Uganda’s Economic Outlook 2025: Navigating Global Uncertainties and Domestic Growth Opportunities

Navigating Uganda’s Economic Landscape: Growth, Inflation, and Policy in 2025

Uganda’s economic outlook for 2025 presents a compelling narrative of resilience amid global uncertainties and domestic challenges. With real GDP growth accelerating to 6.7% in Q1 2024/25, driven by robust performances in agriculture, industry, and services, the nation is poised to achieve its medium-term target of 7.0% growth. However, tightening liquidity conditions, exchange rate volatility, and fiscal constraints pose significant risks to this trajectory. While headline inflation remains moderate at 3.6%, core inflation has risen to 4.2%, signalling underlying price pressures exacerbated by rising costs in sectors like transport and hospitality. Against this backdrop, the Bank of Uganda’s decision to maintain the Central Bank Rate (CBR) at 9.75% underscores a cautious yet accommodative approach to balancing growth and stability. As Uganda leverages opportunities in extractive industries, regional trade under AfCFTA, and strategic government initiatives, addressing structural bottlenecks and mitigating external shocks will be critical to sustaining progress. This analysis delves into the key drivers shaping Uganda’s economy, offering insights into monetary policy decisions, fiscal performance, and the path toward sustainable and inclusive growth.

Global Economic Outlook and Its Implications for Uganda
The global economic landscape in 2025 and 2026 is expected to remain subdued, with growth projections stabilising at 3.3%, a marginal improvement from the 3.2% recorded in 2024 but still below historical averages. For Uganda, this tepid global growth outlook presents both challenges and opportunities, particularly in terms of export demand and trade diversification efforts.
Impact on Export Demand
Uganda’s economy is heavily reliant on exports, primarily agricultural products such as coffee, tea, and cocoa, which are vital sources of foreign exchange. The subdued growth in key trading partners like the United States and the Euro Area is anticipated to dampen demand for these commodities. Advanced economies are grappling with softer labour markets, fiscal constraints, and geopolitical tensions, all of which contribute to slower economic expansion. Consequently, the appetite for Ugandan exports may wane, leading to reduced revenues and potential trade deficits.
For instance, Europe, a significant market for Ugandan coffee, is experiencing lacklustre growth, primarily driven by Germany’s underperformance in manufacturing and goods exports. This directly impacts Uganda’s export earnings, as European buyers may scale back their purchases. Similarly, the United States, another critical trading partner, is projected to see a slowdown in growth, with forecasts of 2.7% in 2025 and 2.1% in 2026. With softer labour market conditions and fiscal constraints, American demand for Ugandan goods could also decline.
Trade Diversification Efforts
While the subdued global growth poses challenges, it simultaneously offers Uganda an impetus to accelerate its trade diversification efforts. Diversification is crucial for mitigating risks associated with over-reliance on a few key markets and commodities. By exploring new markets and expanding its product range, Uganda can cushion itself against fluctuations in global demand.
One promising avenue is strengthening regional ties within Africa. The African Continental Free Trade Area (AfCFTA) presents a unique opportunity for Uganda to bolster intra-African trade. As global demand from traditional partners falters, tapping into the burgeoning African market can provide a stable and growing outlet for Ugandan goods. Moreover, AfCFTA aims to reduce tariffs and streamline trade processes, making it easier for Ugandan businesses to penetrate new markets across the continent.
Another strategic move is to capitalise on emerging markets like India, which is set to maintain robust growth, with a projected 6.5% expansion in both 2025 and 2026. India’s resilient economy, supported by strong domestic demand and targeted policy interventions, offers a fertile ground for Ugandan exports. By fostering stronger trade relations with India, Uganda can offset some of the lost demand from slower-growing Western economies.

Additionally, Uganda must focus on enhancing the value addition to its primary exports. For example, instead of exporting raw coffee beans, investing in local processing facilities to produce roasted coffee or instant coffee can fetch higher prices and cater to diverse consumer preferences. This not only boosts export revenues but also insulates the country from volatile commodity prices.

While the global economic outlook for 2025-2026, with growth projections at 3.3%, poses significant challenges for Uganda, particularly in terms of export demand, it also propels the nation towards vital trade diversification. By leveraging regional integration frameworks like AfCFTA, exploring emerging markets such as India, and enhancing value addition to its exports, Uganda can navigate these uncertain times and build a more resilient and diversified economy. This strategic pivot is essential for sustaining growth and ensuring long-term economic stability amidst a complex global environment.

