Uganda’s private sector saw reduced access to credit in the first quarter of 2025, as the government significantly increased domestic borrowing, overshadowing other borrowers. At the same time, local telecom companies emerged as key recipients of fresh loans.
According to recent data from the Bank of Uganda (BoU), credit growth to the private sector eased slightly to 7.9% between January and March 2025, down from 8.0% in the previous quarter. Loans in Ugandan shillings experienced slower growth, dipping from 10.3% to 10%, while foreign currency loans saw a marginal rise from 2.0% to 2.3% during the same period.
Click here to join our WhatsApp Group and Receive Daily News
Despite this slowdown, the total amount of loans disbursed to the private sector rose by 4.0% to Shs21.5 trillion ($5.9 billion) between December 2023 and December 2024. Meanwhile, the sector’s non-performing loan ratio improved, falling to 3.9%. However, increased government borrowing led to higher yields on Treasury bills and bonds, pushing up interest rates and crowding out private borrowers.
The surge in government borrowing was linked to weak tax collections and rising public spending, including supplementary budget requests. Analysts noted that commercial banks found government securities more attractive due to their higher returns, reducing their willingness to lend to private businesses and avoiding riskier clients.
“Government borrowing not only raises borrowing costs but also ties up liquidity in the financial system. Instead of flowing to productive investments that create jobs and drive economic growth, funds are being diverted to financial instruments,” said local economist Fred Muhumuza.
Treasury bill and bond yields increased across the board between April 2024 and April 2025. The 91-day T-bill yield rose from 9.9% to 10.9%, while the 364-day bill jumped from 14.6% to 16.7%. Similarly, yields on two-, five-, 10-, and 15-year bonds climbed to 15.5%, 16.2%, 16.7%, and 17.1%, respectively.
Interestingly, commercial bank lending rates to businesses declined slightly, from 18.3% in Q4 2024 to 17.7% in Q1 2025, due to a more accommodative stance by the BoU. However, this marginal relief did not translate into broader private sector credit expansion.
Telecommunications firms led private sector borrowing during this period, driven by infrastructure development and dividend obligations. Although details were limited, analysts noted the loans were mostly dollar-denominated and tied to the SOFR benchmark with an effective annual rate of 8%. Some loans carried a five-year term.
“These loans are mainly for infrastructure upgrades and shareholder payouts,” said a financial analyst at Absa Bank Uganda, who requested anonymity. “The telecom sector remains strong, and we’re not particularly concerned about default risks at this point.”
Michael de Kock, an economist with Oxford Economics Africa, noted that while data on non-bank borrowing costs was sparse, signs pointed to tightening credit conditions. “Even with costlier loans, Uganda’s April Purchasing Managers’ Index (PMI) reached a five-month high, showing that businesses are adjusting. The telecom sector’s borrowing reflects calculated investment decisions, not distress,” he said, citing the March 2025 network-sharing deal between MTN and Airtel as an example of smart capital usage and expanded network coverage.
Also Read: Amama Mbabazi’s Daughter Wanted Over Unpaid Shs 450m Loan
