Bank of Uganda Governor Dr. Michael Atingi-Ego has warned that higher-than-planned government domestic borrowing could inflate interest rates and restrict essential credit access for private businesses and households across the country.

Appearing before Parliament’s Budget Committee on Monday, Dr. Atingi-Ego explained that while the domestic financial market can absorb the government’s planned borrowing of UGX 12.7 trillion for the 2026/27 financial year, borrowing beyond this threshold threatens to reverse recent economic progress.

Impact on commercial lending. Heavy government borrowing through Treasury bills and sovereign bonds provides commercial banks with reliable, risk-free returns. Financial analysts observe that when public debt offers attractive yields, commercial banks tend to prioritize government paper over private sector lending, significantly reducing the pool of loanable funds for local entrepreneurs and personal borrowers.

Balanced assessment. Despite these pressures, central bank data indicates that private-sector credit grew by 16.1 percent year-on-year as of June 2026. The Governor projected an average credit growth of around 13 percent in the upcoming financial year, provided the government maintains strict fiscal restraint. While government borrowing remains a necessary mechanism to finance critical public infrastructure and offset budgetary shortfalls, economic experts maintain that over-reliance on the domestic market starves the private sector of capital needed for job creation.

Call for fiscal discipline. Presenting the central bank’s evaluation of Uganda’s Charter of Fiscal Responsibility, Dr. Atingi-Ego commended the charter as broadly credible but urged lawmakers to avoid expansionary domestic deficit financing. Supporting the central bank's stance, Budget Committee Chairperson Gabriel Okumu called on parliamentary committees to firmly resist further increases in domestic debt targets. King Musah Media will continue to monitor national budget developments and their impact on the banking sector.