Uganda’s Strategic Position Amidst Trade Wars: Opportunities for Diversifying Trade Relations Beyond Traditional Partners Like the U.S. and Europe
In an era marked by escalating trade wars, shifting geopolitical alliances, and protectionist policies, Uganda finds itself at a crossroads. While the nation has traditionally relied on key trading partners such as the United States and Europe, these relationships are increasingly under strain due to subdued global growth, rising tariffs, and economic uncertainties. However, amidst these challenges lies a unique opportunity for Uganda to strategically diversify its trade relations, tapping into emerging markets and strengthening regional integration. By doing so, the country can not only mitigate risks but also position itself as a dynamic player in the global economy.
The Challenge of Over-Reliance on Traditional Partners
Uganda’s exports have historically been concentrated in advanced economies, particularly the United States and the European Union. These regions have served as reliable markets for key Ugandan products such as coffee, tea, cocoa, and textiles. However, recent trends suggest that this reliance is becoming a vulnerability. For instance, the United States, which has been a significant importer of Ugandan goods, is projected to experience slower economic growth in 2025 and 2026, with forecasts of 2.7% and 2.1%, respectively. This moderation is driven by softer labour market conditions, fiscal constraints, and reduced public sector spending. Similarly, Europe’s growth outlook remains lacklustre, with Germany’s manufacturing sector underperforming and broader structural hurdles limiting recovery prospects.
Moreover, the rise of trade wars and retaliatory tariffs poses a direct threat to Uganda’s export competitiveness. For example, increased tariffs on intermediate goods could disrupt supply chains, elevate production costs, and reduce demand for Ugandan exports. As global powers like the U.S., China, and the EU adopt more inward-looking policies, Uganda must explore alternative avenues to sustain and grow its trade volumes.
Opportunities for Trade Diversification
1. Strengthening Regional Trade Through AfCFTA
  One of the most promising opportunities for Uganda lies in leveraging the African Continental Free Trade Area (AfCFTA). This landmark agreement aims to create a single continental market for goods and services, fostering intra-African trade and economic integration. For Uganda, AfCFTA presents a chance to expand its export base within the continent, where demand for agricultural products, manufactured goods, and services is steadily increasing. By reducing non-tariff barriers and streamlining customs procedures, AfCFTA can make it easier for Ugandan businesses to penetrate new markets across Africa.
  Additionally, Uganda’s strategic location within East Africa positions it as a gateway to countries like South Sudan and the Democratic Republic of Congo. By investing in infrastructure such as roads, railways, and border facilities, Uganda can enhance its role as a regional trade hub, attracting both domestic and foreign investment.
2. Tapping Into Emerging Markets Like India
  India’s resilient economy, projected to grow at 6.5% in both 2025 and 2026, offers immense potential for Uganda’s trade diversification efforts. With strong domestic demand and targeted policy interventions, India has emerged as one of the fastest-growing major economies globally. For Uganda, this represents an opportunity to forge stronger trade ties, particularly in sectors such as agriculture, energy, and pharmaceuticals. Indian companies are increasingly seeking raw materials and commodities to support their growing industries, making them natural partners for Ugandan exporters.
  Furthermore, India’s focus on sustainable development aligns well with Uganda’s strengths in renewable energy and eco-friendly products. Collaborations in solar power, biofuels, and green technologies could open new revenue streams while promoting environmentally responsible practices.
3. Exploring Partnerships With Middle Eastern Economies
  The Middle East, particularly Gulf Cooperation Council (GCC) countries like Saudi Arabia and the United Arab Emirates, offers another avenue for diversification. These nations are investing heavily in food security initiatives, given their limited arable land and water resources. Uganda, with its fertile soils and favourable climate, is well-positioned to supply agricultural commodities such as cereals, pulses, and livestock products. Additionally, the UAE’s status as a global logistics hub provides Ugandan businesses with access to wider markets in Asia and beyond.
  Moreover, GCC countries are expanding their investments in Africa, including Uganda, through ventures in real estate, tourism, and infrastructure. By fostering partnerships in these areas, Uganda can attract much-needed capital while creating jobs and boosting local economies.
4. Capitalising On South-South Cooperation
  South-South cooperation, which refers to partnerships between developing countries, is gaining momentum as a driver of economic growth. Countries like Brazil, Indonesia, and Turkey are increasingly engaging with African nations to promote mutual trade and investment. For Uganda, this trend offers opportunities to collaborate in sectors such as agro-processing, manufacturing, and technology transfer.
  For example, Brazilian expertise in soybean cultivation and processing could help Uganda develop its own value-added agricultural products. Similarly, Turkish investments in textiles and construction could revitalise Uganda’s industrial sector, creating linkages between local suppliers and international buyers.
5. Enhancing Value Addition and Export Competitiveness
  To fully capitalise on diversified trade relations, Uganda must prioritise value addition and improve the quality of its exports. Currently, many Ugandan products are exported in raw form, leaving significant value unrealised. By investing in processing facilities—for instance, turning raw coffee beans into roasted coffee or instant coffee—Uganda can fetch higher prices and cater to diverse consumer preferences. This approach boosts export revenues and reduces vulnerability to volatile commodity prices.
  Additionally, improving product standards, packaging, and branding can enhance Uganda’s competitiveness in international markets. Government initiatives to provide training, financing, and technical assistance to small and medium enterprises (SMEs) will be crucial in achieving these goals.
6. Navigating Geopolitical Tensions Through Multilateral Engagement
  In light of ongoing geopolitical tensions, Uganda should actively engage in multilateral forums to advocate for fair trade practices and equitable access to global markets. By participating in organisations such as the World Trade Organization (WTO) and the Commonwealth, Uganda can build alliances with like-minded nations and push for reforms that benefit developing economies.
  Furthermore, diplomatic efforts to strengthen bilateral relations with non-traditional partners can yield tangible benefits. For example, signing preferential trade agreements with countries in Southeast Asia or Latin America could unlock new opportunities for Ugandan businesses.
Uganda’s strategic position amidst trade wars underscores the urgent need for diversification and innovation in its trade relations. By moving beyond traditional partners like the U.S. and Europe, the country can harness the potential of emerging markets, regional integration frameworks like AfCFTA, and South-South cooperation. At the same time, enhancing value addition, improving export competitiveness, and engaging in multilateral diplomacy will ensure that Uganda remains resilient in the face of global uncertainties.
Ultimately, diversifying trade relations is not merely a defensive strategy but a proactive step towards building a more inclusive and sustainable economy. As Uganda charts this course, it must remain committed to fostering collaboration, embracing change, and seizing opportunities that align with its long-term development aspirations.
The Role of Regional Integration: How Initiatives Such as the African Continental Free Trade Area (AfCFTA) Bolster Intra-African Trade and Economic Resilience
In an increasingly interconnected world, regional integration has emerged as a critical strategy for fostering economic resilience, particularly for nations like Uganda. One of the most transformative initiatives in this regard is the African Continental Free Trade Area (AfCFTA), which seeks to create a unified market for goods and services across Africa. For Uganda, participation in AfCFTA presents an unparalleled opportunity to enhance intra-African trade, diversify its economy, and mitigate vulnerabilities stemming from global uncertainties. This article delves into how AfCFTA and other regional integration efforts are reshaping Uganda’s economic landscape while bolstering its resilience.
Strengthening Intra-African Trade
The AfCFTA represents a monumental step towards breaking down trade barriers and fostering deeper economic ties within Africa. By reducing tariffs, streamlining customs procedures, and harmonising regulations, the agreement aims to increase the volume and value of intra-African trade. Currently, intra-African trade accounts for only about 17% of total African exports, significantly lower than levels seen in other regions such as Europe (68%) or Asia (59%). For Uganda, this underutilised potential offers vast opportunities to expand its export base beyond traditional partners like the United States and Europe.
Uganda’s agricultural sector, which contributes significantly to its GDP, stands to benefit immensely from increased access to African markets. Commodities such as coffee, tea, cocoa, and maize can find new buyers across the continent, particularly in countries with growing populations and rising incomes. For example, East African neighbours like Kenya, Tanzania, and Rwanda have burgeoning middle classes that present lucrative markets for Ugandan products. Similarly, Central and West African nations, which often face food shortages, could rely on Uganda’s surplus production to meet their needs.
Moreover, the AfCFTA encourages value addition to raw materials, enabling Uganda to move up the value chain. Rather than exporting unprocessed coffee beans, for instance, Uganda could invest in local processing facilities to produce roasted coffee or instant coffee blends tailored to regional preferences. This not only boosts export revenues but also creates jobs and stimulates industrial activity within the country.
Enhancing Economic Resilience
One of the key advantages of regional integration is its ability to enhance economic resilience by reducing dependence on external markets. Global uncertainties—such as subdued growth in advanced economies, escalating trade wars, and geopolitical tensions—have underscored the importance of diversifying trade relations. For Uganda, strengthening intra-African trade through AfCFTA provides a buffer against these external shocks.
For example, when demand for Ugandan exports weakens in traditional markets like the U.S. and Europe due to slower economic growth, African markets can serve as alternative outlets. Additionally, regional supply chains can be developed to reduce reliance on imports from distant economies, thereby insulating Uganda from disruptions caused by global conflicts or shipping blockages. A case in point is the ongoing instability in the Red Sea, which has disrupted international freight routes. By sourcing intermediate goods and machinery from neighbouring countries, Uganda can minimise exposure to such risks.
Furthermore, the AfCFTA fosters collaboration in critical areas such as infrastructure development, energy, and digital connectivity. Improved roads, railways, and border facilities will facilitate smoother movement of goods and people, lowering transaction costs and enhancing competitiveness. For landlocked Uganda, investments in regional infrastructure projects—such as the Standard Gauge Railway linking Kampala to Mombasa—are vital for accessing seaports and expanding trade networks. Such initiatives boost intra-African trade and position Uganda as a regional logistics hub.
Addressing Structural Challenges
While the benefits of regional integration are clear, realising them requires addressing structural challenges that hinder trade facilitation. Non-tariff barriers, including bureaucratic red tape, inconsistent standards, and inadequate transport links, remain significant obstacles to intra-African trade. To fully leverage AfCFTA, Uganda must work collaboratively with other member states to eliminate these bottlenecks.
Domestically, improving the ease of doing business is essential. Simplifying export-import procedures, enhancing transparency in regulatory frameworks, and investing in quality control systems will make Ugandan products more attractive to regional buyers. Additionally, supporting small and medium enterprises (SMEs), which form the backbone of Uganda’s economy, through capacity-building programmes and access to finance will enable them to compete effectively in larger markets.
Another critical area is building human capital. Skilled labour is indispensable for driving innovation, improving productivity, and meeting the demands of a competitive marketplace. By aligning education and training programmes with the needs of emerging industries, Uganda can equip its workforce to seize opportunities arising from AfCFTA.
Mitigating Risks Through Multilateral Engagement
Beyond boosting trade and resilience, regional integration offers Uganda a platform to advocate for fairer trade practices and equitable access to resources. As part of AfCFTA negotiations, Uganda can push for provisions that address the unique challenges faced by low-income and landlocked countries. For instance, securing preferential treatment for agricultural exports or exemptions from stringent sanitary and phytosanitary requirements could level the playing field for Ugandan producers.
Additionally, multilateral engagement allows Uganda to pool resources and expertise with other African nations to tackle common challenges. Climate change, for example, poses a significant threat to agricultural output across the continent. Collaborative efforts to develop climate-resilient crops, share best practices, and implement sustainable farming techniques can safeguard food security and protect livelihoods.
The African Continental Free Trade Area (AfCFTA) represents a pivotal moment for Uganda and the broader African continent. By deepening regional integration, Uganda can bolster intra-African trade, diversify its economy, and build greater economic resilience. However, success hinges on addressing structural impediments, fostering domestic reforms, and engaging constructively in multilateral forums. As Uganda navigates the complexities of globalisation and regional cooperation, embracing AfCFTA offers a pathway to sustained prosperity and inclusive development. In doing so, Uganda not only strengthens its own economy but also contributes to a more integrated and resilient Africa.
Domestic Financial Markets Under Pressure: Examining Tight Liquidity Conditions and Their Effect on Lending Rates and Private Sector Credit Growth
Recently, Uganda’s domestic financial markets have come under significant pressure due to tight liquidity conditions, a development that has had far-reaching implications for lending rates and private sector credit growth. These challenges are occurring against a backdrop of subdued global economic growth, rising geopolitical tensions, and structural bottlenecks within the domestic economy. This analysis delves into the causes and consequences of these pressures, highlighting their impact on businesses, households, and broader economic activity.
Tight Liquidity Conditions: Causes and Manifestations
Liquidity conditions in Uganda tightened markedly in the three months leading up to January 2025, driven by a combination of factors:
1. Increased Government Borrowing :
  The government’s borrowing appetite surged during this period as it sought to meet its fiscal obligations. According to preliminary data from the Ministry of Finance, Planning, and Economic Development, total government borrowing rose significantly, crowding out private sector access to credit. High administrative cutoffs in treasury auctions further exacerbated liquidity constraints, as banks prioritised holding government securities over extending loans to the private sector.
2. Reduced External Funding :
  The suspension of USAID health sector support and reduced inflows from other external sources constrained public and private sector financing. This reduction in external funding limited the availability of foreign currency-denominated loans, which are crucial for import-dependent sectors such as manufacturing and trade.
3. Monetary Policy Stance :
  To stem instability in the exchange rate and maintain macroeconomic stability, the Bank of Uganda (BoU) maintained a relatively tight monetary policy stance. The Central Bank Rate (CBR) was kept at 9.75%, with no issuance of repurchase agreements or BoU bills during the period. While this approach helped stabilise the Uganda Shilling, it also contributed to tight liquidity conditions in the interbank money market.
4. Utilization of Standing Lending Facility :
  Financial institutions increasingly relied on the Standing Lending Facility provided by the BoU to meet their short-term funding needs. Utilisation of this facility surged to Shillings 55.0 trillion in the three months to January 2025, compared to Shillings 14.2 trillion in the previous quarter. This spike underscores the strain on liquidity and highlights the challenges faced by banks in sourcing funds through conventional channels.
Impact on Lending Rates
The tightening of liquidity conditions directly influenced lending rates, creating both upward and downward pressures across different sectors:
1. Rising Rates in High-Risk Sectors :
  Despite a slight decline in weighted average lending rates for certain sectors like telecommunications, rates in high-risk areas such as trade, housing, and personal loans increased significantly. For example, the weighted average Shilling lending rate fell marginally to 18.3% in December 2024 but remained elevated overall. This trend reflects heightened risk assessments by lenders amid uncertain economic conditions.
2. Prime Lending Rates :
  The average one-year prime lending rate offered by commercial banks dropped slightly to 20.1% in December 2024, from 20.7% in September 2024. However, this reduction did not translate into meaningful relief for borrowers in most sectors, as banks maintained conservative lending practices to safeguard against potential defaults.
3. Foreign Currency Loans :
  The weighted average lending rate on foreign currency-denominated loans declined to 8.5% in December 2024, down from 9.0% in September 2024. Nevertheless, any significant depreciation of the Uganda Shilling could raise the cost of servicing these loans, posing additional risks to borrowers and potentially pushing up lending rates further.
Private Sector Credit Growth: A Sluggish Recovery
Tight liquidity conditions have taken a toll on private sector credit growth, with annualised growth averaging just 7.8% in the three months to December 2024—down from 8.9% in the previous quarter. Several dynamics underpin this slowdown:
1. Sectoral Weaknesses :
  Key sectors such as manufacturing and trade experienced particularly sluggish credit growth. Manufacturing saw reduced financing for factories involved in processing food, beverages, tobacco, textiles, apparel, and leather. Similarly, trade-related activities, including retail operations, restaurants, hotels, and import credit, faced diminished access to affordable financing.
2. Shilling vs. Foreign Currency Loans :
  Growth in Shilling-denominated loans averaged 10.0% in December 2024, down from 10.3% in September 2024. Meanwhile, growth in foreign currency-denominated loans contracted by 2.0%, reversing the 4.9% expansion observed in the prior quarter. This divergence reflects shifting preferences among borrowers and lenders, influenced by exchange rate volatility and tighter liquidity conditions.
3. Credit Demand and Approval Rates :
  Although demand for and supply of credit rose during the festive season, net credit extensions—including capitalised interest and revaluation—declined by Shillings 56.7 billion in the three months to December 2024. The credit approval rate improved to 72.9%, up from 61.0% in the previous quarter, indicating some easing of lending standards. However, the ratio of non-performing loans to gross loans fell to 3.9%, suggesting that banks remain cautious about extending credit to higher-risk borrowers.
Broader Economic Implications
The combination of tight liquidity conditions, elevated lending rates, and sluggish private sector credit growth poses several risks to Uganda’s economy:
1. Constrained Business Expansion :
  Limited access to affordable credit hampers businesses’ ability to invest in new projects, expand operations, or adopt innovative technologies. This constraint is particularly detrimental to small and medium enterprises (SMEs), which form the backbone of Uganda’s economy.
2. Reduced Consumer Spending :
  Higher lending rates make borrowing more expensive for households, reducing disposable incomes and dampening consumer spending. This dynamic is compounded by weakening consumer confidence, as evidenced by the decline in the Consumer Confidence Index (CCI) to 48.6 in January 2025.
3. Slower Economic Growth :
  Private sector credit is a critical driver of economic activity. Its slowdown threatens to undermine Uganda’s GDP growth projections, which are currently estimated at 6.0–6.5% for FY2024/25. Without timely interventions to ease liquidity pressures and stimulate credit growth, achieving these targets may prove challenging.
Policy Recommendations
To address the adverse effects of tight liquidity conditions, policymakers must adopt a multipronged approach:
1. Enhance Liquidity Management :
  The BoU should explore measures to inject liquidity into the financial system, such as resuming the issuance of repurchase agreements or conducting open market operations. These steps would help alleviate pressure on banks and facilitate smoother credit flow to the private sector.
2. Promote Alternative Financing Channels :
  Encouraging the development of alternative financing mechanisms—such as fintech platforms, venture capital, and microfinance institutions—can provide much-needed support to SMEs and underserved segments of the economy.
3. Strengthen Fiscal Discipline :
  By improving fund absorption capacity and prioritising expenditures, the government can reduce its reliance on domestic borrowing, thereby freeing up resources for private sector lending.
4. Monitor Exchange Rate Volatility :
  Given the risks posed by exchange rate fluctuations, the BoU should continue implementing policies aimed at maintaining a stable Shilling. This stability will help mitigate inflationary pressures and reduce the cost of servicing foreign currency-denominated loans.
Tight liquidity conditions have placed considerable strain on Uganda’s domestic financial markets, driving up lending rates and slowing private sector credit growth. These developments threaten to stifle business expansion, reduce consumer spending, and impede overall economic progress. While the challenges are formidable, targeted policy interventions and prudent fiscal management offer pathways to easing liquidity pressures and fostering a more conducive environment for sustainable growth. As Uganda navigates these complexities, striking a balance between maintaining macroeconomic stability and supporting private sector dynamism will be essential for ensuring long-term prosperity.
Private Sector Credit Growth Trends: Exploring Why Credit Growth Slowed to 7.8% in December 2024 and Its Implications for Businesses Across Key Sectors
Private sector credit growth in Uganda is a critical barometer of economic activity, reflecting the health of businesses, consumer spending patterns, and overall confidence in the economy. However, in December 2024, private sector credit growth slowed to an annualised rate of 7.8%, down from 8.9% in September 2024. This deceleration raises important questions about the underlying causes and its implications for businesses across key sectors such as manufacturing, trade, agriculture, and services.
Why Did Credit Growth Slow to 7.8%?
The slowdown in private sector credit growth can be attributed to a confluence of factors, both domestic and external, that constrained liquidity and dampened borrowing appetite:
1. Tight Liquidity Conditions
  One of the primary drivers of the slowdown was the tightening of liquidity conditions in the domestic financial markets. In the three months leading up to January 2025, money market rates surged due to increased government borrowing, which crowded out private sector access to credit. For instance, yields on treasury securities rose significantly as the government sought to meet its fiscal obligations, diverting funds away from private enterprises. Additionally, banks increasingly relied on the Standing Lending Facility provided by the Bank of Uganda (BoU), indicating severe strain on liquidity. This environment made it more challenging for businesses to secure affordable financing.
2. Government Borrowing Pressures
  Government borrowing pressures further exacerbated the situation. Preliminary fiscal data for the first half of FY2024/25 revealed that total government borrowing exceeded expectations, driven by underperformance in grant receipts and delays in disbursements. The central government’s elevated borrowing appetite left commercial banks with limited resources to extend loans to the private sector. As a result, sectors reliant on bank financing—such as manufacturing and trade—experienced reduced access to credit.
3. Persistent Structural Challenges
  Structural issues within the economy also played a role in stifling credit growth. For example, infrastructure gaps, bureaucratic red tape, and inconsistent regulatory frameworks deterred investment and discouraged lending. These challenges are particularly pronounced in sectors like construction and manufacturing, where large-scale projects require substantial upfront capital. Without adequate reforms to address these bottlenecks, lenders remain cautious about extending credit to high-risk ventures.
4. Rising Risk Assessments by Lenders
  Banks adopted a more conservative approach to lending, particularly in high-risk sectors such as trade, housing, and personal loans. Data from the Bank of Uganda shows that weighted average lending rates rose in these sectors, reflecting heightened risk assessments. For instance, trade-related activities faced lower financing due to uncertainties in global demand and supply chain disruptions. Similarly, housing loans encountered sluggish growth amid concerns about affordability and repayment capacity among borrowers.
5. Exchange Rate Volatility
  Exchange rate volatility added another layer of complexity to the lending landscape. Any significant depreciation of the Uganda Shilling could increase the cost of servicing foreign currency-denominated liabilities, prompting banks to tighten lending standards. This dynamic disproportionately affected import-dependent sectors, such as manufacturing and retail, which rely heavily on imported inputs and intermediate goods.
6. Weakening Business Confidence
  Declining business confidence also contributed to the slowdown in credit growth. According to the Purchasing Managers’ Index (PMI) and the Business Tendency Index (BTI), business sentiment weakened in late 2024 and early 2025. Executives in sectors such as trade and construction expressed pessimism about future prospects, citing softer demand and rising operational costs. This negative outlook likely deterred businesses from seeking new loans or expanding existing credit lines.
Implications for Businesses Across Key Sectors
The slowdown in private sector credit growth has far-reaching consequences for businesses across various sectors, each facing unique challenges and opportunities:
1. Manufacturing Sector
  Manufacturing, a cornerstone of Uganda’s industrialisation agenda, experienced a notable decline in credit growth. Factories engaged in processing food, beverages, tobacco, textiles, apparel, and leather struggled to secure financing for expansion and modernisation projects. Reduced access to credit limits their ability to adopt innovative technologies, improve productivity, and compete in regional and international markets. Consequently, this slowdown threatens to hinder job creation and value addition within the sector.
2. Trade Sector
  Trade-related activities, including retail operations, restaurants, hotels, and import credit, were among the hardest hit. Lower financing availability curtailed inventory restocking and inventory management efforts, leading to stockouts and lost sales opportunities. Moreover, small and medium enterprises (SMEs) in the trade sector, which form the backbone of Uganda’s informal economy, bore the brunt of tightened lending conditions. Their inability to access affordable credit undermines their resilience and adaptability in a rapidly changing marketplace.
3. Agriculture Sector
  While agriculture remains a vital contributor to Uganda’s GDP, credit growth in this sector showed signs of stagnation. Farmers and agribusinesses faced difficulties in securing loans for purchasing seeds, fertilisers, and equipment. This constraint is particularly concerning given the sector’s vulnerability to adverse weather conditions and climate change. Without adequate financing, farmers may struggle to implement sustainable practices or mitigate risks associated with crop failures and livestock diseases.
4. Services Sector
  The services sector, encompassing hospitality, transportation, and telecommunications, witnessed mixed outcomes. Telecommunications benefited from prime borrowing rates, enabling continued investment in digital infrastructure. However, other sub-sectors, such as passenger transport and hotel services, grappled with higher borrowing costs and reduced consumer spending. Rising inflationary pressures compounded these challenges, squeezing profit margins and dampening growth prospects.
5. Housing and Real Estate
  Housing loans contracted significantly, reflecting subdued demand and affordability concerns. Rising interest rates and stricter lending criteria deterred potential homebuyers, exacerbating the housing deficit in urban areas. Developers, meanwhile, scaled back on new projects due to limited access to financing, further constraining supply and driving up property prices.
Broader Economic Implications
The slowdown in private sector credit growth poses several risks to Uganda’s economic trajectory:
1. Constrained Economic Activity
  Private sector credit is a key driver of economic growth. Its deceleration threatens to undermine GDP growth projections, which are currently estimated at 6.0–6.5% for FY2024/25. Without timely interventions to ease liquidity pressures and stimulate credit flow, achieving these targets may prove challenging.
2. Reduced Employment Opportunities
  SMEs, which account for a significant share of employment in Uganda, rely heavily on bank financing to sustain operations and create jobs. A credit crunch hampers their ability to hire new workers, exacerbating unemployment and underemployment, especially among youth and women.
3. Increased Vulnerability to External Shocks
  Tighter credit conditions leave businesses ill-prepared to navigate external shocks, such as fluctuations in global commodity prices or geopolitical tensions. This vulnerability underscores the need for robust contingency planning and risk mitigation strategies.
Policy Recommendations
To address the adverse effects of slowing credit growth, policymakers must adopt targeted measures:
1. Enhance Liquidity Management
  The BoU should explore mechanisms to inject liquidity into the financial system, such as resuming repurchase agreements or conducting open market operations. These steps would alleviate pressure on banks and facilitate smoother credit flow to the private sector.
2. Promote Alternative Financing Channels
  Encouraging the development of alternative financing mechanisms—such as fintech platforms, venture capital, and microfinance institutions—can provide much-needed support to SMEs and underserved segments of the economy.
3. Strengthen Fiscal Discipline
  By improving fund absorption capacity and prioritising expenditures, the government can reduce its reliance on domestic borrowing, thereby freeing up resources for private sector lending.
4. Monitor Exchange Rate Volatility
  Given the risks posed by exchange rate fluctuations, the BoU should continue implementing policies aimed at maintaining a stable Shilling. This stability will help mitigate inflationary pressures and reduce the cost of servicing foreign currency-denominated loans.
The slowdown in private sector credit growth to 7.8% in December 2024 highlights the complex interplay of domestic and external factors shaping Uganda’s financial landscape. From tight liquidity conditions and government borrowing pressures to rising risk assessments and exchange rate volatility, businesses across key sectors face mounting challenges. Addressing these issues requires a coordinated effort involving monetary policy adjustments, fiscal discipline, and structural reforms. As Uganda navigates this period of uncertainty, fostering a conducive environment for private sector credit growth will be essential for sustaining economic momentum and ensuring inclusive development.
Government Fiscal Operations and Revenue Performance: Assessing Underperformance in Grant Receipts Versus Overperformance in Domestic Tax Revenue During FY2024/25
In the first half of FY2024/25, Uganda’s fiscal operations revealed a striking dichotomy: while grant receipts underperformed significantly, domestic tax revenue exceeded expectations. This divergence highlights both the vulnerabilities and strengths of Uganda’s revenue mobilisation strategies amidst a challenging global economic environment.

Underperformance in Grant Receipts

Grant receipts during the first six months of FY2024/25 fell short of projections by Shillings 585.0 billion, a substantial shortfall that underscores the fragility of Uganda’s reliance on external funding. Several factors contributed to this underperformance:

Insufficient Absorption Capacity
One of the primary reasons for the shortfall was the government’s inability to fully absorb and utilise grants. Many projects earmarked for external funding faced delays in implementation due to bureaucratic inefficiencies, inadequate planning, and logistical challenges. For instance, infrastructure projects requiring donor support often encounter bottlenecks in procurement processes, leading to postponed disbursements.
Shifting Donor Priorities
Global geopolitical dynamics and evolving donor priorities also played a role. The suspension of USAID health sector support, for example, disrupted funding flows for critical programmes in health and education. Additionally, shifting investor sentiment in financial markets and reduced inflows from non-governmental organisations (NGOs) reflected changing global priorities, particularly as donors increasingly channel resources towards climate change mitigation and other emerging issues.
Economic Uncertainty and Budget Constraints
In an era of subdued global growth and heightened fiscal constraints, many traditional donors scaled back their commitments to developing economies like Uganda. Advanced economies grappling with slower growth and rising debt burdens have become more cautious about disbursing aid, further exacerbating the shortfall in grant receipts.
Impact on Fiscal Operations
The underperformance in grant receipts directly impacted fiscal operations, contributing to a revenue shortfall of Shillings 251.2 billion during the period. This shortfall constrained government spending, particularly on capital projects, which are heavily reliant on external financing. As a result, planned investments in infrastructure, agriculture, and social services were delayed or scaled back, potentially hindering long-term development goals.

Overperformance in Domestic Tax Revenue

Despite the challenges in securing external funding, Uganda achieved notable success in domestic tax revenue collection, surpassing targets by Shillings 342.7 billion. This over performance can be attributed to several factors:

Enhanced Tax Administration Efforts
The Uganda Revenue Authority (URA) implemented robust measures under its Domestic Taxes Compliance Improvement Plan (CIP), which significantly improved tax collection efficiency. These efforts included enhanced monitoring systems, expanded taxpayer education programmes, and stricter enforcement of compliance regulations. For example, corporate tax collections surged by 48.0 percent, reflecting increased scrutiny and improved reporting mechanisms.
Strong Corporate Tax Contributions
Corporate tax emerged as a standout performer, exceeding targets by Shillings 388.0 billion. This over performance was driven by robust earnings in key sectors such as telecommunications, banking, and extractive industries. The oil sector, in particular, contributed significantly to corporate tax revenues, underscoring the importance of strategic investments in driving fiscal performance.
Growth in Direct Domestic Taxes
Direct domestic taxes, including Pay-As-You-Earn (PAYE) and withholding tax, also recorded strong growth. PAYE collections rose by 10.0 percent, reflecting steady employment levels and wage increases in formal sectors. Similarly, withholding tax collections grew by 16.3 percent, indicating improved compliance among businesses and individuals.
Moderate Growth in Indirect Taxes
While indirect taxes underperformed slightly, they still contributed positively to overall revenue. Value Added Tax (VAT) on manufactured goods and excise duties on items such as phone talk time and soft drinks saw moderate increases, albeit below projections. These gains were offset by declines in international trade taxes, particularly petroleum duty and VAT on imports, highlighting the impact of subdued global trade activity.

