Uganda recorded a sharp rise in foreign exchange reserves over the past year, boosted by strong investment inflows into its nascent oil sector, even as public debt climbed and fiscal risks intensified, the central bank said.
In a report released on Monday, the Bank of Uganda said reserves rose 69.7 percent to US$5.6 billion at the end of January, up from US$3.3 billion a year earlier.
The increase was partly driven by foreign direct investment linked to oil developments, as the country prepares to begin commercial crude production later this year.
Energy majors including TotalEnergies and CNOOC — which operate Uganda’s oil fields — have ramped up spending on key infrastructure such as pipelines and drilling operations ahead of first oil.
The investments are expected to transform Uganda into a new oil exporter, providing a significant boost to export revenues and foreign currency inflows.
However, the central bank warned that rising public debt is increasingly constraining the government’s fiscal flexibility.
Uganda’s total public debt surged by 21.2 percent year-on-year to 130.2 trillion Ugandan shillings (about US$34.77 billion) as of end-January, the report said.
The Bank of Uganda cautioned that high debt servicing costs and growing exposure to external borrowing are limiting the country’s ability to absorb economic shocks.
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“Adverse occurrences could heighten the risk of debt distress,” the report noted, underscoring concerns about the sustainability of Uganda’s fiscal position.
Analysts say the contrasting trends — rising reserves alongside mounting debt — reflect the transitional phase of Uganda’s economy as it invests heavily in oil infrastructure in anticipation of future revenues.
While the inflow of capital into the energy sector is strengthening the external position in the short term, the long-term outlook will depend on the timely start of oil production, global crude prices and prudent fiscal management.
The government has projected that oil exports will significantly boost growth and revenues, but economists warn that delays or cost overruns in major projects could exacerbate debt vulnerabilities.
Uganda’s development strategy hinges on leveraging its oil resources to drive industrialisation and infrastructure expansion, but the central bank’s warning highlights the need to carefully balance investment ambitions with debt sustainability.
The country is expected to join the ranks of oil-producing nations in sub-Saharan Africa this year, marking a major milestone for its economy
