Uganda’s largest companies are increasingly turning away from Uganda Shilling loans and borrowing in US dollars instead. The shift, which has pushed foreign currency credit growth to 12.52%, is being driven by a simple reality: dollar loans are significantly cheaper than local currency loans. While the trend is helping major corporations lower financing costs and expand faster, it is also exposing deeper structural challenges within Uganda’s economy, including high domestic borrowing costs, growing pressure on the shilling, and widening gaps between large corporations and smaller businesses.
The numbers explain why the shift is happening.
Despite the Bank of Uganda maintaining the Central Bank Rate (CBR) at 9.75%, average commercial lending rates for Uganda Shilling loans remain high at 18.65%. Meanwhile, average foreign currency lending rates have fallen to just 6.98%.
For a company borrowing billions of shillings to build a factory, expand production capacity, import equipment, or finance a major infrastructure project, that difference can translate into billions of shillings in savings.
In simple terms, Uganda’s biggest companies are finding it far cheaper to borrow in dollars than in shillings.
“What we are seeing is classic interest-rate arbitrage on a corporate scale. When local borrowing becomes too expensive, companies naturally move toward the cheaper source of capital,” said a senior executive at a leading commercial bank.
The trend is particularly common among manufacturers, exporters, logistics companies, energy firms, and businesses involved in mining and oil-related activities. Many of these companies either earn revenues in dollars or have contracts linked to foreign currencies, making dollar borrowing less risky for them.
The move also reflects growing confidence among Uganda’s largest corporations.
Companies rarely take on significant new debt unless they expect future growth. The current surge in dollar borrowing suggests that many of Uganda’s leading businesses are positioning themselves for expansion, particularly ahead of anticipated opportunities linked to commercial oil production, infrastructure investments, mineral exports, and regional trade growth.
For the wider economy, this trend carries both opportunities and risks.
On the positive side, cheaper financing allows large businesses to invest more aggressively. When companies expand factories, increase production, purchase equipment, or launch new projects, they create jobs, generate tax revenue, increase exports, and contribute to economic growth.
The shift could therefore help accelerate industrialization and strengthen Uganda’s private sector at a time when the economy is targeting higher growth rates.
The trend also signals that Uganda’s banking sector remains healthy. Commercial banks have reported improving asset quality, with the Non-Performing Loan (NPL) ratio falling to 3.04%, its lowest level since 2011. This indicates that many large borrowers remain financially strong and capable of servicing debt.
However, the picture is not entirely positive.
One of the clearest implications is that Uganda’s economy is becoming increasingly divided between large corporations and small businesses.
While major firms can access dollar loans at single-digit interest rates, most SMEs cannot. Small businesses typically earn revenues exclusively in Uganda Shillings and therefore face significant exchange-rate risks if they borrow in foreign currency. As a result, they remain dependent on local currency loans costing nearly three times as much.
This means large corporations are expanding with relatively cheap capital while many smaller businesses continue struggling under expensive borrowing costs.
The trend also highlights a broader challenge for policymakers.
If Uganda’s biggest companies are increasingly avoiding local currency borrowing, it raises important questions about the competitiveness of the domestic credit market. High shilling lending rates continue to act as a constraint on private sector growth, particularly for businesses that lack access to foreign currency earnings.
Perhaps the biggest economic concern is the impact on the Uganda Shilling itself.
As more companies borrow and transact in dollars, demand for foreign currency rises. This can place additional pressure on the local currency, particularly during periods of global uncertainty.
Uganda has already experienced some of that pressure. The Uganda Shilling depreciated by 2.9% quarter-on-quarter in April, influenced by strong corporate demand for dollars and higher import costs driven by rising global energy prices.
If demand for dollars continues to rise significantly, it could create further exchange-rate volatility and make imports more expensive across the economy.
There is also the risk of currency mismatch.
A company that borrows in dollars but earns revenue in shillings can face serious financial difficulties if the local currency weakens sharply. Every depreciation increases the real cost of repaying dollar-denominated debt.
For now, most of the companies driving the surge in foreign currency borrowing appear to be managing that risk carefully. Many are exporters, mining companies, energy firms, or businesses connected to international trade, meaning they generate at least part of their revenues in dollars.
The trend also offers a glimpse into how corporate Uganda views the future.
The willingness of major firms to take on significant foreign currency debt suggests they expect strong economic opportunities ahead. Much of that optimism is tied to Uganda’s expanding gold exports, growing mining activity, regional trade opportunities, and the expected start of commercial oil production.
In many ways, the rise in dollar borrowing is a vote of confidence in Uganda’s economic prospects.
Yet it is also a reminder that the country still faces structural challenges. As long as shilling borrowing remains significantly more expensive than dollar financing, Uganda’s largest companies will continue seeking capital abroad or in foreign currencies, while smaller businesses remain locked into a higher-cost financial system.
The growing shift from shilling loans to dollar debt is therefore more than a corporate financing story. It is a reflection of how Uganda’s economy is evolving, where growth opportunities are emerging, and where some of the country’s biggest economic vulnerabilities still lie.
For businesses, it signals confidence and expansion. For the economy, it highlights both the promise of future growth and the urgent need to make local capital more affordable and accessible.