Implications for Fiscal Sustainability

The contrasting performance of grant receipts and domestic tax revenue has significant implications for Uganda’s fiscal sustainability and economic resilience:

Reduced Dependence on External Funding
The overperformance in domestic tax revenue signals a positive shift towards reducing dependence on volatile external funding sources. By strengthening internal revenue mobilisation, Uganda can enhance fiscal autonomy and reduce exposure to external shocks. However, achieving sustainable fiscal balance requires continued reforms to broaden the tax base and improve compliance.
Challenges in Capital Expenditure
Despite the revenue overperformance, underperformance in grant receipts constrained capital expenditure, which is crucial for driving long-term growth. Low fund absorption by central government units resulted in a Shillings 2,260.6 billion shortfall in capital spending, limiting progress on infrastructure development and other priority areas. Addressing these bottlenecks will be essential for unlocking the full potential of domestic revenue gains.
Risks from Global Economic Uncertainty
Global geopolitical tensions and trade disruptions pose downside risks to Uganda’s revenue outlook. A slowdown in global economic growth could dampen export revenues and remittance inflows, while tighter financial conditions may constrain investment flows. These external pressures underscore the need for prudent fiscal management and diversification of revenue sources.
Opportunities for Structural Reforms
The overperformance in domestic tax revenue presents an opportunity to accelerate structural reforms aimed at improving fiscal efficiency. Streamlining public expenditure, enhancing transparency in budget execution, and fostering private sector growth can help mitigate the impact of reduced external funding and ensure sustainable development.

Broader Economic Context

The contrasting trends in grant receipts and domestic tax revenue reflect broader shifts in Uganda’s economic landscape:

Resilience Amidst Global Challenges
Despite external headwinds, Uganda’s economy has demonstrated resilience, supported by strong domestic demand and strategic government initiatives. Increased investment in the extractive industry, particularly the oil sector, has bolstered economic activity and revenue generation.
Vulnerability to Weather and Commodity Shocks
Adverse weather conditions and fluctuations in global commodity prices remain key risks to agricultural output and rural incomes. Ensuring food security and stabilising commodity-dependent revenues will require targeted interventions and risk mitigation strategies.
Balancing Growth and Stability
The Bank of Uganda’s decision to maintain the Central Bank Rate (CBR) at 9.75 percent reflects a cautious approach to balancing growth and stability. By keeping inflation under control while fostering an environment conducive to investment, policymakers aim to sustain economic momentum and build resilience against future shocks.

The underperformance in grant receipts versus the overperformance in domestic tax revenue during FY2024/25 highlights both the challenges and opportunities facing Uganda’s fiscal framework. While reduced external funding poses risks to capital expenditure and long-term development, the success in domestic revenue mobilisation offers a pathway to greater fiscal autonomy and resilience. To capitalise on these gains, Uganda must address structural bottlenecks, enhance absorption capacity, and pursue reforms that promote inclusive and sustainable growth. In doing so, the nation can navigate the complexities of a rapidly changing global environment while laying the foundation for a prosperous future.

Balance of Payments Dynamics: Explaining the Widening Current Account Deficit and Its Drivers, Including Rising Imports for the Oil Sector
Uganda’s balance of payments (BoP) position in the year to December 2024 revealed significant challenges, particularly a widening current account deficit. This deficit grew by 27.6% to US$4,804.1 million, up from US$3,766.4 million in the previous year. The deterioration was driven by a combination of factors, including rising imports—especially for the burgeoning oil sector—and weaker-than-expected inflows from key sources such as remittances and grants. Below, we delve into the dynamics behind this trend, its implications for Uganda’s economy, and the role of rising imports for the oil sector.
Understanding the Widening Current Account Deficit
The current account deficit is a measure of the gap between a country’s total imports of goods, services, and primary income and its total exports. In Uganda’s case, the widening deficit reflects several interconnected domestic and external factors:
1. Surging Imports
  One of the primary drivers of the widening current account deficit was the sharp increase in imports, which grew by 20.3% to US$12,216.9 million in 2024. This surge was largely driven by private sector investments in machinery, vegetable oils, and base metals, indicating robust domestic demand for capital goods and intermediate inputs. However, the most notable contributor to the import bill was the oil sector, where expenditures on exploration, drilling equipment, and related infrastructure rose significantly. These imports are essential for preparing Uganda’s nascent oil industry but come at a substantial cost in the short term.
2. Trade Deficit Expansion
  The trade deficit widened by 16.3% to US$3,662.9 million, reflecting the growing imbalance between imports and exports. While exports also increased by 22.1% to US$8,554.0 million—fuelled by higher earnings from coffee and cocoa—the pace of import growth outstripped export gains. This mismatch highlights the structural challenges facing Uganda’s trade balance, particularly its reliance on imported inputs for industrial and extractive activities.
3. Services Account Deterioration
  The services account deficit worsened by 22.3% to US$1,979.3 million, primarily due to increased payments for transport and other business services. These costs are often linked to the logistics of importing machinery and equipment, further compounding the strain on the current account.
4. Primary Income Deficit
  The primary income deficit expanded by 10.0% to US$1,087.1 million, largely because of higher interest payments on external debt servicing. As Uganda continues to borrow internationally to fund large-scale projects, these obligations weigh heavily on its current account.
5. Secondary Income Contraction
  The secondary income surplus contracted by 3.3% to US$1,925.2 million, attributed to reduced inflows from personal transfers and non-governmental organisations (NGOs). Factors such as changing global labour market conditions, shifting investor sentiment, and evolving donor priorities contributed to this decline. Notably, the suspension of USAID health sector support and recent U.S. policies freezing aid for 90 days and deporting undocumented migrants have negatively impacted NGO inflows and personal remittances.
The Role of Rising Imports for the Oil Sector
Rising imports for the oil sector represent one of the most critical components of Uganda’s widening current account deficit. As the country prepares for commercial oil production—a milestone expected to transform its economic landscape—substantial upfront investments are required. These include:
1. Exploration and Development Equipment
  Large-scale procurement of drilling rigs, seismic survey equipment, and pipelines has driven up import expenditures. Such items are typically sourced from abroad due to the specialised nature of the technology involved, contributing significantly to the import bill.
2. Infrastructure Development
  Investments in associated infrastructure, such as refineries, storage facilities, and transportation networks, have also escalated import demands. For instance, the East African Crude Oil Pipeline (EACOP), a flagship project connecting Uganda’s oil fields to Tanzania’s port of Tanga, requires extensive foreign-sourced materials and expertise.
3. Operational Inputs
  The oil sector’s operational needs, including chemicals, spare parts, and technical services, further add to import costs. These recurring expenses underscore the ongoing financial requirements of developing and sustaining an extractive industry.
While these imports are necessary for laying the groundwork for future oil revenues, they place immediate pressure on the current account. In the short term, the rising import bill exacerbates the trade deficit and strains foreign exchange reserves. However, in the medium to long term, successful implementation of oil projects is expected to generate substantial export revenues, narrowing the current account deficit and improving Uganda’s BoP position.
Implications for Uganda’s Economy
The widening current account deficit carries both risks and opportunities for Uganda’s economy:
1. Pressure on Foreign Exchange Reserves
  With the deficit widening, Uganda’s foreign exchange reserves came under pressure, declining to US$3,302.8 million (3.0 months of future import cover) at the end of 2024, compared to US$3,733.9 million at the end of 2023. This reduction raises concerns about the country’s ability to maintain adequate reserve buffers against external shocks.
2. Exchange Rate Vulnerability
  Persistent deficits can exert depreciation pressures on the Uganda Shilling, making imports more expensive and potentially fuelling inflationary risks. Although the Shilling appreciated slightly in early 2025, sustained external imbalances could reverse this trend.
3. Debt Sustainability Concerns
  Financing the current account deficit through external borrowing increases Uganda’s public debt burden, raising questions about long-term debt sustainability. High debt servicing costs already account for a significant portion of the primary income deficit.
4. Opportunities from Oil Sector Development
  Despite the short-term challenges, the oil sector represents a transformative opportunity for Uganda. Once operational, oil exports are projected to generate substantial revenues, reducing reliance on traditional agricultural exports and enhancing the country’s trade balance. Additionally, improved infrastructure and energy security could spur broader economic diversification and growth.
Mitigating the Risks
To address the widening current account deficit and its underlying drivers, policymakers must adopt a multifaceted approach:
1. Boosting Export Competitiveness
  Enhancing the competitiveness of non-traditional exports—such as manufactured goods, processed agricultural products, and services—can help diversify revenue streams and reduce dependence on volatile commodity prices.
2. Promoting Import Substitution
  Encouraging local production of goods currently imported, especially those used in the oil sector, can alleviate pressure on the trade balance. Developing domestic manufacturing capabilities would not only reduce import bills but also create jobs and stimulate inclusive growth.
3. Attracting Foreign Direct Investment (FDI)
  Strengthening efforts to attract FDI, particularly in sectors beyond oil, can bolster the financial account and offset current account pressures. Sectors such as tourism, agriculture, and renewable energy offer untapped potential for attracting international investors.
4. Strengthening Regional Trade
  Leveraging regional integration frameworks like the African Continental Free Trade Area (AfCFTA) can expand market access for Ugandan exports, reducing reliance on distant trading partners and fostering intra-African trade.
5. Prudent Fiscal Management
  Ensuring efficient utilisation of borrowed funds and prioritising high-impact projects will be crucial for maximising returns on investment and minimising wasteful expenditure. Improved fiscal discipline can also enhance investor confidence and reduce borrowing costs.
The widening current account deficit in Uganda underscores the complex interplay of domestic and external factors shaping the country’s balance of payments dynamics. Rising imports for the oil sector, while essential for long-term development, have placed immediate strain on the trade balance and foreign exchange reserves. Addressing these challenges requires a balanced strategy that combines short-term mitigation measures with long-term structural reforms. By boosting export competitiveness, promoting import substitution, and leveraging regional trade opportunities, Uganda can navigate the current account deficit while positioning itself for sustainable growth driven by the oil sector and beyond. In doing so, the nation can build resilience against external shocks and lay the foundation for a prosperous future.
Exchange Rate Resilience: Investigating Factors Supporting the Ugandan Shilling’s Appreciation Against the U.S. Dollar Despite Global Uncertainties
In an era of heightened global economic volatility, the resilience of the Ugandan Shilling (UGX) against the U.S. dollar (USD) stands out as a notable achievement. Despite persistent geopolitical tensions, fluctuating commodity prices, and tightening global financial conditions, the Shilling appreciated by 3.05% year-on-year in January 2025. This performance contrasts sharply with the depreciation pressures faced by many emerging market currencies during the same period.
Monetary Policy Actions
One of the primary drivers of the shilling’s appreciation has been the prudent monetary policy stance adopted by the Bank of Uganda (BoU). By maintaining the Central Bank Rate (CBR) at 9.75%, the BoU struck a delicate balance between fostering price stability and supporting sustainable economic growth. This cautious approach helped anchor inflation expectations, which in turn reduced speculative pressures on the currency. Additionally, the BoU’s decision to refrain from issuing repurchase agreements or BoU bills in the three months to January 2025 alleviated concerns about over-supplying liquidity, thereby supporting the shilling’s value.
The BoU also effectively managed foreign exchange reserves, ensuring adequate buffers to mitigate external shocks. At the end of 2024, Uganda’s foreign exchange reserves stood at US$3,302.8 million, equivalent to 3.0 months of future import cover. These reserves provided a critical safety net, instilling confidence among investors and reducing panic-driven capital outflows that could have weakened the shilling.
Financial Market Reforms
Structural reforms in Uganda’s financial markets have played a pivotal role in enhancing the shilling’s resilience. Efforts to deepen the domestic bond market, improve transparency in forex trading, and strengthen regulatory oversight have increased investor confidence. For instance, the secondary market for treasury securities witnessed rising yields, reflecting robust demand for government securities. The outstanding stock of government securities held by other depository corporations rose to Shillings 15.6 trillion in December 2024, up from Shillings 14.9 trillion in the same period the previous year. This trend indicates growing trust in Uganda’s financial instruments, which indirectly supports the shilling by attracting both domestic and foreign capital.
Moreover, initiatives to promote digital payments and enhance access to formal financial services have reduced reliance on informal currency markets, where speculative activities often exacerbate exchange rate volatility. These reforms have created a more stable and predictable environment for currency transactions.
Export Revenues and Steady Inflows
Another key factor supporting the shilling’s appreciation has been the steady inflow of export revenues, particularly from agricultural commodities like coffee and cocoa. In 2024, Uganda’s exports surged by 22.1% to US$8,554.03 million, driven by higher coffee prices and increased international demand. Coffee export earnings, in particular, benefited from favourable weather conditions and strong global prices, providing a steady stream of foreign exchange that bolstered the shilling.
Remittances from Ugandans working abroad have also contributed significantly to the currency’s strength. Steady inflows from workers’ remittances, combined with consistent contributions from non-governmental organisations (NGOs) and capital investments, have offset some of the pressures caused by global uncertainties. For example, the anticipated increase in remittances ahead of the first school term in early 2025 is expected to provide additional support to the current account and, by extension, the Shilling.
Global Oil Price Dynamics
Lower global oil prices have indirectly supported the Shilling by reducing import costs and easing pressure on the current account deficit. According to projections by the U.S. Energy Information Administration (EIA), Brent Crude Oil prices are expected to decline from an average of $81 per barrel in 2024 to $74 per barrel in 2025 and $66 per barrel in 2026. This downward trend has lowered Uganda’s import bill for petroleum products, freeing up foreign exchange resources that can be used to stabilise the Shilling.
Furthermore, developments in the oil sector—particularly robust Foreign Direct Investment (FDI) inflows—have strengthened the currency. FDI inflows into Uganda rose by 12.5% to US$3,365.3 million in 2024, largely driven by investments in the oil sector. These inflows bolstered foreign exchange reserves and signalled investor confidence in Uganda’s long-term economic prospects.
External Factors: A Mixed Picture
While global uncertainties posed risks to the Shilling, certain external factors worked in its favour. For instance, the strengthening of the U.S. dollar index, driven by anticipated higher tariffs and rising interest rates, initially put depreciation pressure on the Shilling. However, the impact was mitigated by Uganda’s diversified export base and the resilience of key sectors like agriculture and manufacturing.
Additionally, geopolitical tensions in the Middle East and disruptions in the Red Sea led to temporary spikes in global energy prices, which could have negatively affected the Shilling. However, these effects were cushioned by Uganda’s relatively low dependence on imported energy compared to other African nations. Moreover, the country’s strategic location within the East African Community (EAC) allowed it to benefit from regional trade dynamics, further supporting the currency.
Domestic Economic Resilience
The overall resilience of Uganda’s economy has also played a crucial role in sustaining the Shilling’s value. Real GDP growth in the first quarter of 2024/25 accelerated to 6.7%, driven by robust industrial activity and strong agricultural output. The mining and quarrying sectors, in particular, experienced a remarkable recovery, growing by 5.9% in Q1 after contracting by 0.5% in Q4 of 2023/24. This economic momentum has attracted both domestic and foreign investment, creating a virtuous cycle that reinforces currency stability.
Furthermore, the decline in Energy, Fuel, and Utilities (EFU) inflation to 0.3% in January 2025, coupled with subdued food crop inflation, has helped maintain macroeconomic stability. Lower inflationary pressures reduce the likelihood of sudden capital flight and speculative attacks on the Shilling, thereby preserving its value.
Challenges and Risks
Despite these positive developments, the Shilling remains vulnerable to several risks. Persistent corporate demand for foreign exchange, particularly from energy firms, telecom companies, and manufacturers, continues to exert depreciation pressures. Additionally, any significant strengthening of the U.S. dollar due to global financial market sentiments—such as those following the U.S. Federal Reserve’s pause in policy easing—could weigh on the Shilling.
Adverse weather conditions, such as droughts or floods, pose another risk by disrupting agricultural production and reducing export revenues. Similarly, geopolitical tensions and trade wars could escalate, leading to higher imported inflation and supply chain disruptions. These factors underscore the importance of maintaining proactive monetary and fiscal policies to safeguard the Shilling’s gains.
The Ugandan Shilling’s appreciation against the U.S. dollar in the face of global uncertainties is a testament to the country’s sound economic management and structural reforms. Monetary policy actions, financial market deepening, export revenues, and lower oil prices have collectively bolstered the currency’s resilience. However, ongoing vigilance is essential to address potential challenges, such as corporate demand for foreign exchange and external shocks. By continuing to implement prudent policies and fostering investor confidence, Uganda can sustain the Shilling’s strength while laying the groundwork for long-term economic prosperity.
Economic Growth Drivers: Breaking Down the Contributions of Agriculture, Industry, and Services to Real GDP Growth of 6.7% in Q1 2024/25
Uganda’s real GDP growth accelerated to 6.7% in the first quarter of FY2024/25, up from 6.2% in the fourth quarter of FY2023/24 and 5.6% in the corresponding period a year earlier. This robust performance was driven by significant contributions from agriculture, industry, and services, each playing a distinct role in propelling the economy forward.
Agriculture Sector: A Pillar of Resilience
The agriculture sector remains a cornerstone of Uganda’s economy, contributing approximately 24% to GDP and employing over 70% of the population. In Q1 2024/25, the sector grew by 8.7%, albeit slightly lower than the 11.3% growth recorded in Q4 2023/24. This strong performance underscores agriculture’s critical role in driving economic growth, particularly in rural areas.
1. Key Drivers of Agricultural Growth
  - Favourable Weather Conditions : Abundant rainfall during the planting and growing seasons supported bumper harvests of key crops such as maize, beans, and cassava. Improved weather patterns also benefited cash crops like coffee and tea, which are vital for export revenues.
  - Government Interventions : Strategic initiatives, such as the Parish Development Model (PDM) and input subsidies for smallholder farmers, enhanced productivity and access to markets. These programmes aim to modernise farming practices and improve value addition, thereby increasing agricultural output.
  - Export Performance : The surge in global coffee prices and heightened international demand provided a significant boost to agricultural earnings. Coffee, one of Uganda’s top exports, saw increased volumes and higher prices, contributing directly to GDP growth.
2. Challenges Facing the Sector
  - Climate Vulnerability : Despite favourable conditions in Q1, adverse weather events—such as droughts or floods—pose a persistent risk to agricultural output. Climate change continues to threaten food security and rural incomes.
  - Infrastructure Gaps : Limited access to irrigation systems, storage facilities, and transportation networks hampers productivity and reduces the competitiveness of Ugandan agricultural products in regional and global markets.
3. Opportunities for Expansion
  - Investment in agro-processing industries could enhance value addition and reduce post-harvest losses. For instance, processing raw coffee into roasted or instant coffee blends tailored to regional preferences would fetch higher prices and create jobs.
  - Strengthening regional trade under the African Continental Free Trade Area (AfCFTA) offers an opportunity to expand market access for Ugandan agricultural goods, particularly in East and Central Africa.
Industry Sector: A Robust Recovery
The industrial sector experienced a remarkable recovery, growing by 5.9% in Q1 2024/25 compared to just 0.5% in Q4 2023/24. This turnaround was largely driven by increased activity in mining and quarrying, manufacturing, and construction.
1. Mining and Quarrying
  - The mining and quarrying sub-sector spearheaded industrial growth, benefiting from rising global demand for minerals such as gold. Increased exploration activities and investments in mineral processing facilities contributed to this uptick.
  - The anticipated commencement of commercial oil production has spurred ancillary industries, including machinery imports and infrastructure development, further boosting industrial output.
2. Manufacturing
  - Manufacturing rebounded on the back of improved supply chains and rising domestic demand for processed goods. Factories engaged in food processing, beverages, and textiles reported higher production levels, reflecting growing consumer confidence.
  - However, structural bottlenecks, such as high-energy costs and inadequate infrastructure, continue to constrain the sector’s full potential.
3. Construction
  - The construction sub-sector gained momentum due to ongoing public infrastructure projects, including road rehabilitation, housing developments, and preparations for the East African Crude Oil Pipeline (EACOP). Private sector investments in real estate and industrial parks also played a role.
4. Challenges and Risks
  - Tight liquidity conditions and elevated lending rates have limited access to affordable financing for small and medium enterprises (SMEs) in the manufacturing and construction sectors.
  - Dependence on imported inputs makes the sector vulnerable to exchange rate fluctuations and global supply chain disruptions.
5. Future Prospects
  - Investments in the oil sector are expected to catalyse industrialisation by creating backward and forward linkages. For example, local content policies could promote the use of domestically produced inputs in oil-related projects, fostering industrial diversification.
  - Expanding renewable energy solutions, such as solar power, could reduce energy costs and enhance the competitiveness of Ugandan manufacturers.
Services Sector: Sustained Momentum
The services sector, which accounts for approximately 50% of Uganda’s GDP, maintained steady growth at 5.9% in Q1 2024/25, slightly below the 6.8% recorded in Q4 2023/24. This sector encompasses a wide range of activities, including trade, transport, telecommunications, hospitality, and financial services.
1. Trade and Commerce
  - Retail trade and wholesale activities remained buoyant, supported by robust consumer spending during the festive season. Improved disposable incomes and stable inflationary conditions bolstered household purchasing power.
  - However, sluggish credit growth in the trade sector constrained some businesses, particularly SMEs, from expanding operations or restocking inventories.
2. Transport and Logistics
  - The transport sub-sector benefited from increased freight volumes, driven by private sector investments in machinery and intermediate goods. Road transport, in particular, saw heightened activity as businesses prepared for the upcoming oil production phase.
  - Infrastructure upgrades, such as the Standard Gauge Railway linking Kampala to Mombasa, are expected to enhance connectivity and reduce logistics costs, further stimulating trade and commerce.
3. Telecommunications and ICT
  - Telecommunications continued to thrive, with mobile money transactions and internet penetration reaching new heights. Innovations in fintech platforms facilitated seamless payments and financial inclusion, supporting broader economic activity.
  - Government efforts to bridge the digital divide through universal access initiatives hold promise for expanding ICT services to underserved regions.
4. Hospitality and Tourism
  - The hospitality sub-sector gained traction as travel restrictions eased, and international arrivals picked up. Uganda’s rich biodiversity, coupled with strategic marketing campaigns, attracted tourists to national parks and cultural sites.
  - Geopolitical tensions and global uncertainties, however, remain downside risks to sustained tourism growth.
5. Financial Services
  - Banks and non-bank financial institutions reported steady business volumes, supported by prudent monetary policy and sound regulatory oversight. The decline in the ratio of non-performing loans (NPLs) to gross loans—from 4.9% in September 2024 to 3.9% in December 2024—reflected improved loan recovery and reclassification of historical bad debts.
6. Challenges and Opportunities
  - Rising operational costs and competition from informal service providers pose challenges to formal businesses in the sector.
  - Embracing digital transformation and adopting sustainable practices could unlock new revenue streams and enhance service delivery.
Sectoral Synergies and Broader Implications
The interplay between agriculture, industry, and services highlights the importance of integrated approaches to economic development. For instance:
- Agro-industrial Linkages : Strengthening ties between agriculture and manufacturing can drive industrialisation while ensuring food security. Processing agricultural raw materials locally creates jobs, generates foreign exchange, and reduces dependency on imports.
- Service Sector Enablers : Enhanced transport and logistics services facilitate the movement of goods and people, supporting both agriculture and industry. Similarly, telecommunications and financial services enable businesses to operate efficiently and reach wider markets.
Uganda’s real GDP growth of 6.7% in Q1 2024/25 reflects the combined strength of its agriculture, industry, and services sectors. While agriculture remains the bedrock of the economy, the industrial sector’s recovery and the services sector’s resilience demonstrate the country’s capacity for diversified growth. Addressing structural challenges, leveraging regional integration frameworks like AfCFTA, and capitalising on transformative opportunities in the oil sector will be crucial for sustaining this momentum. As Uganda charts its path toward inclusive and sustainable development, fostering synergies across sectors will ensure that no segment is left behind in the pursuit of prosperity.
Challenges to Business Confidence: Addressing Declining Indices Like the Purchasing Managers’ Index (PMI) and Business Tendency Index (BTI)
In January 2025, Uganda witnessed a notable decline in key indicators of business confidence, including the Purchasing Managers’ Index (PMI) and the Business Tendency Index (BTI). These indices provide critical insights into the health of the private sector and broader economic sentiment. The PMI fell to 49.5 from 53.1 in December 2024, indicating a contraction in business activity for the first time in several months. Similarly, the BTI dropped by 1.2 points to 58.1, reflecting growing pessimism among business executives, particularly in sectors like trade and construction. This decline underscores the challenges facing businesses in Uganda amidst a complex domestic and global economic environment. Below, we explore the factors contributing to this trend and its implications for Uganda’s economy.
Factors Contributing to Declining Business Confidence
1. Weaker Domestic Demand
  One of the primary drivers of the decline in business confidence is weaker domestic demand. In January 2025, businesses reported a reduction in new orders, which directly impacted production levels and revenue expectations. This slowdown can be attributed to subdued consumer spending, likely driven by rising living costs, tight liquidity conditions, and uncertainty about future economic prospects. For instance, higher interest rates and reduced access to credit have constrained households’ ability to spend, particularly on non-essential goods and services.
2. Global Economic Uncertainty
  Global geopolitical tensions and trade disruptions have created an uncertain operating environment for Ugandan businesses. The anticipated imposition of tariffs and retaliatory measures by major economies, such as the United States, Canada, and Mexico, could disrupt supply chains and increase production costs. These external pressures weigh heavily on export-oriented industries, such as manufacturing and agriculture, which are critical to Uganda’s economic growth. Additionally, slower growth in key trading partners, particularly in Europe and the U.S., has dampened demand for Ugandan exports, further eroding business confidence.
3. Tight Financing Conditions
  Tight liquidity conditions and elevated lending rates have made it more challenging for businesses to access affordable financing. As highlighted in the monetary policy report, private sector credit growth slowed to 7.8% in December 2024, reflecting reduced borrowing by SMEs and other enterprises. High-risk assessments by lenders, particularly in sectors like trade and housing, have exacerbated this issue. Without adequate financing, businesses struggle to expand operations, invest in innovation, or meet working capital requirements, all of which contribute to declining confidence.
4. Adverse Weather Conditions
  Agriculture, a cornerstone of Uganda’s economy, remains highly vulnerable to adverse weather conditions. Prolonged droughts or erratic rainfall patterns can disrupt food crop production, affecting rural incomes and reducing demand for goods and services in related sectors. The uncertainty surrounding agricultural output adds another layer of risk for businesses reliant on raw materials sourced locally, such as agro-processing industries.
5. Policy Uncertainty and Reduced External Funding
  Policy uncertainties, coupled with reduced external funding, have also weighed on business sentiment. The suspension of USAID health sector support, for example, has constrained public sector investment in critical areas like healthcare and education. This funding gap may lead to increased government borrowing, crowding out private sector access to credit. Furthermore, delays in implementing structural reforms and bureaucratic inefficiencies hinder investor confidence and deter both domestic and foreign investment.
6. Rising Operational Costs
  Rising operational costs, particularly in energy and logistics, have placed additional strain on businesses. Increased freight charges and higher fuel prices have raised input costs for manufacturers and traders, squeezing profit margins. These pressures are compounded by inflationary trends in services, such as passenger transport and hotel accommodations, which further elevate business expenses.
Implications of Declining Business Confidence
1. Reduced Investment and Job Creation
  Declining business confidence often translates into reduced investment and hiring activities. Businesses may delay expansion plans or scale back operations to conserve resources, leading to slower job creation and higher unemployment rates. This dynamic poses risks to poverty alleviation efforts and undermines the government’s goal of achieving inclusive economic growth.
2. Slower Economic Growth
  A sustained decline in business confidence can dampen overall economic activity. With fewer investments and lower production levels, GDP growth may fall short of projections, potentially jeopardising Uganda’s target of 6.0–6.5% growth for FY2024/25. Sectors heavily reliant on private sector participation, such as construction and manufacturing, are particularly vulnerable to these effects.
3. Increased Vulnerability to External Shocks
  Low business confidence reduces resilience to external shocks, such as fluctuations in global commodity prices or exchange rate volatility. Firms operating on thin margins may struggle to absorb cost increases, forcing them to pass these burdens onto consumers through higher prices. This dynamic could exacerbate inflationary pressures and erode household purchasing power.
4. Impact on Tax Revenues
  Reduced business activity and profitability can negatively affect tax revenues, constraining the government’s ability to fund public services and infrastructure projects. Lower-than-expected corporate tax collections, for instance, may widen fiscal deficits and increase reliance on external borrowing, creating a vicious cycle of debt accumulation.
Addressing the Challenges
To restore business confidence and foster a conducive environment for sustainable growth, policymakers must adopt targeted measures across multiple fronts:
1. Enhance Access to Affordable Financing
  Improving access to affordable credit is essential for reigniting private sector dynamism. The Bank of Uganda (BoU) could consider introducing targeted liquidity facilities to support SMEs and priority sectors like agriculture and manufacturing. Additionally, promoting alternative financing mechanisms, such as venture capital and fintech platforms, can help bridge the funding gap.
2. Implement Structural Reforms
  Accelerating structural reforms aimed at improving the ease of doing business is crucial for boosting investor confidence. Streamlining regulatory processes, enhancing transparency, and addressing infrastructure gaps will create a more predictable and attractive environment for businesses. Strengthening institutions, such as the Uganda Investment Authority (UIA), can also play a pivotal role in attracting foreign direct investment (FDI).
3. Mitigate Risks from Adverse Weather
  Investing in climate-resilient agriculture and disaster preparedness initiatives can mitigate the impact of adverse weather conditions on rural livelihoods and business operations. For example, expanding irrigation systems and promoting drought-resistant crop varieties will enhance food security and stabilise agricultural output.
4. Promote Regional Trade Integration
  Leveraging regional integration frameworks, such as the African Continental Free Trade Area (AfCFTA), can open new markets for Ugandan businesses and reduce dependence on volatile global demand. Encouraging intra-African trade will diversify export destinations and stimulate local industries by increasing competition and fostering innovation.
5. Maintain Macroeconomic Stability
  Ensuring macroeconomic stability remains a cornerstone of restoring business confidence. The BoU’s decision to maintain the Central Bank Rate (CBR) at 9.75% reflects a cautious yet balanced approach to managing inflation while supporting economic growth. Continued vigilance in monitoring inflationary pressures and exchange rate movements will reassure businesses of a stable operating environment.
6. Strengthen Public-Private Partnerships (PPPs)
  Collaborations between the government and private sector can unlock opportunities for co-investment in strategic projects, such as infrastructure development and renewable energy. By sharing risks and rewards, PPPs can catalyse private sector participation and drive long-term economic transformation.
The decline in business confidence indices, such as the PMI and BTI, highlights the multifaceted challenges facing Uganda’s private sector. From weak domestic demand and tight financing conditions to global uncertainties and adverse weather patterns, businesses are navigating a complex and evolving landscape. Addressing these challenges requires a coordinated effort involving monetary policy adjustments, fiscal discipline, and structural reforms. By fostering a supportive ecosystem that prioritises access to finance, enhances competitiveness, and mitigates external risks, Uganda can restore business confidence and lay the foundation for sustained economic growth. In doing so, the nation can harness the full potential of its vibrant private sector and achieve its vision of prosperity for all.
Consumer Sentiment Amid Rising Costs: Evaluating Shifts in the Consumer Confidence Index (CCI) and Their Implications for Household Spending
In January 2025, Uganda witnessed a notable decline in the Consumer Confidence Index (CCI), which fell by 3.5 points to 48.6, reflecting heightened concerns among households about rising living costs and future economic prospects. This decline was primarily driven by deteriorating perceptions of current economic conditions and diminished expectations for the future, as evidenced by drops in both the Current Economic Conditions Index (CECI) and the Consumer Expectations Index.

