Bank of Uganda (BoU) has warned that excessive government borrowing from the domestic market could squeeze credit available to the private sector and push up interest rates.
BoU Governor Michael Atingi-Ego issued the warning while appearing before Parliament’s Committee on Budget chaired by Okoro County MP Gabriel Okumu.
Atingi-Ego said the domestic market has the capacity to absorb the Government’s planned Shs12.7 trillion borrowing, but cautioned against exceeding the projected level.
He explained that excessive domestic borrowing could increase competition for funds in the financial market, putting upward pressure on interest rates and making it more difficult or expensive for businesses to access credit.
The warning comes as private-sector credit continues to grow. According to Atingi-Ego, credit to the private sector increased by 16.1 percent year-on-year to June 2026.
The Governor also called for Uganda’s fiscal debt path to be revisited, particularly for the 2026/27 financial year, saying projections under the Charter could become unattainable if the debt base is inconsistent with current figures.
BoU officials told the committee that risks to Uganda’s debt path should be assessed annually.
They also proposed that the Charter require Government to report every year on its domestic financing strategy and its impact on private-sector credit.
Committee separately urged Parliament’s Budget and National Economy committees to discourage heavy borrowing, citing its potential impact on the economy and private-sector financing.
