The institution is Uganda’s biggest lender, accounting for roughly 55% of its multilateral external debt stock.
Uganda, which is ranked among the world’s least developed countries, is in the World Bank’s crosshairs. The East African nation’s enactment in May of a controversial Anti-Homosexuality Act prompted the multilateral lender to halt new loans, stating that the new law fundamentally contradicts its values.
President Yoweri Museveni, in power since 1986 and sure to contest again in 2026, remains defiant. Uganda, he says, “will develop with or without loans.”
But despite the chest thumping, the World Bank’s decision is bound to hurt. The institution is Uganda’s biggest lender, accounting for roughly 55% of its multilateral external debt stock. Cumulatively, its loan pipeline to Uganda over the 2024-2025 financial year stands at $1.7 billion, a major chunk of the $5.4 billion in loans and grants the bank had earmarked for disbursement to the country.
Going by the World Bank statement, financial commitments to seven projects will be affected, and many more in the pipeline face an uncertain future.
Churchill Ogutu, an economist at Mauritius-based IC Asset Managers, warns that Ugandans should brace for pain. “The loans freezing will create a huge hole in Uganda’s financing needs,” he says.
To plug the hole, the government will be forced to turn to expensive syndicated loans and domestic borrowing. To avoid traveling this route, which has many repercussions, the Museveni is considering revising the budget for the current fiscal year downwards. This could negatively impact socio-economic projects that are critical to sustaining progress in reducing poverty.
The financing situation could worsen if other multilateral institutions follow suit. While partners like China could have come in handy to cover spending gaps in the past, Beijing, facing a serious economic slowdown, is cutting foreign financing.
A silver lining is ample of foreign exchange reserves that will help smooth out near-term shocks in the event of local currency weakness. The Bank of Uganda has thus far broadly avoided hard currency sales, maintaining a broad stock of reserves at $4.1 billion in June. Those reserve levels, coupled with the banking system’s equally healthy net foreign asset position, promise relative stability, at least for the time being.