Published on 27/03/2025
Shadow Minister for Works and Transport, Francis Mwijukye, has warned that the government’s failure to clear UGX 1.351 trillion in arrears owed to road contractors is crippling the construction sector by eroding its financial credibility.
Mwijukye noted that the sector is now struggling to access funding from financial institutions, further worsening its financial distress.
Despite the recently approved UGX 500 billion supplementary budget allocation to the Ministry of Works for national road project payments, Mwijukye argues that the backlog of unpaid dues has severely impacted local contractors.
His concerns are detailed in the 2025/26 Alternative Policy Statement for the Works and Transport Sector, which he presented before Parliament last week. Mwijukye highlighted that commercial banks have lost confidence in financing government projects, pushing local contractors—who already borrow at 23% interest rates—out of business. Meanwhile, foreign contractors can access loans in their home countries at a mere 2% interest rate, giving them a significant competitive advantage.
Delayed Payments Threaten the Industry
“Delayed payments to contractors remain a major challenge in the construction industry,” Mwijukye noted. “Before the streamlining of the Uganda National Roads Authority (UNRA) functions under the Ministry of Works and Transport, UNRA alone had over UGX 1.3 trillion in unpaid arrears. These long-outstanding payables indicate poor budgeting, increasing litigation risks and penalties due to delayed payments.”
The financial strain has led to contractors losing properties used as collateral to secure loans for government projects. With banks hesitant to finance government-backed projects, local contractors are now viewed as high-risk borrowers, further limiting their ability to compete.
“The high cost of borrowing in Uganda—over 23% interest—has made it nearly impossible for local firms to secure guarantees for contracts, purchase equipment, or retain skilled workers. Consequently, over 80% of civil works contracts in Uganda are currently awarded to foreign companies,” Mwijukye added.
Ripple Effect on the Economy
Mwijukye warned that the crisis is affecting multiple sectors, as contractors are struggling to meet tax obligations, National Social Security Fund (NSSF) contributions, and insurance payments. The financial distress is also disrupting supply chains, hurting manufacturers and smaller businesses that rely on government-funded construction projects.
To mitigate these challenges, Mwijukye urged the government to issue commitment letters to contractors, reassuring banks and suppliers of pending payments. He also called on the Bank of Uganda to allow loan restructuring for struggling contractors to ease pressure on non-performing loans.
“The government must prioritize timely payments for completed works to prevent cash flow constraints that make projects more expensive in the long run,” he said.
Proposed Solutions
As a long-term measure, Mwijukye, who also serves as Buhweju County MP, proposed enhancing the Uganda Development Bank Limited (UDBL) Ugandan Contractors Financing Initiative. He suggested increasing its annual funding limit from UGX 150 billion to UGX 500 billion and capping interest rates at a maximum of 5% per annum to make financing more accessible to local contractors.
While acknowledging the transport sector’s crucial role in driving economic growth, Mwijukye pointed out persistent challenges, including:
- Fragmented transport systems
- Over-reliance on road transport
- Delays in absorbing development loans
- Prolonged government project timelines
- Gaps in ferry service provision
“An efficient transport sector requires proper planning, clear work plans, and prioritization of urgent projects,” Mwijukye emphasized. “Key areas such as data collection on transport infrastructure and service efficiency must also be addressed for evidence-based decision-making.”
His remarks underscore the urgent need for financial reforms and strategic planning to revive Uganda’s construction sector and restore investor confidence.
