Economists Warn of Growing Domestic Debt Crisis
Senior economist Professor Augustus Nuwagaba has highlighted the risks of the government’s borrowing habits, explaining that the extensive use of domestic credit markets limits the funds available to businesses.
Economists are raising concerns about the Ugandan government's increasing reliance on treasury bills and bonds, cautioning that this strategy is stifling private sector growth and pushing the nation’s domestic debt to unsustainable levels.
Senior economist Professor Augustus Nuwagaba has highlighted the risks of the government’s borrowing habits, explaining that the extensive use of domestic credit markets limits the funds available to businesses.
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“When the government borrows heavily from commercial banks, it crowds out the private sector. This leads to rising interest rates and hampers business expansion and job creation,” he said.
The government’s dependence on treasury bills and bonds stems from its need to finance budget deficits and repay existing debt.
Treasury bills, with maturities of less than a year, and long-term treasury bonds—ranging from 2 to 20 years—are being issued to fill fiscal gaps.
However, economists argue that this approach is compounding the country's fiscal challenges.
Prof Nuwagaba emphasized that Uganda’s current macroeconomic environment exacerbates the problem.
High inflation and fluctuating exchange rates are adding to the uncertainties faced by both the private sector and the government.
“The situation demands prudent fiscal management and alternative funding solutions,” he added.
The warnings underscore a pressing need for the government to explore non-borrowing revenue streams and enforce fiscal discipline.
Without intervention, the continued issuance of treasury instruments could deepen Uganda’s debt burden and further hinder private sector growth, jeopardizing the nation’s economic sustainability.