Borrowing at higher rates and with shorter grace periods can place greater pressure on government financesUganda’s external debt stock rose by 15.9 per cent to US$23.9 billion in 2025, up from US$9.8 billion a decade earlier, as the country continued to rely on a mix of multilateral lenders, bilateral partners and private creditors to finance its development needs.The increase is reported in the World Bank’s International Debt Report 2026, which places Uganda’s external debt at US$23.899 billion at the end of 2025, compared with US$9.805 billion in 2015.The figure represents debt owed to non-residents and includes public and publicly guaranteed debt, private-sector borrowing and short-term external debt.The report’s figures raise questions not only about the size of Uganda’s external obligations, but also about the cost and terms of borrowing, particularly as the government seeks financing for infrastructure, energy, industrialisation and other development priorities.Of the total external debt stock, US$19.537 billion was public and publicly guaranteed debt, while private nonguaranteed debt accounted for US$3.738 billion. A further US$624 million was classified as short-term debt.This means that public and publicly guaranteed borrowing made up the largest share of Uganda’s external debt exposure, although private-sector and short-term obligations also form part of the country’s overall external financing position.The creditor breakdown shows that multilateral institutions were Uganda’s largest source of public and publicly guaranteed external financing, accounting for US$11.703 billion. Bilateral creditors accounted for US$3.602 billion, while private creditors held US$4.232 billion.The World Bank’s International Development Association (IDA) was the largest individual multilateral creditor, with US$5.433 billion, followed by the African Development Bank with US$2.120 billion.Other multilateral institutions accounted for US$4.150 billion. China was Uganda’s largest identified bilateral creditor, with US$2.368 billion, while France accounted for US$385 million.The figures show that Uganda’s external borrowing is not concentrated in one source.However, the terms attached to financing from different creditors vary considerably, with private borrowing generally carrying higher interest rates and shorter grace periods than loans from official lenders.The World Bank’s country profile shows that new commitments from private creditors in 2025 carried an average interest rate of 8.7 per cent, compared with 2.6 per cent for official creditors. Private creditors offered an average maturity of 20 years and a grace period of one year.Official creditors offered an average maturity of 30 years and a grace period of seven years.The grace period determines how long a borrower has before principal repayments begin, while the interest rate affects the cost of servicing the loan.Borrowing at higher rates and with shorter grace periods can place greater pressure on government finances, particularly when projects financed by the loans take several years to generate economic returns. The figures relate to average terms on new commitments in 2025.The report also places Uganda’s borrowing costs in a wider international context. It says the average interest rate on new commitments from private creditors to public-sector entities in IDA-eligible countries rose to 8.2 per cent in 2025, compared with 2.7 per cent for official creditors.According to the World Bank, the gap between the two categories of lenders widened to 5.5 percentage points, reflecting the increasingly expensive terms on which lower-income countries are accessing private capital markets.Foreign investors hold US$2.8 billion in domestic government debt. The report draws attention to another aspect of Uganda’s exposure to international investors.It says the share of Uganda’s domestic-currency government debt held by non-residents reached US$2.8 billion in 2025, indicating strong demand from international investors for high-yield government securities.This is different from the US$23.9 billion external debt stock in the country profile.The US$2.8 billion represents domestic-currency government debt held by foreign investors, rather than additional external loans.The government can borrow from foreign investors through securities issued in the domestic market without those securities necessarily being classified as external debt.However, foreign ownership of domestic government securities creates another connection between Uganda’s public finances and international investment decisions.The World Bank’s observation points to the attraction of Uganda’s relatively high-yield government securities to foreign investors.It also raises questions about the extent to which government financing depends on continued investor appetite and what could happen if that appetite changes.The report does not say that investors are preparing to withdraw their holdings. But changes in global interest rates, investor confidence, or perceptions of risk could influence demand for government securities and the cost at which the government raises money.The World Bank’s debt ratios provide a more nuanced picture of Uganda’s ability to manage its external obligations.In 2025, external debt stood at 39 per cent of gross national income, while debt service represented 4 per cent of GNI.External debt was equivalent to 145 per cent of exports, and debt service accounted for 13 per cent of exports.Compared with 2015, the report shows a 0.3 per cent increase in the external debt-to-GNI ratio and an 18.1 per cent increase in the debt-service-to-GNI ratio. The external debt-to-exports ratio declined by 20.2 per cent, while the debt-service-to-exports ratio fell by 6.1 per cent.These are the relative changes displayed in the report’s chart, not percentage-point changes.The figures suggest that while external debt has grown substantially in absolute terms, some measures of the debt burden relative to the economy and exports have moved differently.The decline in the exports-based ratios, for example, indicates that export earnings have grown relative to the debt measures used in the calculation.However, the rise in the debt-service-to-GNI ratio signals that the cost of meeting external debt obligations has increased relative to national income.The report’s country profile does not give the actual amount Uganda paid in principal and interest during 2025.It therefore does not, on its own, establish how much of the government budget was spent on external debt repayments or how much money was left for public services and development programmes.Uganda’s figures come against a backdrop of rising debt across developing economies.The World Bank’s International Debt Report 2026 says the external debt stock of developing countries reached a record US$9.4 trillion in 2025, following a 5.5 per cent increase during the year.Debt service payments reached US$1.4 trillion, marking the fifth consecutive annual increase.The report also points to a growing role for private creditors, as governments and public entities return to international capital markets to raise financing.Public bond issuance rose by nearly 35 per cent to US$251 billion, the highest level in five years, reflecting the increased use of capital markets to meet financing needs and refinance existing obligations.The World Bank warns that rising debt-service costs are limiting the fiscal space available to many developing countries.Money used to repay loans and interest is money that cannot be spent on other priorities, although the actual impact differs from one country to another depending on its revenue, debt structure and financing needs.In Uganda’s case the findings bring into focus the choices facing government as it seeks to finance infrastructure, energy, industrialisation and social services while managing a growing stock of debt.The country’s external debt profile remains dominated by public and publicly guaranteed obligations, with multilateral institutions providing the largest share.But the higher cost of new private borrowing and the growing presence of foreign investors in domestic government securities point to the need to examine not only how much Uganda borrows, but also the terms on which it borrows and the returns generated by the financed projects.The World Bank report provides a snapshot of Uganda’s debt position at the end of 2025.It does not establish whether the increase in debt has translated into sufficient economic returns or how much of the current budget is being absorbed by repayments.Those questions require further examination of the Ministry of Finance’s latest public debt statistics, the Bank of Uganda’s external debt data and government expenditure figures.-URNThe post Uganda’s External Debt Hits $23.9bn – But It’s the Cost of New Loans That Should Worry You appeared first on Business Focus.