — or simply accumulate obligations in the hope that tomorrow’s oil will pay yesterday’s bills.