ABSTRACT Clouds are crucial elements in the hydrological cycle and precipitation that are important in determining the scale of the major atmospheric circulation patterns. Clouds are a product of complicated interactions of moisture with larger scale circulations, radiation and microphysical processes. Interactions between heat, moisture and clouds have become the subject of scientific research because of the importance of clouds in the formation of precipitation. In this thesis, we estimated the effect of heat and moisture budget on clouds over UBNB. To this end, we used cloud cover (amount of cloud), IMF, surface heat, precipitation, evaporation and wind vector data from European Centre for Medium-range Weather Forecast (ECMW) reanalysis for the period of 1990-2017(28 years) during spring and summer seasons at selected location of 7.5 0 – 12.5 0 N and 34.5 0 E. In this investigation Stefan-Boltzmann law, moisture budget equations and Pearson correlation equation used to analyse the effect of surface heat and moisture budget on clouds. Our result indicates that surface heat is negatively correlated with clouds. Whereas, moisture is positively correlates with clouds. During spring season Southeast and north east part of the UBNB is covered with clouds might be due to convergence of moisture originated from Indian ocean with local moisture, while in summer season the moisture budget originated from both Atlantic and Indian oceans and it contributes to form clouds in south-western parts of the study area. The calculated recycling ratios for two seasons (spring and summer) are 9.14% and 5.8%respectively.It indicates that the UBNB clouds formed related to the movement of the ITCZ and due to convergence of moisture caring wind coming from Indian and Atlantic oceans rather than the local moisture budget during spring and summer season's. The type of clouds, which is responsible for precipitation over the study area, is low-level clouds. In general, we conclude that the local moisture had lesser contribution on clouds over the UBNB. Further studies on heat and moisture budget are required to explain this dynamics in the context of Ethiopia. Key words: Upper Blue Nile basin, heat budget, moisture budge and recycling ratio and clouds -39.5 o