Factors Contributing to the Decline in the CCI

Rising Living Costs
One of the primary drivers of declining consumer confidence was the upward pressure on living costs, particularly in essential goods and services. Inflation in other goods and services rose to 2.5% in January 2025, driven by higher prices for items such as smoked tilapia, new clothing, sugar, and laundry soap. Similarly, inflation in the services sector increased to 6.3%, with significant contributions from passenger transport and hotel accommodations. These cost increases strained household budgets, especially for low- and middle-income families who allocate a larger share of their income to essentials.
Moderate Food Price Increases
While food crop inflation remained subdued at 0.2% in January 2025, certain items experienced sharp price spikes. For instance, tomato prices surged by 3.5%, reversing a previous decline of -14.4%, while avocado prices jumped by 11.2%. Such volatility in food prices created uncertainty for households reliant on agriculture for subsistence or income, further dampening consumer sentiment.
Tight Liquidity Conditions
Tight liquidity conditions in the domestic financial markets constrained access to affordable credit, limiting households’ ability to smooth consumption during periods of income volatility. Elevated lending rates, particularly in sectors like housing and personal loans, exacerbated this issue, leaving many consumers unable to finance large purchases or manage unexpected expenses.
Global Economic Uncertainty
Global geopolitical tensions, trade disruptions, and fluctuating commodity prices added to consumer anxiety. The anticipated imposition of tariffs and retaliatory measures by major economies, such as the United States, Canada, and Mexico, raised concerns about potential supply chain disruptions and higher import costs. These external pressures weighed heavily on consumer expectations, particularly in urban areas where imported goods are more prevalent.
Suspension of USAID Health Sector Support
The suspension of USAID health sector support compounded household concerns about reduced access to essential services, including healthcare and education. With limited alternative funding sources, households feared increased out-of-pocket expenses, further eroding confidence in their financial resilience.
Weaker Employment Prospects
Softening labour market conditions also contributed to declining consumer sentiment. Slower job creation, coupled with rising operational costs for businesses, led to cautious hiring practices. This trend disproportionately affected informal sector workers, who form a significant portion of Uganda’s workforce, heightening fears about income stability.

Implications for Household Spending

Reduced Discretionary Spending
The decline in consumer confidence is likely to result in reduced discretionary spending, as households prioritise essential expenditures over non-essential purchases. Items such as clothing, electronics, and leisure activities may see lower demand, impacting retailers and service providers reliant on consumer spending. This shift could weigh on GDP growth, given that private consumption accounts for a substantial share of Uganda’s economic activity.
Increased Savings and Debt Repayment
Heightened uncertainty about future economic conditions may prompt households to increase precautionary savings or prioritise debt repayment overconsumption. This behavioural change could reduce aggregate demand, potentially slowing business expansion plans and investment in key sectors such as retail and hospitality.
Delayed Major Purchases
Higher interest rates and tighter financing conditions are likely to deter households from making major purchases, such as vehicles, appliances, or property. For instance, the housing sector, already experiencing sluggish credit growth, may face additional headwinds as consumers defer home-buying decisions amid affordability concerns.
Impact on SMEs
Small and medium enterprises (SMEs), which rely heavily on consumer spending, may experience reduced sales volumes and profit margins. Without adequate support—such as access to affordable credit or targeted government interventions—many SMEs could struggle to sustain operations, leading to potential layoffs and further weakening consumer sentiment.
Regional Variations in Spending Patterns
Urban households, which tend to have greater exposure to imported goods and services, may feel the impact of global uncertainties more acutely than rural households. Conversely, rural households dependent on agriculture may face challenges stemming from adverse weather conditions and volatile food prices, influencing their spending behaviour differently.

Broader Economic Implications

Slower Economic Growth
A sustained decline in consumer confidence poses risks to Uganda’s GDP growth trajectory. With private consumption accounting for a significant proportion of economic activity, reduced household spending could dampen overall growth prospects. This dynamic underscores the importance of restoring consumer confidence through targeted policy measures.
Pressure on Inflation
While weaker consumer demand may temper inflationary pressures in the short term, it could also signal underlying weaknesses in the economy. For example, prolonged declines in consumer spending may lead to deflationary risks in certain sectors, complicating monetary policy decisions.
Challenges for Fiscal Policy
Lower consumer spending could translate into reduced tax revenues, constraining the government’s ability to fund public services and infrastructure projects. This outcome would necessitate careful fiscal management to balance competing priorities, such as social welfare programmes and capital investments.

