Domestic Drivers of Uganda’s Reserves: An Empirical Analysis of Consumption, Investment, and Public Debt

Abstract

International reserves are essential for maintaining macroeconomic stability and resilience against external shocks in developing economies. Declining reserve adequacy amid rising consumption, importintensive investment, and increasing public debt has raised concerns about external sector sustainability. Existing empirical studies have predominantly emphasized external determinants of reserve accumulation, with limited attention to domestic macroeconomic factors, creating a knowledge gap. This study examined the effects of private consumption, total investment, and gross government debt on Uganda’s international reserves during 1969–2024. It examined the effects of private consumption, total investment, and gross government debt on international reserves. Guided by the precautionary motive, mercantilist, and debt vulnerability theories, the study adopted a quantitative time-series research design using annual secondary data obtained from the Bank of Uganda, Uganda Bureau of Statistics, and the World Bank. A Vector Error Correction Model was employed because unit root and Johansen cointegration tests confirmed long-run relationships among the variables. The findings indicate that private consumption significantly reduces international reserves, investment has a positive but weak effect, while government debt has a positive but statistically insignificant effect. The study recommends promoting productive investment, prudent debt management, and policies that moderate import-driven consumption to strengthen reserve adequacy and long-term macroeconomic stability.