CSOs warn rising debt, arrears and weak public investment threaten Uganda’s fiscal stability

March 9, 2026 in Business, Finance, Policy by Editor

Civil society budget analysts warn that rising public debt, mounting domestic arrears and inefficient public investments revealed in the 2025 Auditor General’s report are straining Uganda’s fiscal space and undermining service delivery in key sectors including health and education.

 

CSOs have raised fresh concerns over Uganda’s fiscal discipline and service delivery, warning that rising public debt, mounting domestic arrears and inefficient public investments could undermine economic stability and strain public services if urgent reforms are not undertaken.

In a thematic review of the 2025 Auditor General’s report, the Civil Society Budget Advocacy Group (CSBAG) said the audit findings reveal deep structural weaknesses in public financial management, including pressure on health financing, education infrastructure gaps, and poor performance by some state-owned enterprises.

Presenting the analysis in Ntinda on March 8, CSBAG Executive Director Julius Mukunda urged government and Parliament to treat the audit findings as an opportunity to restore fiscal discipline and improve accountability in the management of public resources.

“The findings of the Auditor General demand more than acknowledgement—they require decisive corrective action,” Mukunda observed. “Sustained fiscal credibility and improved service delivery will only be achieved if reforms are implemented with discipline, consistency and accountability.”

According to the review, Uganda’s public debt has grown sharply over the past five years, rising from UGX 69.2 trillion in FY2020/21 to UGX 115.4 trillion in FY2024/25, a 66.7 percent increase.

The country’s debt-to-GDP ratio now stands at 50.29 percent, lapping at the 51.2 percent ceiling set under the Charter for Fiscal Responsibility.

Even more concerning, the CSOs say, is the rising cost of servicing that debt. Interest payments now account for 23.66 percent of domestic revenue, almost double the government’s benchmark of 12.5 percent.

“This means that for every UGX100 collected in domestic revenue, about UGX24 is spent on interest payments alone,” the report notes, warning that the trend is shrinking fiscal space for key sectors such as health, education, agriculture and infrastructure.

Domestic borrowing has also surged, increasing from UGX39.16 trillion in June 2024 to UGX59.02 trillion in June 2025, now accounting for more than half of Uganda’s public debt.

While domestic financing reduces exposure to exchange rate volatility, Mukunda said it carries higher interest costs and risks crowding out private sector credit.

Revenue mobilisation still weak

Despite improvements in tax collection, Uganda’s revenue effort remains weak relative to the size of the economy.

Domestic revenue rose from UGX22.1 trillion in FY2021/22 to UGX32.36 trillion in FY2024/25, a 46 percent increase, but the tax-to-GDP ratio remains stuck at 13.4 percent.

This is below the 15 percent benchmark for developing economies, the 18.6 percent Sub-Saharan Africa average, and far below the 23 percent global average CSBAG says.

The audit also shows that only 48 percent of the 5.25 million registered taxpayers actually contribute revenue, leaving more than 2.7 million taxpayers inactive.

In addition, the structure of taxation remains uneven.

Agriculture contributes 26.1 percent of GDP but only 1.63 percent of tax revenue, while trade and manufacturing sectors contribute disproportionately larger shares of tax relative to their economic output.

Mukunda argues that the sector could pull its weight if taxes were applied to its midstream and downstream activities such as bulk trade in agricultural produce.

As it is, eschewing taxation on agriculture has resulted in an inordinate tax burden on a small pool of tax payers such as workers in formal employment. The government has recently proposed raising the PAYE rate to 40 percent, a move likely to impose more pain on salaried employees.

However, the adoption of digital tax systems has produced some positive results, CSBAG said.

The rollout of the Electronic Fiscal Receipting and Invoicing System (EFRIS) has helped increase VAT collections by 56 percent, rising from UGX5.01 trillion in FY2019/20 to UGX8.78 trillion in FY2024/25.

Another major concern highlighted by CSBAG is the rapid growth of domestic arrears owed by government to suppliers and contractors.

These arrears rose from UGX3.33 trillion in 2019 to UGX13.8 trillion in 2024, before dropping to UGX8.4 trillion in 2025 after a restructuring of government borrowing from the central bank.

CSBAG notes though, that the reduction was largely technical rather than reflecting actual payment of outstanding obligations by the government because the obligations were deferred by converting part of the outstanding into long tenure bonds.

The continued accumulation of arrears is putting pressure on businesses that depend on government contracts.

“It constrains private sector liquidity and increases procurement costs as suppliers factor payment uncertainty into pricing,” the review notes.

Health and education systems under strain

The audit findings also reveal serious funding and operational gaps in key social sectors.

In health, the National Medical Stores required UGX1.574 trillion to meet national demand for medicines in FY2024/25 but received UGX1.393 trillion, leaving an 11 percent funding gap.

At Mulago National Referral Hospital, the shortfall was even more severe, with only UGX18.25 billion provided against a need of UGX72.4 billion for specialised medicines.

The health system is also heavily dependent on development partners, which financed 64.3 percent of essential medicines in FY2024/25.

With about US$312.8 million in donor funding expected to be withdrawn starting FY2025/26, analysts warn that Uganda risks worsening drug shortages unless domestic funding increases.

Meanwhile, the audit exposed widespread infrastructure gaps in secondary schools under the Universal Secondary Education programme.

Inspections found that 136 schools lacked science laboratories, 182 had no libraries, and 380 schools had inadequate classroom facilities, leading to overcrowding.

Teacher shortages also persist, with only 65 percent of required secondary school teaching positions filled, forcing schools to recruit additional staff locally and accumulate salary arrears.

Weak performance in public investments and SOEs

The review also flagged inefficiencies in major public investments and state-owned enterprises.

Among the entities reporting significant losses were the Uganda Electricity Transmission Company Limited, Uganda Broadcasting Corporation and Uganda Airlines.

Uganda Airlines alone received UGX1.984 trillion in government funding in FY2024/25, yet continues to face financial and operational challenges, including grounded aircraft and procurement irregularities cited in the audit.

Energy infrastructure has also been underutilised. The Karuma Hydropower Plant is operating at only 30 percent of its installed capacity, while the Namanve Thermal Power Plant is running below capacity due to maintenance delays.

Environmental and land governance concerns

Environmental management also emerged as a major concern, with the audit showing that wetland encroachment and degradation remain widespread.

Only 739 kilometres of wetlands were demarcated over three years, representing just 18 percent of the planned target, largely due to funding shortages.

Land administration challenges are also slowing public infrastructure projects, with 30 percent of land registration applications still pending and major delays in issuing land titles for government projects.

CSBAG urged government to strengthen fiscal discipline, enforce compliance with procurement and budgeting rules, and improve oversight of public investments.

The collective also called for better implementation of affirmative procurement policies meant to allocate 15 percent of government contracts to women, youth and persons with disabilities, noting that none of the audited entities fully complied with the requirement.

“Public financial management reforms must translate into tangible improvements in service delivery,” Mukunda said. “Every shilling counts.”