Addressing the Challenges

To mitigate the negative effects of declining consumer confidence and restore household spending momentum, policymakers must adopt a multifaceted approach:

Enhance Social Safety Nets
Expanding social safety nets, such as cash transfer programmes and subsidies for essential goods, can provide immediate relief to vulnerable households. These measures would help cushion the impact of rising living costs and improve consumer sentiment.
Promote Affordable Credit Access
Improving access to affordable credit is crucial for supporting household consumption and small business activity. The Bank of Uganda (BoU) could consider introducing targeted liquidity facilities to ease financing constraints for low- and middle-income households.
Strengthen Labour Market Resilience
Investing in skills development and job creation initiatives, particularly in high-growth sectors like agriculture, manufacturing, and services, can enhance employment prospects and boost consumer confidence. Encouraging entrepreneurship and innovation would also create new opportunities for income generation.
Monitor and Mitigate External Risks
Proactive monitoring of global developments, such as geopolitical tensions and commodity price fluctuations, is essential for mitigating their impact on household finances. Strengthening regional trade ties under frameworks like the African Continental Free Trade Area (AfCFTA) can diversify export destinations and reduce reliance on volatile global markets.
Communicate Policy Clarity
Transparent communication of monetary and fiscal policies can reassure consumers about the government’s commitment to maintaining macroeconomic stability. Consistent messaging around inflation targets, exchange rate management, and growth objectives will foster trust and encourage prudent decision-making.

The decline in Uganda’s Consumer Confidence Index (CCI) highlights the mounting challenges facing households amidst rising living costs and global uncertainties. As consumer sentiment wanes, the implications for household spending—and by extension, broader economic activity—are significant. Reduced discretionary spending, delayed major purchases, and weakened SME performance underscore the urgent need for targeted interventions to restore confidence and stimulate consumption. By enhancing social safety nets, promoting affordable credit access, and strengthening labour market resilience, Uganda can navigate these challenges while laying the groundwork for sustainable economic growth. In doing so, the nation can ensure that its vibrant consumer base remains a cornerstone of its development agenda, driving prosperity for all.

Inflation Trends and Monetary Policy: Analysing Core Inflation at 4.2% in January 2025 and the Bank of Uganda’s Decision to Maintain the Central Bank Rate at 9.75%
In January 2025, Uganda experienced a notable uptick in core inflation, which rose to 4.2% from 3.9% in December 2024. This increase underscores emerging price pressures within the economy, driven by both domestic and external factors. Against this backdrop, the Bank of Uganda (BoU) opted to maintain the Central Bank Rate (CBR) at 9.75%, citing the need to balance price stability with sustainable economic growth.
Core Inflation at 4.2%: Drivers and Implications
1. Rising Prices in Services and Other Goods
  The rise in core inflation to 4.2% was primarily driven by higher prices in services and other goods. Notably:

Services Sector : Inflation in the services sector increased to 6.3% in January 2025, up from 6.1% in December 2024. This surge was largely attributed to elevated costs in passenger transport services and hotel accommodations, reflecting broader global and domestic cost pressures.
Other Goods : Prices for items such as smoked tilapia, new clothing, sugar, and laundry soap also contributed to the upward trend. These increases highlight the impact of supply-side constraints and rising input costs on consumer prices.
Moderate Food Crop Inflation
While food crop inflation remained subdued at 0.2% in January 2025—up slightly from -0.7% in December 2024—it did not exert significant upward pressure on headline inflation. However, certain food items, such as tomatoes and avocados, experienced sharp price increases due to seasonal fluctuations and localized supply disruptions. These dynamics underscore the vulnerability of agricultural output to adverse weather conditions and market inefficiencies.
Declining Energy, Fuel, and Utilities (EFU) Inflation
EFU inflation fell to 0.3% in January 2025, down from 1.0% in December 2024. This decline was mainly driven by reduced solid fuels inflation, reflecting lower global energy prices and their pass-through effects on domestic markets. The moderation in EFU inflation provided some relief to households and businesses, offsetting the upward pressures from other sectors.
Underlying Price Pressures
Despite the overall moderate inflationary environment, the rise in core inflation signals underlying price pressures that could pose risks to macroeconomic stability if left unchecked. Persistent inflation in services and other goods suggests structural challenges, such as inefficiencies in transportation networks and supply chains, which may require targeted interventions beyond monetary policy.

The Bank of Uganda’s Decision to Maintain the CBR at 9.75%

The BoU’s decision to keep the CBR unchanged at 9.75% reflects a cautious yet balanced approach to managing inflation while supporting economic growth. Several factors informed this decision:

Containment of Inflation Within Target Range
Although core inflation rose to 4.2%, it remains within the BoU’s medium-term target range of 4.0–5.0%. The central bank’s baseline forecast projects that inflation will stabilize around the target in the medium term, supported by stable exchange rates, lower global oil prices, and accommodative monetary policies. By maintaining the CBR, the BoU aims to ensure that inflation expectations remain anchored, thereby preserving price stability.
Support for Economic Growth
Uganda’s real GDP growth accelerated to 6.7% in the first quarter of FY2024/25, driven by robust industrial activity and strong performance in agriculture. The BoU recognizes the importance of sustaining this momentum amid global uncertainties. A stable CBR provides continuity in monetary policy, fostering an environment conducive to investment and private sector expansion.
Management of External Risks
Global geopolitical tensions, trade disruptions, and fluctuating commodity prices present significant downside risks to Uganda’s economy. For instance:

Geopolitical conflicts could disrupt global supply chains, leading to higher import costs and inflationary pressures.
Extreme weather events may threaten agricultural output, exacerbating food price volatility.
Exchange rate depreciation due to global uncertainties could amplify imported inflation. By keeping the CBR unchanged, the BoU retains flexibility to respond to these risks while ensuring that monetary policy remains supportive of economic resilience.
Balancing Domestic Challenges
Domestically, tight liquidity conditions and reduced external funding—particularly the suspension of USAID health sector support—have constrained public and private sector investment. Maintaining the CBR at current levels helps mitigate these challenges by providing a predictable policy environment that encourages credit flow to productive sectors.

Alternative Scenarios and Risk Assessment

The BoU’s inflation outlook incorporates several alternative scenarios to assess potential deviations from the baseline forecast:

Lowering the CBR
If the BoU were to reduce the CBR to 9.5% in Q1 2025 and further to 9.0% in Q2 2025, headline and core inflation would likely exceed projections by 0.2 percentage points. This scenario highlights the risk of overheating the economy through overly accommodative monetary policy.
Lower Global Growth and Higher Inflation
A slowdown in global economic growth, coupled with heightened inflationary pressures, could lead to domestic growth being 1.5 percentage points lower than assumed in the baseline scenario. Under these conditions, headline inflation would rise by 1 percentage point, while core inflation would increase by 0.7 percentage points. This underscores the interconnectedness of Uganda’s economy with global developments.
Exchange Rate Depreciation
A 5% depreciation of the Uganda Shilling over the forecast horizon would raise headline and core inflation by 0.2 percentage points. This scenario emphasizes the vulnerability of Uganda’s import-dependent economy to exchange rate fluctuations.
Higher Fiscal Expenditure
Increased fiscal spending, potentially necessitated by unforeseen emergencies like disease outbreaks, could push headline and core inflation above baseline projections by 0.2 percentage points. This scenario highlights the importance of prudent fiscal management in complementing monetary policy objectives.

Implications of Rising Core Inflation and the CBR Decision

Household Spending Power
Higher core inflation erodes household purchasing power, particularly for low- and middle-income families, who allocate a larger share of their income to essential goods and services. The BoU’s decision to maintain the CBR seeks to mitigate these effects by ensuring that inflation remains under control.
Business Investment Climate
Stable monetary policy fosters confidence among investors, encouraging them to expand operations and create jobs. By avoiding abrupt changes to the CBR, the BoU supports business continuity and enhances Uganda’s attractiveness as an investment destination.
Exchange Rate Stability
A steady CBR reinforces exchange rate stability, reducing depreciation pressures on the Uganda Shilling. This stability is critical for managing imported inflation and maintaining competitiveness in regional and global markets.
Debt Servicing Costs
Keeping the CBR unchanged ensures that borrowing costs for the government and private sector remain manageable. Elevated interest rates could strain debt servicing capacity, particularly given Uganda’s reliance on external financing.

The rise in core inflation to 4.2% in January 2025 reflects emerging price pressures in Uganda’s economy, driven by rising costs in services and other goods. While this trend poses risks to macroeconomic stability, the BoU’s decision to maintain the CBR at 9.75% demonstrates a commitment to balancing price stability with sustainable economic growth. By adopting a cautious and forward-looking approach, the BoU aims to navigate domestic challenges and external uncertainties while fostering an environment conducive to investment and development. As Uganda continues to implement structural reforms and capitalise on opportunities in sectors like oil and agriculture, prudent monetary policy will remain essential for achieving inclusive and resilient growth.

Energy Prices and Their Impact on Inflation: Discussing Reduced Energy, Fuel, and Utilities (EFU) Inflation and Its Role in Stabilizing Overall Price Levels
In January 2025, Uganda experienced a notable decline in Energy, Fuel, and Utilities (EFU) inflation, which fell to 0.3% from 1.0% in December 2024. This reduction played a pivotal role in stabilising overall price levels, contributing to moderate headline inflation of 3.6% and core inflation of 4.2%.
1. Declining Global Energy Prices
  The moderation in EFU inflation was largely driven by falling global energy prices. According to international forecasts, Brent Crude oil prices are expected to decline from an average of $81 per barrel in 2024 to $74 per barrel in 2025 and $66 per barrel in 2026. This downward trend reflects sluggish global demand, particularly in major economies like China, which is transitioning towards electric vehicles and expanding the use of liquefied natural gas (LNG) for trucking. Additionally, robust supply from non-OPEC+ countries, such as the United States, Canada, and Guyana, has offset geopolitical tensions in the Middle East and disruptions in the Red Sea, further easing upward pressure on oil prices.
2. Lower Solid Fuels Inflation
  Within Uganda, the decline in EFU inflation was primarily attributed to a reduction in solid fuels inflation. This decrease likely stemmed from improved domestic energy production and distribution, as well as lower global coal and firewood prices. Such developments have alleviated cost pressures for households and businesses reliant on solid fuels for cooking and heating.
3. Government Subsidies and Price Controls
  Strategic interventions by the Ugandan government, including subsidies and regulated pricing mechanisms for utilities, have also contributed to the moderation in EFU inflation. For instance, controlled electricity tariffs and subsidies on kerosene have helped shield consumers from volatile global energy costs. These measures ensure that energy remains affordable, particularly for low-income households, while reducing the pass-through effects of external shocks on domestic prices.
4. Improved Infrastructure and Efficiency
  Investments in energy infrastructure, such as renewable energy projects and grid modernisation, have enhanced efficiency and reduced operational costs. For example, increased adoption of solar power systems in rural areas has reduced reliance on expensive imported fuels, further dampening EFU inflation.
Impact on Overall Price Levels
1. Stabilising Headline Inflation
  The reduction in EFU inflation has been instrumental in keeping headline inflation within manageable levels. Despite seasonal increases in food prices and rising costs in services, the moderation in energy-related expenses has offset these pressures, ensuring that headline inflation remains moderate at 3.6%. This stability is crucial for maintaining consumer confidence and supporting household purchasing power.
2. Containing Core Inflation
  Core inflation, which excludes volatile components like food and energy, rose slightly to 4.2% in January 2025. However, without the dampening effect of reduced EFU inflation, core inflation could have been significantly higher. Lower energy costs have eased input prices for businesses, particularly in manufacturing and transportation, thereby mitigating cost-push inflationary pressures.
3. Supporting Exchange Rate Stability
  Stable energy prices have also supported the resilience of the Uganda Shilling against the U.S. dollar. By reducing import costs for petroleum products and other energy-related inputs, the decline in EFU inflation has alleviated depreciation pressures on the Shilling. This stability reinforces investor confidence and helps maintain macroeconomic equilibrium.
Broader Economic Implications
1. Household Welfare
  Lower EFU inflation directly benefits households by reducing expenditure on essential items such as fuel, electricity, and cooking fuels. For low- and middle-income families, who allocate a significant portion of their income to energy-related expenses, this relief enhances disposable income and improves living standards.
2. Business Competitiveness
  Reduced EFU inflation lowers operational costs for businesses, particularly those in energy-intensive sectors like manufacturing, transport, and agriculture. For instance, declining fuel prices have eased logistics costs, enabling traders and manufacturers to operate more efficiently. This improvement in competitiveness supports business expansion and job creation, fostering economic growth.
3. Fiscal Sustainability
  Moderation in EFU inflation reduces the fiscal burden associated with energy subsidies and social safety nets. By keeping utility prices stable, the government can allocate resources towards priority areas such as health, education, and infrastructure development. This reallocation strengthens public finances and enhances long-term fiscal sustainability.
4. Monetary Policy Effectiveness
  The Bank of Uganda’s decision to maintain the Central Bank Rate (CBR) at 9.75% reflects confidence in the stabilising impact of reduced EFU inflation. By anchoring inflation expectations, this moderation allows the central bank to focus on fostering sustainable economic growth without resorting to aggressive tightening measures. This approach ensures that monetary policy remains accommodative, encouraging investment and private sector credit growth.
Challenges and Risks
While reduced EFU inflation has brought significant benefits, several challenges and risks warrant attention:
1. Geopolitical Uncertainties
  Ongoing geopolitical tensions, particularly in the Middle East and disruptions in shipping routes like the Red Sea, pose downside risks to energy price stability. Any escalation in conflicts or sanctions, such as those imposed on Russian oil exports, could disrupt global supply chains and drive up energy costs.
2. Climate Change and Extreme Weather Events
  Adverse weather conditions, such as prolonged droughts or floods, may constrain hydroelectric power generation, increasing reliance on imported fuels and reversing recent gains in EFU inflation. Addressing these vulnerabilities requires investments in climate-resilient energy infrastructure.
3. Global Economic Slowdown
  A weaker-than-expected global recovery could reduce demand for energy, leading to lower prices in the short term but potentially undermining export revenues for oil-producing nations like Uganda. Balancing domestic energy needs with export opportunities will be critical as the country approaches commercial oil production.
The reduction in Energy, Fuel, and Utilities (EFU) inflation to 0.3% in January 2025 underscores the importance of energy prices in shaping overall inflation dynamics. By stabilising headline and core inflation, this moderation has created a conducive environment for sustainable economic growth, improved household welfare, and enhanced business competitiveness. However, vigilance is required to address potential risks stemming from geopolitical uncertainties, climate change, and global economic fluctuations. As Uganda advances towards oil production and continues to implement strategic reforms, maintaining stable energy prices will remain a cornerstone of its efforts to achieve inclusive and resilient development. Through prudent fiscal and monetary policies, coupled with targeted investments in energy infrastructure, Uganda can sustain the positive trajectory of EFU inflation and anchor broader price stability.
Food Crop Production Risks: Considering How Adverse Weather Conditions Threaten Agricultural Output and Rural Incomes
In Uganda, agriculture remains a cornerstone of the economy, contributing approximately 24% to GDP and employing over 70% of the population, particularly in rural areas. However, adverse weather conditions pose significant risks to food crop production, threatening agricultural output and rural incomes. These risks are exacerbated by climate change, which has led to unpredictable rainfall patterns, prolonged droughts, and extreme weather events such as floods.
Impact of Adverse Weather Conditions on Agricultural Output
1. Erratic Rainfall Patterns
  Erratic rainfall is one of the most pressing challenges for Ugandan farmers, particularly smallholder farmers who rely on rain-fed agriculture. Inconsistent rains disrupt planting and harvesting cycles, leading to reduced yields. For example:
  - Prolonged dry spells during critical growing periods can stunt crop development, resulting in poor harvests.
  - Conversely, excessive rainfall or flooding can wash away seeds, damage crops, and erode fertile topsoil, further reducing productivity.
  Maize, beans, cassava, and other staple crops are particularly vulnerable to these fluctuations. This volatility undermines food security and reduces the availability of surplus produce for sale, affecting both household consumption and market supply.
2. Prolonged Droughts
  Droughts have become increasingly frequent and severe in many parts of Uganda, especially in the cattle corridor regions like Karamoja, Teso, and Ankole. These areas are heavily reliant on subsistence farming and pastoralism, making them highly susceptible to water scarcity. Prolonged droughts reduce crop yields and lead to livestock deaths due to lack of pasture and water. The loss of livestock compounds income losses for rural households, many of whom depend on animals as a source of wealth and nutrition.
3. Flooding and Soil Degradation
  Heavy rains and flooding, often linked to climate variability, pose another set of challenges. Floodwaters can destroy standing crops, damage irrigation infrastructure, and render farmland unusable for extended periods. Additionally, soil erosion caused by floods depletes soil fertility, requiring costly inputs like fertilisers to restore productivity. Smallholder farmers, who often lack access to financial resources, struggle to recover from such setbacks.
4. Post-Harvest Losses
  Adverse weather conditions also contribute to post-harvest losses, particularly when heavy rains coincide with harvesting seasons. Poor storage facilities and inadequate drying methods exacerbate spoilage, reducing the quality and quantity of produce available for sale. For instance, maize and beans are prone to fungal infections and pest infestations if not properly dried before storage. These losses diminish farmers’ incomes and increase food prices, disproportionately affecting low-income households.
Implications for Rural Incomes
1. Reduced Household Earnings
  Agriculture is the primary source of income for most rural households in Uganda. When adverse weather conditions reduce crop yields or destroy harvests, household earnings decline significantly. This loss of income limits families’ ability to meet basic needs such as food, education, and healthcare. Women and children, who are often more vulnerable within rural communities, bear the brunt of these economic hardships.
2. Increased Poverty Levels
  Lower agricultural productivity directly correlates with rising poverty levels in rural areas. Households that rely solely on farming face heightened vulnerability when confronted with consecutive seasons of poor harvests. Without alternative sources of income, many families fall into poverty traps, unable to invest in better farming practices or diversify their livelihoods.
3. Migration and Urbanisation Pressures
  As rural incomes dwindle, there is an increasing trend of migration from rural to urban areas in search of alternative employment opportunities. This internal migration places additional strain on cities, which may already be grappling with issues such as unemployment, housing shortages, and inadequate public services. Moreover, the exodus of young people from rural areas undermines agricultural productivity and perpetuates the cycle of underdevelopment.
4. Nutritional Challenges
  Reduced agricultural output impacts not only incomes but also food availability and affordability. Lower yields translate into higher food prices, making it difficult for rural households to access nutritious diets. Malnutrition rates, particularly among children, tend to rise during periods of food scarcity, with long-term consequences for health and human capital development.
Broader Economic Implications
1. Food Security Concerns
  Agriculture accounts for a significant portion of Uganda’s food supply, meaning that disruptions in agricultural output directly affect national food security. Shortages of staple crops like maize, millet, and sorghum can lead to price spikes, creating affordability challenges for urban and rural consumers alike. This situation is compounded by Uganda’s role as a regional food exporter; reduced domestic production could limit its ability to meet export demands, impacting trade balances and foreign exchange earnings.
2. Inflationary Pressures
  Declines in agricultural output contribute to inflationary pressures, particularly in the food crops and related items’ category. For example, sharp increases in tomato and avocado prices in early 2025 were partly attributed to adverse weather conditions. While energy and fuel inflation remained subdued at 0.3% in January 2025, rising food prices exert upward pressure on headline inflation, complicating monetary policy decisions and eroding consumer purchasing power.
3. Fiscal Strain
  Reduced agricultural productivity necessitates increased government intervention to mitigate food insecurity and support affected households. Emergency relief programmes, subsidies for agricultural inputs, and investments in irrigation systems require substantial fiscal resources. Given Uganda’s already constrained budget—exacerbated by the suspension of USAID health sector support—these expenditures place additional strain on public finances.
4. Investment Climate
  Persistent risks associated with adverse weather conditions deter private sector investment in agriculture. Investors are hesitant to commit capital to sectors perceived as high-risk due to climatic uncertainties. This reluctance hampers efforts to modernise the agricultural value chain, adopt advanced technologies, and enhance productivity.
Mitigating the Risks
To address the threats posed by adverse weather conditions, Uganda must adopt a multipronged approach:
1. Promoting Climate-Smart Agriculture
  Encouraging the adoption of climate-smart agricultural practices can enhance resilience to adverse weather. Techniques such as conservation agriculture, agroforestry, and integrated pest management help farmers adapt to changing climatic conditions while improving yields. Training programmes and extension services should focus on disseminating these practices to smallholder farmers.
2. Expanding Irrigation Infrastructure
  Investing in irrigation systems is crucial for reducing dependence on rain-fed agriculture. Large-scale projects, such as the construction of dams and reservoirs, alongside small-scale initiatives like drip irrigation, can ensure year-round water availability for crops. Public-private partnerships could play a vital role in financing and implementing these projects.
3. Improving Early Warning Systems
  Strengthening early warning systems enables farmers to prepare for adverse weather events in advance. Timely information about impending droughts, floods, or pest outbreaks allows farmers to take preventive measures, minimising potential losses. Mobile technology and digital platforms can facilitate the dissemination of real-time data to remote rural areas.
4. Enhancing Insurance Schemes
  Agricultural insurance schemes provide a safety net for farmers affected by adverse weather conditions. By compensating for crop and livestock losses, insurance helps stabilize rural incomes and encourages reinvestment in farming activities. Expanding coverage and simplifying claims processes will make these schemes more accessible to smallholder farmers.
5. Diversifying Livelihoods
  Promoting non-farm income-generating activities can reduce rural households’ reliance on agriculture. Vocational training programmes, microfinance initiatives, and support for small businesses enable individuals to explore alternative livelihood options. Diversification not only cushions against weather-related shocks but also fosters inclusive economic growth.
6. Strengthening Regional Trade Integration
  Leveraging regional trade frameworks, such as the African Continental Free Trade Area (AfCFTA), can enhance food security by facilitating cross-border trade. During periods of localised shortages, imports from neighbouring countries can stabilise supply and moderate price increases. Similarly, expanding export markets provides opportunities for Ugandan farmers to generate higher revenues.
Adverse weather conditions pose significant risks to Uganda’s agricultural sector, undermining food crop production and jeopardising rural incomes. Erratic rainfall, prolonged droughts, and flooding disrupt farming activities, leading to reduced yields, post-harvest losses, and economic instability. The implications extend beyond individual households, affecting national food security, inflation dynamics, and fiscal sustainability. To mitigate these risks, Uganda must prioritise climate-resilient agricultural practices, expand irrigation infrastructure, and strengthen early warning systems. Additionally, promoting diversification and enhancing regional trade integration can build resilience and foster sustainable development. By addressing these challenges proactively, Uganda can safeguard its agricultural foundation while ensuring prosperity for rural communities and the nation as a whole.
Infrastructure Gaps as Barriers to Growth: Highlighting Structural Issues Limiting Investment and Productivity in Manufacturing and Trade
In Uganda, infrastructure gaps remain significant structural barriers to economic growth, particularly in the manufacturing and trade sectors. These gaps hinder investment, reduce productivity, and constrain the country’s ability to fully leverage its economic potential. This analysis delves into the specific structural issues that limit investment and productivity, focusing on inadequate transportation networks, unreliable energy supply, limited access to finance, and insufficient industrial infrastructure.
1. Inadequate Transportation Networks
Uganda’s transportation infrastructure is underdeveloped, with poor road conditions, limited rail connectivity, and inefficient logistics systems posing significant challenges for manufacturers and traders.
- Road Networks : While roads are the primary mode of transportation for goods and services in Uganda, many are in poor condition, particularly in rural areas where agricultural and manufacturing activities are concentrated. This leads to high transportation costs, delays in delivery, and increased wear and tear on vehicles, all of which reduce profitability for businesses.
- Rail Transport : The rehabilitation of the Standard Gauge Railway (SGR) connecting Kampala to Mombasa is a step forward, but progress has been slow. The absence of an efficient rail network increases reliance on road transport, exacerbating congestion and raising freight costs for manufacturers and exporters.
- Logistics Bottlenecks : Inefficient border crossings and customs procedures further delay the movement of goods. For example, traders exporting agricultural produce or manufactured goods to regional markets often face long queues at border points, increasing operational costs and reducing competitiveness.
These transportation challenges disproportionately affect small and medium enterprises (SMEs), which lack the resources to absorb higher logistics costs. As a result, investment in manufacturing and trade remains constrained, limiting the sector’s contribution to GDP growth.
2. Unreliable Energy Supply
Energy shortages and inconsistent supply are major impediments to productivity in Uganda’s manufacturing sector.
- Frequent Power Outages : Frequent power outages disrupt production processes, leading to inefficiencies and increased operational costs. Factories often rely on expensive backup generators, which are not only costly to maintain but also environmentally unsustainable.
- High-Energy Costs : Even when electricity is available, the cost of power remains prohibitively high for many manufacturers. High tariffs reduce profit margins, making it difficult for businesses to compete domestically and internationally.
- Limited Access to Modern Energy Sources : Many rural areas still lack access to reliable electricity, forcing businesses to rely on traditional energy sources like firewood and diesel generators. This limits the expansion of agro-processing industries and other value-added activities that depend on stable energy supply.
The reliance on imported fuel for thermal power generation further compounds the issue, as fluctuations in global oil prices directly impact domestic energy costs. Addressing these energy challenges is critical for unlocking the full potential of Uganda’s manufacturing sector.

