Debt before development: Uganda’s external financing trap
Photo: Courtesy
Uganda’s development path reflects the complex realities facing many emerging economies. It is marked by grand infrastructure projects, ambitious social programs, and a continued dependence on external financing that raises questions about sovereignty and long-term sustainability.
A recent analysis by the Civil Society Budget Advocacy Group (CSBAG), based on the Ministry of Finance’s semi-annual assessment of externally funded projects, reveals not only the dynamics of development financing and project performance but also the structural weaknesses that shape Uganda’s growth strategy.
Heavy reliance on external financing
External partners continue to fund the majority of Uganda’s development projects, providing between 85 and 88 percent of total project financing. The Government of Uganda contributes about 12 to 15 percent. More than half of this external support, 53 percent, is in the form of loans rather than grants. This means that future generations will continue to bear repayment obligations long after the projects are completed.
CSBAG’s review of 70 projects across 11 government programs presents a mixed picture. About 57 percent of projects show improved implementation, 39 percent have stagnated, and 4 percent have not yet begun. These figures reflect more than statistics; they represent delayed roads, unopened hospitals, and lost opportunities, even as commitment fees accumulate and inflation reduces the purchasing power of available funds.
Composition of development partners
Uganda has built a diverse network of development partners. Multilateral institutions account for 88 percent of external financing, with the World Bank and African Development Bank providing the largest share of loans. These partners also bring technical expertise and international best practices. Bilateral partners contribute around 8 percent, while commercial financing represents 3 percent of the total.
This concentration of multilateral support reflects Uganda’s preference for concessional loans, which account for 53 percent of the financing portfolio, compared to 47 percent in grants.
Implementation delays and rising costs
The average project duration is about 66 months, or 5.5 years. However, there are significant differences in implementation timelines across funding sources. Multilateral projects take an average of 117 months from loan effectiveness to project start. Nearly a decade of delay often results in commitment fees, outdated designs, and communities waiting indefinitely for promised development.
By comparison, commercial loans, which are more expensive due to higher interest rates, move from signing to implementation in only two months. This creates a paradox where cheaper multilateral financing becomes costly through inefficiency, while commercial loans, though financially burdensome, deliver results more quickly.
Causes of delayed implementation
The reasons behind project delays are varied. They include bureaucratic complexity, procurement bottlenecks, limited institutional capacity, and the misalignment between donor requirements and local administrative systems. As a result, Uganda often pays commitment fees on funds that remain unused, while inflation continues to reduce the real value of project resources.
The analysis also shows that projects with timely fund disbursement perform better in terms of utilization and progress. In contrast, delays in disbursement are often linked to institutional weaknesses, procurement challenges, land acquisition problems, and slow donor approval processes. Addressing these issues could significantly improve overall project performance.
The debt and sustainability challenge
Uganda’s development model relies heavily on loans in an increasingly uncertain global financial environment. Rising interest rates and tighter donor budgets make borrowing more expensive. Every increase in borrowing costs has a direct impact on the economy by reducing fiscal space and limiting flexibility in national budgeting. Heavy dependence on external funding also exposes Uganda to risks such as donor fatigue, shifting geopolitical priorities, and the conditionalities tied to multilateral loans.
Reforms needed for a sustainable future
Uganda’s path forward requires a combination of policy honesty and decisive action. The government must strengthen domestic resource mobilisation by broadening the tax base through fair but firm reforms. It should negotiate better terms with lenders, seek more grant-based financing, and simplify funding procedures.
Project selection should focus on quality rather than quantity, prioritising initiatives with clear and achievable implementation plans. At the same time, Uganda needs to build stronger institutional capacity to ensure efficient use of funds within realistic timelines.
Development is not just about securing financing; it is about deploying resources effectively to achieve tangible results. The 117-month delay in multilateral projects reflects a mismatch between ambition and capacity.
Without meaningful reform, Uganda risks deepening its vulnerabilities, accumulating more debt, and leaving future generations responsible for projects that fail to deliver their intended impact.
