Domestic borrowing could undermine private sector access to credit

What the report says

SEATINI Uganda has warned that Uganda’s growing reliance on domestic borrowing could increase financing costs and limit credit available to private businesses. The concern was raised in comments attributed to Herbert Kafeero, the group’s deputy executive director, in a report published by Nile Post. He argued that a country’s financial independence depends on funding more of the national budget from domestic resources, rather than repeatedly filling revenue gaps through borrowing.

According to the report, Kafeero questioned the idea that domestic government borrowing automatically strengthens local financial markets. He said many of the banks operating in Uganda are foreign-owned, and that lending to government may be more attractive to them than extending riskier loans to businesses. That, he said, can leave private borrowers facing tougher access to credit.

The article also notes that domestic borrowing can be more expensive than concessional financing, with higher interest rates and shorter repayment periods. Kafeero said government should focus borrowing on ready-to-implement projects with clear economic returns, while also improving public investment management, parliamentary oversight and domestic revenue mobilisation.

More broadly, the warning reflects a common public-finance concern: when governments borrow heavily at home, they can absorb liquidity that might otherwise support private-sector lending. The report frames the issue as part of Uganda’s wider debate over debt sustainability and the trade-offs between short-term budget financing and long-term economic growth.