3. Limited Access to Finance

Access to affordable financing remains a persistent challenge for businesses, particularly SMEs, in the manufacturing and trade sectors.

Tight Liquidity Conditions : As highlighted in the monetary policy report, tight liquidity conditions have constrained private sector credit growth. Annualized private sector credit growth averaged 7.8% in the three months to December 2024, down from 8.9% in the previous quarter. This slowdown reflects reduced borrowing by SMEs, which often struggle to meet stringent lending requirements.
High Lending Rates : Elevated lending rates, particularly in sectors like trade and housing, deter businesses from seeking loans for expansion or modernization. For instance, the weighted average Shilling lending rate stood at 18.3% in December 2024, making borrowing prohibitively expensive for many entrepreneurs.
Risk Aversion by Lenders : Banks and financial institutions tend to prioritize lower-risk corporates and government securities over SMEs, citing concerns about repayment capacity and collateral requirements. This risk aversion limits funding opportunities for innovative startups and smaller manufacturers, stifling their growth potential.

Without adequate access to finance, businesses cannot invest in new technologies, expand operations, or improve productivity, ultimately hindering overall economic development.

4. Insufficient Industrial Infrastructure

The lack of dedicated industrial parks, processing facilities, and supportive ecosystems undermines the competitiveness of Uganda’s manufacturing sector.

Underdeveloped Industrial Parks : While there have been initiatives to establish industrial parks, progress has been slow, and existing facilities are often underutilized. The absence of well-equipped industrial zones limits clustering effects, where businesses benefit from shared infrastructure and economies of scale.
Weak Value Addition : Uganda exports a significant portion of its raw materials, such as coffee and cocoa, without adding substantial value. This is partly due to the lack of processing facilities and outdated machinery, which prevent local producers from competing in global markets.
Supply Chain Fragmentation : Poorly developed supply chains fragment production processes, increasing costs and reducing efficiency. For example, manufacturers sourcing inputs locally face delays and inconsistencies, forcing them to rely on more expensive imports.

Addressing these gaps requires targeted investments in industrial infrastructure, including the establishment of special economic zones and incentives for value addition.

5. Broader Implications for Economic Growth

The structural issues outlined above have far-reaching implications for Uganda’s economy:

Reduced Competitiveness : High operational costs, coupled with logistical inefficiencies, erode the competitiveness of Ugandan products in both domestic and international markets. This limits export revenues and reduces foreign exchange earnings.
Stifled Innovation : Limited access to finance and inadequate infrastructure discourage innovation and technological adoption, preventing businesses from transitioning to higher-value activities.
Missed Opportunities in Regional Trade : With the implementation of the African Continental Free Trade Area (AfCFTA), Uganda stands to gain from expanded market access. However, infrastructure gaps hinder the country’s ability to capitalize on these opportunities, leaving it at a disadvantage compared to better-connected economies.
Employment Constraints : Low productivity in manufacturing and trade translates into fewer job creation opportunities, perpetuating unemployment and underemployment, particularly among youth and women.

Addressing the Challenges

To overcome these barriers and unlock Uganda’s growth potential, several measures can be implemented:

Investment in Transport Infrastructure : Accelerating the completion of the SGR and upgrading key highways will enhance connectivity and reduce logistics costs. Streamlining border procedures through digital platforms can also improve efficiency.
Energy Sector Reforms : Expanding renewable energy projects, such as solar and hydroelectric power, can diversify the energy mix and reduce dependence on imported fuels. Subsidies for industrial users may also help lower energy costs.
Enhancing Access to Finance : Introducing targeted credit guarantee schemes and lowering interest rates for priority sectors can encourage private sector investment. Promoting alternative financing mechanisms, such as venture capital and fintech solutions, can further bridge the funding gap.
Development of Industrial Parks : Establishing and promoting industrial parks with shared infrastructure and utilities can attract investors and foster industrial clustering. Providing tax incentives for value-added activities will incentivize local processing of raw materials.
Public-Private Partnerships (PPPs) : Collaborations between the government and private sector can mobilize resources for large-scale infrastructure projects, ensuring sustainable and inclusive growth.
Skills Development : Investing in technical and vocational education will equip the workforce with skills needed for modern manufacturing processes, enhancing productivity and competitiveness.

Infrastructure gaps represent a formidable barrier to growth in Uganda’s manufacturing and trade sectors. Inadequate transportation networks, unreliable energy supply, limited access to finance, and insufficient industrial infrastructure collectively undermine investment and productivity. Addressing these structural issues requires a coordinated approach involving public and private stakeholders, supported by strategic reforms and targeted investments. By bridging these gaps, Uganda can create a conducive environment for business growth, drive industrialization, and position itself as a competitive player in regional and global markets. In doing so, the nation can achieve its vision of sustainable and inclusive economic development, benefiting all segments of society.

Oil Sector Developments as a Game-Changer: Outlining Medium-Term Prospects for Narrowing the Current Account Deficit Through Increased Oil Revenues
The discovery and development of Uganda’s oil reserves represent a transformative opportunity for the country’s economy, particularly in addressing structural challenges such as the persistent current account deficit. As Uganda moves closer to commercial oil production, the medium-term prospects for narrowing the current account deficit through increased oil revenues are promising.
1. Current Account Dynamics and the Role of Oil
Uganda’s current account deficit widened significantly in 2024, reaching $4,804.1 million, driven by a surge in imports and higher freight costs, particularly linked to investments in the oil sector. While exports grew by 22.1% to $8,554.0 million, supported by strong coffee revenues, the trade deficit remained elevated at $3,662.9 million. This imbalance underscores the urgent need for measures to reduce import dependency and enhance export competitiveness.
The anticipated commencement of oil production presents a critical turning point. In the medium term, oil revenues are expected to play a pivotal role in narrowing the current account deficit by:
1. Reducing Import Expenditures
  As Uganda transitions into the oil production phase, the demand for imported machinery, equipment, and intermediate goods required for upstream activities is projected to decline. This reduction will ease pressure on the import bill, contributing to a more balanced current account.
2. Boosting Export Earnings
  Crude oil exports will introduce a new and significant source of foreign exchange earnings. Initial projections suggest that Uganda’s oil production could generate substantial annual revenues, depending on prevailing global oil prices and production volumes. These export earnings will help offset the inflow-outflow imbalance in the current account.
3. Enhancing Foreign Direct Investment (FDI)
  The oil sector has already attracted robust FDI inflows, which increased by 12.5% to $3,365.3 million in 2024. Continued investment in exploration, infrastructure, and downstream activities will further strengthen the financial account, indirectly supporting the current account balance.
2. Medium-Term Prospects for the Current Account
In the medium term, the oil sector is poised to reshape Uganda’s external sector dynamics in several ways:
1. Revenue Generation from Oil Exports
  Once operational, Uganda’s oil fields—located in the Albertine Graben—are expected to produce approximately 230,000 barrels per day (bpd). Assuming an average Brent Crude Oil price of $74 per barrel in 2025 and $66 per barrel in 2026, as forecasted by the U.S. Energy Information Administration (EIA), Uganda’s oil exports could generate billions of dollars annually. These revenues will directly contribute to narrowing the current account deficit by increasing the value of exports relative to imports.
2. Diversification of Export Markets
  Leveraging regional and global trade frameworks, such as the African Continental Free Trade Area (AfCFTA) and bilateral agreements with Asian economies, Uganda can diversify its oil export destinations. Expanding market access will mitigate risks associated with over-reliance on specific regions and ensure stable revenue streams.
3. Reduction in Fuel Imports
  Domestic refining capacity, once established, will enable Uganda to process crude oil locally, reducing the need for imported petroleum products. This shift will lower the import bill and enhance energy security, further alleviating pressures on the current account.
4. Backward and Forward Linkages
  The oil sector’s development will catalyse growth in related industries, such as manufacturing, construction, and logistics. For instance:
  - Local content policies may promote the use of domestically produced inputs in oil-related projects, fostering industrialisation.
  - Improved infrastructure, including roads, railways, and pipelines, will facilitate trade and reduce transportation costs, benefiting non-oil sectors like agriculture and tourism.
These linkages will amplify the positive impact of oil revenues on the current account by stimulating broader economic activity and export diversification.
3. Challenges and Risks
While the medium-term outlook is optimistic, several challenges and risks must be addressed to fully realise the potential of the oil sector:
1. Global Oil Price Volatility
  Fluctuations in global oil prices pose a significant risk to revenue projections. A sustained decline in prices could diminish export earnings and undermine efforts to narrow the current account deficit. Hedging strategies and prudent fiscal management will be essential to mitigate this risk.
2. Geopolitical Uncertainties
  Geopolitical tensions, such as sanctions on Russian oil or disruptions in shipping routes like the Red Sea, could disrupt supply chains and affect Uganda’s ability to export crude oil efficiently. Strengthening regional partnerships and investing in alternative transport corridors will enhance resilience.
3. Environmental and Social Concerns
  Environmental degradation and community displacement associated with oil extraction could lead to reputational risks and delays in project implementation. Adhering to international best practices and ensuring transparent stakeholder engagement will be crucial for maintaining investor confidence and public support.
4. Debt Sustainability
  Financing large-scale oil infrastructure projects, such as the East African Crude Oil Pipeline (EACOP), has necessitated significant borrowing. Rising debt servicing costs could strain public finances and limit the government’s ability to allocate resources toward other priority areas. Careful debt management and prioritisation of high-impact projects will be vital to avoid exacerbating fiscal vulnerabilities.
4. Broader Economic Implications
Beyond its direct impact on the current account, the oil sector’s development holds broader implications for Uganda’s economy:
1. Job Creation and Skills Development
  The oil sector is expected to create thousands of direct and indirect jobs, particularly in engineering, construction, and technical services. Investing in skills development and vocational training will ensure that Ugandans are equipped to participate meaningfully in this emerging industry.
2. Infrastructure Development
  Investments in infrastructure, such as the Standard Gauge Railway (SGR) and upgraded highways, will support the oil sector and unlock opportunities for other sectors. Improved connectivity will enhance trade efficiency and competitiveness, contributing to long-term economic growth.
3. Fiscal Space for Development Priorities
  Oil revenues will provide additional fiscal space to fund critical development initiatives, such as healthcare, education, and rural electrification. Allocating these resources effectively will help address socio-economic disparities and promote inclusive growth.
4. Macroeconomic Stability
  Increased foreign exchange reserves, stemming from oil exports, will bolster macroeconomic stability by reinforcing the Uganda Shilling and reducing vulnerability to external shocks. This stability will create a conducive environment for private sector investment and innovation.
5. Strategic Recommendations
To maximise the benefits of oil sector developments and ensure sustainable outcomes, the following recommendations are proposed:
1. Strengthen Institutional Frameworks
  Establishing robust regulatory and oversight mechanisms will prevent mismanagement of oil revenues and ensure transparency. Lessons from resource-rich countries highlight the importance of accountability in achieving equitable wealth distribution.
2. Promote Local Content Policies
  Encouraging local participation in the oil value chain will foster domestic entrepreneurship and create lasting economic linkages. Providing incentives for SMEs and cooperatives to engage in oil-related activities will amplify the sector’s multiplier effects.
3. Invest in Renewable Energy
  While oil presents immediate opportunities, transitioning towards renewable energy sources will safeguard against future depletion risks and align with global climate goals. Integrating solar, wind, and hydroelectric power into the national grid will diversify the energy mix and reduce carbon emissions.
4. Enhance Regional Collaboration
  Collaborating with neighbouring countries, particularly Kenya and Tanzania, will facilitate shared infrastructure and harmonised policies. Joint ventures in refining and marketing will optimise resource utilisation and maximise returns.
The advent of Uganda’s oil sector represents a game-changing opportunity to narrow the current account deficit and drive broader economic transformation. By leveraging increased oil revenues to boost export earnings, reduce import expenditures, and stimulate industrialisation, Uganda can achieve greater external balance and resilience. However, realising these medium-term prospects requires careful planning, effective governance, and proactive risk management. With strategic interventions and a commitment to sustainable development, the oil sector can serve as a catalyst for inclusive growth, positioning Uganda as a dynamic player in the regional and global economy.
Foreign Direct Investment (FDI) Inflows: Showcasing Robust FDI Inflows into the Oil Sector and Their Potential to Drive Broader Economic Expansion
In Uganda, Foreign Direct Investment (FDI) inflows have demonstrated remarkable resilience, particularly in the oil sector, which has emerged as a magnet for international capital. These robust inflows are not only pivotal for financing large-scale oil-related projects but also hold immense potential to catalyse broader economic expansion across various sectors.

