By KT Reporter
The Bank of Uganda has warned that the proposed Protection of Sovereignty Bill, 2026, could destabilize Uganda’s financial system, disrupt banking operations, and isolate the country from the global economy if passed in its current form.
In a detailed technical assessment submitted to Parliament, the Central Bank Governor, Michael Atingi-Ego, argued that several provisions in the Bill introduce what it described as “radical uncertainty” capable of triggering severe shocks within the banking sector and undermining investor confidence.
While acknowledging the importance of protecting national sovereignty, the Bank cautioned that the legislation risks weakening the very economic independence it seeks to defend. A major concern raised by the Central Bank relates to constitutional independence.
Under Article 162 of the Constitution, the Bank of Uganda operates independently and is protected from the “direction or control of any person or authority.
”However, the Bank argues that the proposed law creates a parallel regulatory framework under the Ministry of Internal Affairs, potentially interfering with the Central Bank’s mandate over monetary policy, financial regulation, and economic stability.
“While protecting national sovereignty is a paramount constitutional objective, the financial system’s technical architecture must remain shielded from regulatory fragmentation,” the Bank stated in its submission.
The Central Bank also warned that some clauses could significantly undermine Uganda’s long-term economic ambitions, including the target of growing the economy to USD 500 billion by 2040.
One of the most contentious provisions is Clause 22, which proposes a Shillings 400 million annual cap on foreign funding.
According to the Bank, that amount represents only a fraction of the minimum capital required for commercial banks and could effectively block critical capital injections, shareholder loans, and investment flows into the financial sector.
The Bank further warned that the Bill’s broad definition of “foreigner” could unintentionally affect Ugandans living abroad.
Officials say the approximately USD 1.5 billion sent home annually through remittances could potentially be categorized as “foreign agent” activity, threatening a major source of household income and foreign exchange.
The Central Bank also questioned the practicality of implementing ministerial approval requirements within Uganda’s fast-growing digital financial ecosystem.
With an estimated 27 million mobile money transactions processed daily, the Bank argued that manual approval systems would be incompatible with real-time digital banking operations.
Officials warned that such procedures could slow transactions, disrupt commerce, and weaken confidence in electronic payment systems.
Michael Atingi-Ego also raised concern about Clause 13 of the Bill, which criminalizes the publication of information deemed harmful to the economy.
The Bank warned that the clause could discourage legitimate economic analysis and even limit the Central Bank’s ability to communicate critical information, such as inflation trends or currency depreciation.
Recommendations to Parliament
To avoid damaging Uganda’s international financial standing, including compliance obligations with institutions such as the IMF and FATF, the Bank proposed several amendments.
Among the recommendations is excluding banks and financial technology companies regulated under the Financial Institutions Act and National Payments Systems Act from being classified as “agents of foreigners.”
The Bank also called for removal or revision of the “Economic Sabotage” provisions to protect legitimate economic analysis and avoid criminal liability for directors over standard institutional operations.
In addition, it proposed replacing the proposed approval system with a disclosure-based approach for routine financial transactions to avoid disruptions in banking operations.
The Uganda Bankers Association has also raised concerns about the proposed law.
In its earlier submission to Parliament, the Association warned that placing banks under additional oversight from the Ministry of Internal Affairs would create what it described as “dual-regulatory fatigue.”
The Association argued that banks are already extensively regulated under existing financial and anti-money laundering laws, making the proposed framework both redundant and potentially harmful.
It also warned that Clause 13 could prevent commercial banks from issuing market outlooks and risk assessment reports to clients—practices considered standard in international banking.
“An informed market is a stable market; criminalizing economic data is a recipe for a black market economy,” the Association stated.
Since its introduction and first reading in Parliament on April 15, 2026, the Protection of Sovereignty Bill has attracted growing skepticism from financial institutions, legal experts, civil society organizations, and sections of the private sector.
Critics argue that while the objective of protecting national interests may be legitimate, the Bill risks creating uncertainty that could reverse decades of financial sector reforms and economic integration.
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