1. Drivers of Robust FDI Inflows into the Oil Sector

Discovery and Development of Oil Reserves
The discovery of commercially viable oil reserves in the Albertine Graben region has been a game-changer for Uganda’s investment landscape. With estimated recoverable reserves of over 6.5 billion barrels, the country has attracted significant interest from global energy companies. This interest has translated into robust FDI inflows, with investments primarily directed towards exploration, infrastructure development, and preparation for commercial production.
Strategic Infrastructure Projects
Large-scale infrastructure projects, such as the East African Crude Oil Pipeline (EACOP), have been instrumental in attracting FDI. The EACOP, which will transport crude oil from Hoima in Uganda to the port of Tanga in Tanzania, is one of the most ambitious cross-border infrastructure initiatives in the region. Such projects require substantial foreign capital and technical expertise, drawing investors from Europe, Asia, and North America.
Government Incentives and Policy Frameworks
The Ugandan government has implemented investor-friendly policies to attract FDI, including tax incentives, streamlined regulatory processes, and local content requirements that encourage partnerships with domestic firms. These measures have enhanced the attractiveness of the oil sector, positioning it as a hub for international investment.
Global Energy Transition Dynamics
Amidst the global energy transition, Uganda’s oil sector offers a unique opportunity for investors seeking to capitalise on traditional hydrocarbon resources before the world shifts entirely to renewable energy. This sense of urgency has spurred increased interest and commitment from multinational corporations eager to secure a foothold in the region.

2. Transformative Impact of FDI on the Economy

Job Creation and Skills Development
FDI inflows into the oil sector are creating thousands of direct and indirect jobs, ranging from engineering and construction to logistics and support services. For instance, the construction of the EACOP alone is expected to generate employment for tens of thousands of Ugandans. Additionally, skills transfer programmes facilitated by foreign investors are equipping local workers with technical expertise, enhancing human capital and long-term productivity.
Infrastructure Development
The influx of FDI is driving significant improvements in infrastructure, not only within the oil sector but also across the broader economy. Roads, railways, and power plants are being upgraded or constructed to support oil-related activities, benefiting other industries such as agriculture, manufacturing, and tourism. Improved connectivity, for example, reduces transportation costs and enhances market access for rural producers.
Revenue Generation and Fiscal Space
Oil-related FDI is expected to generate substantial revenues once commercial production commences. These revenues will provide much-needed fiscal space for the government to fund public services, invest in social welfare programmes, and address structural challenges such as healthcare and education. Increased tax receipts from corporate income taxes and royalties will bolster public finances, reducing reliance on external borrowing.
Foreign Exchange Reserves
FDI inflows contribute to strengthening Uganda’s foreign exchange reserves, which stood at USD 3,302.8 million (3.0 months of future import cover) at the end of December 2024. Enhanced reserves improve the country’s ability to withstand external shocks, stabilise the Uganda Shilling, and maintain macroeconomic stability.
Industrialisation and Value Addition
The oil sector’s development is catalysing industrialisation through backward and forward linkages. For example, local content policies mandate the use of domestically produced inputs in oil-related projects, fostering growth in ancillary industries such as steel fabrication, cement production, and machinery assembly. Similarly, plans to establish refineries will enable value addition, reducing dependence on imported petroleum products and enhancing energy security.

3. Opportunities for Broader Economic Expansion

Diversification of Exports
FDI in the oil sector positions Uganda to diversify its export basket beyond traditional agricultural commodities like coffee and tea. Crude oil exports will introduce a new and significant source of foreign exchange earnings, helping to narrow the current account deficit. Additionally, refined petroleum products could be exported regionally, leveraging frameworks such as the African Continental Free Trade Area (AfCFTA).
Regional Integration and Trade
The cross-border nature of projects like the EACOP fosters regional integration and trade. By linking Uganda and Tanzania, these initiatives enhance economic cooperation and create opportunities for shared prosperity. Improved regional trade networks will benefit non-oil sectors, such as agro-processing and manufacturing, by expanding market access and reducing trade barriers.
Private Sector Growth
FDI inflows stimulate private sector growth by crowding in domestic investment and encouraging entrepreneurship. Local businesses supplying goods and services to oil companies stand to gain significantly, while financial institutions benefit from increased lending opportunities. This multiplier effect amplifies the overall impact of FDI on the economy.
Technological Advancements
Foreign investors bring cutting-edge technologies and innovative practices that can be adapted to other sectors. For instance, advancements in drilling techniques or environmental management systems developed for the oil sector could be applied to agriculture or mining, driving efficiency gains and sustainability.
Sustainable Development Goals (SDGs)
When managed responsibly, FDI can contribute to achieving the SDGs by promoting inclusive growth, reducing poverty, and addressing environmental concerns. For example, revenue-sharing agreements between the government and oil companies can fund community development projects, while adherence to international environmental standards ensures minimal ecological disruption.

4. Challenges and Risks

While FDI inflows into the oil sector offer immense potential, several challenges and risks must be addressed to maximise their benefits:

Environmental Concerns
Oil extraction poses significant environmental risks, including deforestation, water contamination, and greenhouse gas emissions. Ensuring compliance with stringent environmental regulations and adopting clean technologies will be crucial to mitigating these impacts.
Resource Curse Syndrome
The risk of falling into the “resource curse” syndrome—where resource-rich countries experience slower growth due to mismanagement of revenues—remains a concern. Transparent governance, prudent fiscal management, and equitable wealth distribution will be essential to avoiding this pitfall.
Debt Sustainability
Financing large-scale oil projects often involves significant borrowing, which could strain public finances if not carefully managed. Balancing debt accumulation with revenue generation will be critical to maintaining fiscal discipline.
Community Displacement and Social Unrest
Land acquisition and resettlement associated with oil projects may lead to community displacement and social unrest. Engaging affected communities, ensuring fair compensation, and implementing robust grievance mechanisms will help maintain social cohesion.
Global Market Volatility
Fluctuations in global oil prices and geopolitical tensions could affect the viability of oil projects and the flow of FDI. Diversifying the economy and reducing reliance on oil revenues will enhance resilience to external shocks.

5. Strategic Recommendations

To harness the full potential of FDI inflows and ensure sustainable economic expansion, the following recommendations are proposed:

Strengthen Institutional Frameworks
Establishing robust regulatory and oversight mechanisms will prevent mismanagement of oil revenues and ensure transparency. Independent bodies should monitor project implementation and revenue utilisation to build public trust.
Promote Local Content Policies
Encouraging local participation in the oil value chain will foster domestic entrepreneurship and create lasting economic linkages. Providing incentives for SMEs and cooperatives to engage in oil-related activities will amplify the sector’s multiplier effects.
Invest in Renewable Energy
While oil presents immediate opportunities, transitioning towards renewable energy sources will safeguard against future depletion risks and align with global climate goals. Integrating solar, wind, and hydroelectric power into the national grid will diversify the energy mix and reduce carbon emissions.
Enhance Regional Collaboration
Collaborating with neighbouring countries, particularly Kenya and Tanzania, will facilitate shared infrastructure and harmonised policies. Joint ventures in refining and marketing will optimise resource utilisation and maximise returns.
Prioritise Human Capital Development
Investing in education and vocational training will equip Ugandans with the skills needed to participate meaningfully in the oil sector and related industries. Scholarships, apprenticeships, and capacity-building programmes should target youth and women to ensure inclusivity.

Robust FDI inflows into Uganda’s oil sector represent a transformative opportunity to drive broader economic expansion and achieve sustainable development. By creating jobs, improving infrastructure, generating revenues, and fostering industrialisation, these investments have the potential to uplift millions of Ugandans out of poverty and propel the nation towards middle-income status. However, realising this potential requires careful planning, effective governance, and proactive risk management. With strategic interventions and a commitment to inclusive growth, the oil sector can serve as a catalyst for economic transformation, positioning Uganda as a dynamic player in the regional and global economy.

Alternative Scenarios for Inflation Forecasting: Presenting Scenarios Involving Exchange Rate Depreciation, Fiscal Policy Adjustments, and Global Conflicts
Inflation forecasting is inherently uncertain, particularly in an economy like Uganda’s, which is exposed to both domestic and external vulnerabilities. To account for these uncertainties, the Bank of Uganda (BoU) has developed alternative scenarios that explore how different factors—such as exchange rate depreciation, fiscal policy adjustments, and global conflicts—could influence inflationary pressures.
1. Scenario 1: Exchange Rate Depreciation
Assumption : The Uganda Shilling depreciates by 5% over the forecast horizon due to global uncertainties, such as geopolitical tensions or tightening global financial conditions.
- Impact on Inflation :
  A 5% depreciation of the Shilling would increase the cost of imported goods and amplify cost-push inflationary pressures. Under this scenario, headline and core inflation are projected to rise by 0.2 percentage points higher than the baseline forecast in 2025. Imported inflation would disproportionately affect sectors reliant on foreign inputs, such as manufacturing and energy, while also raising prices for consumer goods like electronics and vehicles.
- Sectoral Implications :
  - Energy Prices : Higher import costs for petroleum products could reverse recent declines in Energy, Fuel, and Utilities (EFU) inflation, which fell to 0.3% in January 2025.
  - Food Prices : Imported fertilisers and machinery used in agriculture would become more expensive, potentially driving up food crop inflation.
  - Services Sector : Increased freight charges and transportation costs would exacerbate inflation in passenger transport and hotel services, which already rose to 6.3% in January 2025.
- Policy Response :
  The BoU may respond by tightening monetary policy to mitigate inflationary pressures. However, the effectiveness of such measures would depend on the persistence of depreciation and its second-round effects on wages and expectations.
2. Scenario 2: Fiscal Policy Adjustments
Assumption : Government fiscal expenditure increases by 2 percentage points above the baseline, driven by emergency spending to combat crises such as disease outbreaks (e.g., Ebola) amid funding cuts from USAID.
- Impact on Inflation :
  Higher government spending would stimulate aggregate demand, pushing headline and core inflation 0.2 percentage points above the baseline forecast in 2025. This scenario assumes that increased public expenditure crowds out private sector activity, leading to inefficiencies and upward pressure on prices.
- Sectoral Implications :
  - Construction and Infrastructure : Increased infrastructure spending could boost demand for construction materials, raising input costs and contributing to inflation in the housing sector.
  - Health and Education : Emergency health expenditures might temporarily alleviate supply-side constraints but could also lead to higher wage demands in the public sector, feeding into inflation.
  - Exchange Rate Dynamics : Higher fiscal deficits could strain foreign exchange reserves, potentially causing the Shilling to depreciate. This depreciation would further amplify imported inflation, creating a feedback loop.
- Policy Response :
  The BoU would need to balance supporting fiscal stimulus with maintaining price stability. Coordination between fiscal and monetary authorities would be critical to avoid overheating the economy.
3. Scenario 3: Global Conflicts and Supply Chain Disruptions
Assumption : Geopolitical conflicts escalate, disrupting global supply chains and driving up commodity prices, particularly oil and non-fuel commodities.
- Impact on Inflation :
  Headline inflation is projected to rise by 1 percentage point above the baseline , while core inflation would increase by 0.7 percentage points in 2025. These pressures would stem from higher imported inflation and supply chain disruptions affecting industries reliant on intermediate goods.
- Sectoral Implications :
  - Oil Prices : Escalating conflicts could disrupt oil production and shipping routes, reversing recent declines in Brent crude oil prices. For Uganda, this would translate into higher fuel costs, impacting transportation, manufacturing, and households.
  - Agriculture : Rising costs of imported fertilisers and machinery would constrain agricultural productivity, potentially driving up food prices. Adverse weather conditions could compound these effects, exacerbating food crop inflation.
  - Manufacturing and Trade : Delays in importing raw materials and intermediate goods would reduce output, raise input costs, and contribute to inflation in other goods categories, such as clothing and household items.
- Policy Response :
  The BoU may adopt a tighter monetary stance to anchor inflation expectations. However, given Uganda’s limited control over global commodity prices, the focus would shift to mitigating domestic vulnerabilities, such as enhancing local production and diversifying trade partners under frameworks like the African Continental Free Trade Area (AfCFTA).
4. Combined Risks and Upside Potential
While the scenarios outlined above present downside risks to inflation, there are also potential upside factors that could moderate price pressures:
- Stronger Exchange Rate :
  Higher capital inflows, particularly from investments in the oil sector, could strengthen the Shilling, reducing imported inflation and easing cost pressures.
- Lower Global Oil Prices :
  A slowdown in global economic growth, particularly in major economies like China and Europe, could lead to lower oil prices. This development would benefit Uganda by reducing fuel and energy costs.
- Improved Agricultural Output :
  Favourable weather conditions and advancements in climate-resilient farming practices could stabilise food crop inflation, offsetting some of the inflationary pressures from other sectors.
The alternative scenarios highlight the sensitivity of Uganda’s inflation outlook to both domestic and external factors. Exchange rate depreciation, fiscal policy adjustments, and global conflicts each pose significant risks to price stability, underscoring the importance of vigilant monitoring and proactive policy responses. While the baseline forecast projects core inflation to range between 4.0% and 5.0% in 2025, the risks remain tilted to the upside. By addressing structural vulnerabilities, enhancing resilience to external shocks, and fostering coordination between fiscal and monetary authorities, Uganda can navigate these challenges while maintaining macroeconomic stability. The BoU’s cautious approach to monetary policy reflects a commitment to balancing price stability with sustainable economic growth, ensuring that inflation remains within target levels despite an uncertain global environment.
Counterarguments Against Optimism: Acknowledging Risks Such as Tighter Global Financial Conditions and Escalating Trade Wars
While Uganda’s economic outlook appears optimistic, driven by factors such as increased investment in the extractive industry, strategic government initiatives, and accommodative monetary policies, it is imperative to acknowledge the significant risks that could undermine this positive trajectory. Two critical external challenges—tighter global financial conditions and escalating trade wars—pose substantial threats to Uganda’s growth prospects and macroeconomic stability.
1. Tighter Global Financial Conditions
Overview of the Risk :
Tighter global financial conditions, stemming from monetary policy tightening in advanced economies like the United States and the Euro Area, present a significant downside risk to Uganda’s economic outlook. As central banks in these regions raise interest rates to combat inflationary pressures, borrowing costs increase globally, affecting capital flows and exchange rate dynamics in emerging markets like Uganda.
Implications for Uganda :
- Reduced Capital Inflows :
  Higher interest rates in advanced economies attract investors seeking higher returns, leading to capital outflows from emerging markets. For Uganda, this could result in reduced Foreign Direct Investment (FDI) inflows, particularly in non-oil sectors such as agriculture, manufacturing, and tourism. The slowdown in FDI would constrain private sector growth and limit the country’s ability to finance large-scale infrastructure projects.
- Exchange Rate Pressures :
  Tighter global financial conditions often lead to currency depreciation in emerging markets due to reduced demand for local currencies. A weaker Uganda Shilling would increase the cost of imported goods, including essential inputs like machinery, fertilisers, and fuel. This scenario could exacerbate inflationary pressures, particularly in the Energy, Fuel, and Utilities (EFU) sector, which saw inflation decline to 0.3% in January 2025 but remains vulnerable to external shocks.
- Debt Servicing Challenges :
  Uganda’s external debt servicing costs would rise as global interest rates increase. With interest payments on external debt already accounting for a significant portion of the current account deficit, tighter financial conditions could strain public finances. This challenge is compounded by the suspension of USAID health sector support, which has reduced external funding for critical development projects.
- Crowding Out of Private Sector Credit :
  Increased government borrowing to meet fiscal obligations amid higher global interest rates could crowd out private sector credit. The resulting tight liquidity conditions would hinder business expansion, particularly for small and medium enterprises (SMEs), which are vital for job creation and economic diversification.
Mitigation Strategies :
To mitigate these risks, Uganda must prioritise domestic resource mobilisation, enhance the efficiency of public spending, and strengthen its resilience to external shocks. Policies aimed at improving the investment climate, such as reducing bureaucratic hurdles and enhancing transparency, could also help attract stable long-term capital inflows.
2. Escalating Trade Wars
Overview of the Risk :
Escalating trade wars, particularly involving major economies like the United States, China, Canada, and Mexico, pose another significant risk to Uganda’s economic outlook. Retaliatory tariffs and protectionist measures disrupt global supply chains, increase production costs, and reduce market access for exports. These developments have far-reaching implications for Uganda, which relies on global markets for both imports and exports.
Implications for Uganda :
- Disrupted Supply Chains :
  Trade wars often lead to disruptions in global supply chains, affecting the availability and cost of intermediate goods and raw materials. For instance, Uganda’s manufacturing sector, which depends on imported inputs, could face higher production costs due to tariffs on intermediate goods. This scenario would erode competitiveness and constrain output growth.
- Reduced Export Demand :
  Protectionist measures in key trading partners, such as the European Union and the United States, could reduce demand for Ugandan exports, including coffee, tea, and other agricultural commodities. Lower export revenues would widen the current account deficit, which stood at US$4,804.1 million in December 2024, and strain foreign exchange reserves.
- Higher Commodity Prices :
  Trade wars can drive up global commodity prices, particularly for oil and non-fuel commodities. For Uganda, rising oil prices would increase import costs, offsetting the benefits of lower energy prices observed in early 2025. Similarly, higher prices for fertilisers and other agricultural inputs could dampen food crop production, exacerbating food insecurity and inflationary pressures.
- Uncertainty and Investor Sentiment :
  Escalating trade tensions create uncertainty in global markets, deterring investment and slowing economic activity. For Uganda, this uncertainty could delay progress in the oil sector, where Foreign Direct Investment (FDI) inflows reached US$3,365.3 million in 2024. Reduced investor confidence would impede the development of critical infrastructure, such as the East African Crude Oil Pipeline (EACOP), and delay the anticipated narrowing of the current account deficit through oil revenues.
Mitigation Strategies :
To address these risks, Uganda should focus on diversifying its export markets under frameworks like the African Continental Free Trade Area (AfCFTA). Strengthening regional trade partnerships with countries such as Kenya, Tanzania, and South Sudan would reduce reliance on traditional export destinations and enhance resilience to global trade disruptions. Additionally, promoting value addition in key sectors, such as agriculture and manufacturing, would improve competitiveness and mitigate the impact of trade wars on export earnings.
3. Broader Implications for Economic Growth
The combined effects of tighter global financial conditions and escalating trade wars could significantly dampen Uganda’s economic growth prospects. While the baseline forecast projects GDP growth of 6.0–6.5% in FY2024/25 and 7.0% in the medium term, these risks tilt the outlook to the downside:
- Slower Investment Growth :
  Reduced capital inflows and disrupted supply chains would slow investment growth, particularly in the private sector. Sectors such as manufacturing and trade, which already experienced weak credit growth in late 2024, would face additional headwinds.
- Increased Poverty and Inequality :
  Economic slowdowns disproportionately affect low-income households, exacerbating poverty and inequality. Rising inflation, driven by higher import costs and supply chain disruptions, would erode household purchasing power, particularly for rural communities reliant on agriculture.
- Delayed Structural Reforms :
  External shocks could divert attention and resources away from structural reforms aimed at enhancing productivity and competitiveness. For example, investments in infrastructure, education, and healthcare may be deprioritised in favour of addressing immediate fiscal and balance of payments challenges.
While Uganda’s economic outlook remains cautiously optimistic, the risks posed by tighter global financial conditions and escalating trade wars cannot be overlooked. These challenges underscore the importance of proactive policy measures to mitigate external vulnerabilities and ensure sustainable growth. By strengthening domestic resource mobilisation, diversifying export markets, and fostering regional integration, Uganda can build resilience to global uncertainties and safeguard its economic progress. The Bank of Uganda’s cautious approach to monetary policy, coupled with strategic government interventions, will play a pivotal role in navigating these risks while maintaining macroeconomic stability. Ultimately, acknowledging and addressing these counterarguments against optimism will enable Uganda to achieve its vision of inclusive and resilient economic development.
Policy Recommendations for Sustainable Growth: Offering Actionable Insights for Policymakers, Businesses, and Citizens to Navigate Future Challenges
In the face of both domestic and global uncertainties, Uganda’s pursuit of sustainable economic growth requires a coordinated effort from policymakers, businesses, and citizens. The challenges posed by adverse weather conditions, tight liquidity conditions, geopolitical tensions, and structural inefficiencies necessitate targeted interventions to ensure resilience, inclusivity, and long-term prosperity.
1. Recommendations for Policymakers
1. Strengthening Macroeconomic Stability
  - Monetary Policy : The Bank of Uganda (BoU) should maintain a cautious yet accommodative monetary policy stance to balance inflation control with economic growth. Regular monitoring of external developments, such as oil price fluctuations and exchange rate movements, will be critical to preemptively address inflationary pressures.
  - Fiscal Discipline : Policymakers must prioritise prudent fiscal management to reduce reliance on external borrowing and enhance domestic resource mobilisation. Strengthening tax administration under initiatives like the Domestic Taxes Compliance Improvement Plan (CIP) can boost revenue collection while minimising leakages.
2. Investment in Infrastructure
  - Accelerating the completion of strategic infrastructure projects, such as the Standard Gauge Railway (SGR) and the East African Crude Oil Pipeline (EACOP), will enhance connectivity and reduce logistical bottlenecks. Public-private partnerships (PPPs) can mobilise additional resources for large-scale projects.
  - Expanding renewable energy infrastructure, including solar and hydroelectric power, will diversify the energy mix, lower costs, and mitigate climate risks.
3. Enhancing Agricultural Resilience
  - Promoting climate-smart agricultural practices, such as conservation agriculture and agroforestry, will help farmers adapt to erratic rainfall patterns and extreme weather events. Subsidies for drought-resistant seeds and irrigation systems can further support rural livelihoods.
  - Establishing early warning systems and disaster risk management frameworks will enable timely responses to natural disasters, reducing their impact on food security and incomes.
4. Leveraging Regional Trade Opportunities
  - Policymakers should actively engage with regional partners under frameworks like the African Continental Free Trade Area (AfCFTA) to expand market access for Ugandan exports. Simplifying cross-border trade procedures and harmonising standards will enhance competitiveness.
  - Supporting value addition in key sectors, such as coffee, tea, and cocoa, will increase export earnings and create jobs along the value chain.
5. Addressing Structural Issues
  - Implementing reforms to improve the business environment, such as reducing bureaucratic hurdles and enhancing transparency, will attract Foreign Direct Investment (FDI) beyond the oil sector.
  - Strengthening institutions and governance structures will build public trust and ensure effective implementation of development programmes.
2. Recommendations for Businesses
1. Adopting Innovation and Technology
  - Businesses should invest in advanced technologies to improve productivity and competitiveness. For example, adopting digital tools in agriculture, manufacturing, and services can streamline operations and reduce costs.
  - Embracing e-commerce platforms will enable small and medium enterprises (SMEs) to reach broader markets, particularly during periods of reduced physical mobility.
2. Diversifying Supply Chains
  - To mitigate risks associated with global supply chain disruptions, businesses should explore local sourcing options and establish alternative suppliers. Collaborating with local producers can also foster industrial linkages and promote inclusive growth.
3. Enhancing Risk Management
  - Companies operating in volatile sectors, such as energy and agriculture, should implement robust risk management strategies to hedge against price fluctuations and currency depreciation. Insurance products tailored to specific industries, such as crop insurance, can provide financial protection.
4. Participating in Skill Development Initiatives
  - Partnering with educational institutions and vocational training centres will equip the workforce with relevant skills, addressing labour market mismatches and enhancing employability.
5. Aligning with Sustainability Goals
  - Businesses should align their operations with global sustainability standards, such as reducing carbon emissions and promoting circular economy practices. This alignment will not only meet international expectations but also position firms as responsible corporate citizens.
3. Recommendations for Citizens
1. Embracing Climate-Resilient Practices
  - Rural households, particularly those dependent on agriculture, should adopt climate-resilient farming techniques, such as crop rotation, intercropping, and water harvesting. Accessing extension services provided by the government or NGOs can facilitate knowledge transfer.
2. Engaging in Financial Inclusion
  - Citizens should leverage formal financial services, such as savings accounts, microloans, and insurance products, to manage risks and seize economic opportunities. Mobile banking platforms have made these services more accessible, even in remote areas.
3. Supporting Local Industries
  - Consumers can contribute to economic growth by purchasing locally produced goods and services. This preference will strengthen domestic industries and reduce reliance on imports.
4. Advocating for Accountability
  - Active citizen participation in governance processes, such as attending community meetings and holding leaders accountable, will ensure that public resources are utilised effectively. Transparency and accountability are essential for achieving equitable development outcomes.
5. Pursuing Lifelong Learning
  - Individuals should prioritise continuous learning to remain competitive in an evolving job market. Online courses, workshops, and mentorship programmes offer flexible avenues for skill acquisition and personal development.
4. Cross-Sector Collaboration
1. Public-Private Partnerships (PPPs)
  - Collaboration between the government and private sector can unlock synergies in areas such as infrastructure development, healthcare, and education. Joint ventures in the oil sector, for instance, can maximise returns while ensuring environmental and social safeguards.
2. Community-Led Development Initiatives
  - Encouraging grassroots participation in development projects, such as building schools, health centres, and clean water systems, will empower communities and foster ownership of outcomes.
3. Data-Driven Decision-Making
  - All stakeholders should utilise data analytics to inform policy formulation, business strategies, and civic engagement. Platforms like the Uganda Bureau of Statistics (UBOS) provide valuable insights into economic trends and demographic shifts.
5. Addressing Risks and Seizing Opportunities
1. Mitigating External Shocks
  - Policymakers and businesses must develop contingency plans to address potential external shocks, such as tighter global financial conditions or escalating trade wars. Diversifying export destinations and securing alternative funding sources will enhance resilience.
2. Capitalising on Oil Sector Developments
  - The impending commencement of oil production presents a unique opportunity to transform Uganda’s economy. Ensuring that oil revenues are reinvested in human capital, infrastructure, and innovation will yield long-term dividends.
3. Promoting Inclusive Growth
  - Efforts to narrow income disparities, such as expanding social safety nets and providing targeted support to marginalised groups, will ensure that no one is left behind in the pursuit of sustainable growth.
Achieving sustainable growth in Uganda requires a multifaceted approach that addresses structural vulnerabilities, leverages emerging opportunities, and fosters collaboration among all stakeholders. Policymakers must prioritise macroeconomic stability, infrastructure development, and institutional reforms to create an enabling environment for growth. Businesses should embrace innovation, diversify supply chains, and align with sustainability goals to remain competitive. Citizens, meanwhile, play a vital role in driving demand for local products, advocating for accountability, and adapting to changing circumstances. By working together, Uganda can navigate future challenges and build a resilient, inclusive, and prosperous economy for generations to come.

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Global Economic Headwinds and Opportunities: Navigating Challenges and Leveraging Potential in the Ugandan Context

The International Monetary Fund (IMF) projects global economic growth to stabilize at 3.3% in 2025 and 2026 , representing a marginal improvement from 3.2% in 2024 but remaining below historical averages. This subdued outlook reflects persistent headwinds, including geopolitical tensions, constrained fiscal space, and structural challenges such as weak investment and productivity growth. For Uganda, these global dynamics present both significant challenges and unique opportunities that require strategic navigation.

1. Global Economic Headwinds

Slower Growth in Key Trading Partners
Advanced economies, particularly the United States and the Euro Area , are expected to experience slower growth due to softer labour markets, fiscal constraints, and ongoing geopolitical uncertainties. The U.S. economy, for instance, is projected to grow at 2.7% in 2025 and 2.1% in 2026 , down from 2.8% in 2024 . Similarly, the Euro Area’s growth is anticipated to remain lacklustre at 1.0% in 2025 and 1.4% in 2026 , driven by Germany’s underperformance in manufacturing and goods exports.
For Uganda, this slowdown poses a direct challenge as demand for its key exports—such as coffee, tea, and other agricultural commodities—may soften. Reduced export revenues could widen the current account deficit, which stood at US$4,804.1 million in 2024 , and strain foreign exchange reserves. Additionally, tighter global financial conditions, stemming from monetary policy tightening in advanced economies, could increase borrowing costs and limit access to external financing.
Geopolitical Tensions and Trade Disruptions
Escalating trade wars, particularly involving major economies like the United States , China , Canada , and Mexico , threaten to disrupt global supply chains and elevate production costs. Retaliatory tariffs and restrictions on intermediate goods could further constrain Uganda’s ability to source affordable inputs for its manufacturing and agricultural sectors. These disruptions would exacerbate inflationary pressures, particularly in energy and food prices, which are critical to household welfare and business operations.
Climate Change and Extreme Weather Events
Climate-related disasters, such as prolonged droughts and flooding, continue to pose significant risks to global agricultural output. For Uganda, erratic rainfall patterns and extreme weather events threaten food crop production, undermining rural incomes and exacerbating food insecurity. These challenges are compounded by global uncertainties, which could drive up commodity prices and reduce household purchasing power.

2. Opportunities Amidst Global Uncertainty

Diversification into Emerging Markets
While growth in traditional trading partners like the U.S. and Europe may slow, emerging markets such as India present untapped potential for diversification. India’s economy is projected to grow at a robust 6.5% in both 2025 and 2026 , supported by strong domestic demand and targeted policy interventions. By strengthening trade relations with India and other emerging economies, Uganda can tap into new markets for its agricultural and manufactured goods.
Additionally, leveraging frameworks like the African Continental Free Trade Area (AfCFTA) can enhance regional integration and expand market access for Ugandan exports. Simplifying cross-border trade procedures and harmonising standards will be critical to maximising the benefits of AfCFTA and reducing reliance on traditional export destinations.
Oil Sector Developments
The impending commencement of oil production represents a transformative opportunity for Uganda to boost export earnings and narrow the current account deficit. Anticipated oil revenues are expected to generate billions of dollars annually, depending on prevailing global oil prices. These revenues will not only enhance foreign exchange reserves but also provide fiscal space for infrastructure development and social welfare programmes.
Furthermore, investments in the oil sector are attracting robust Foreign Direct Investment (FDI) inflows, which increased by 12.5% to US$3,365.3 million in 2024 . These inflows are critical for financing large-scale infrastructure projects, such as the East African Crude Oil Pipeline (EACOP) , and fostering industrialisation through backward and forward linkages.
Strengthening Regional Ties
Strengthening regional partnerships within East Africa can help Uganda mitigate external vulnerabilities and enhance its competitive edge. Collaborative initiatives in areas such as energy, transportation, and agriculture can unlock shared prosperity and create opportunities for cross-border trade. For example, improved connectivity through the Standard Gauge Railway (SGR) and upgraded highways will facilitate the movement of goods and services, reducing logistical bottlenecks and enhancing market access.
Focus on Structural Reforms
Addressing structural inefficiencies in key sectors, such as agriculture, manufacturing, and trade, will be critical to enhancing Uganda’s resilience amidst global uncertainties. Promoting climate-smart agricultural practices, expanding renewable energy infrastructure, and improving access to finance for small and medium enterprises (SMEs) will foster productivity and competitiveness.
Additionally, implementing reforms to improve the business environment, such as reducing bureaucratic hurdles and enhancing transparency, will attract investment and stimulate private sector growth. These measures will not only support economic diversification but also position Uganda as a dynamic player in the regional and global economy.

3. Strategic Recommendations

Enhancing Export Competitiveness
Uganda must focus on value addition in key sectors, such as agriculture and manufacturing, to enhance export competitiveness. For instance, promoting local processing of coffee, tea, and cocoa will increase export earnings and create jobs along the value chain. Providing incentives for SMEs to engage in export-oriented activities will amplify the sector’s multiplier effects.
Investing in Infrastructure
Accelerating the completion of strategic infrastructure projects, such as the SGR and EACOP, will enhance connectivity and reduce logistics costs. Improved infrastructure will not only support the oil sector but also unlock opportunities for other industries, such as tourism and agro-processing.
Promoting Financial Inclusion
Expanding access to affordable financing will empower businesses and households to seize economic opportunities. Encouraging the adoption of digital financial services and providing targeted credit guarantees for priority sectors will enhance financial inclusion and drive inclusive growth.
Building Resilience to External Shocks
Strengthening institutions and governance structures will build public trust and ensure effective implementation of development programmes. Establishing robust early warning systems and disaster risk management frameworks will enable timely responses to natural disasters, reducing their impact on food security and incomes.

The global economic outlook presents a complex landscape of challenges and opportunities for Uganda. While slower growth in key trading partners and escalating trade tensions pose significant risks, emerging markets and regional integration frameworks offer untapped potential for diversification and growth. By leveraging its oil sector developments, strengthening regional ties, and addressing structural inefficiencies, Uganda can mitigate external vulnerabilities and enhance its competitive edge. A proactive approach to navigating global headwinds, coupled with strategic investments in infrastructure, human capital, and innovation, will position Uganda as a resilient and dynamic economy capable of achieving sustainable and inclusive growth.

Navigating Domestic Financial Constraints: Addressing Tight Liquidity Conditions in Uganda

In Uganda, domestic financial constraints have emerged as a significant challenge, with tight liquidity conditions exerting pressure on financial markets and stifling private sector credit growth. These constraints are particularly pronounced in critical sectors such as manufacturing and trade, which are vital for economic diversification and sustainable growth.

1. The Impact of Tight Liquidity Conditions

Rising Money Market Rates
Tight liquidity conditions have driven up money market rates, reflecting the strain on the financial system. According to data from the Bank of Uganda, the overnight rate rose to 11.6% in January 2025, up from 10.8% in October 2024. Similarly, the 7-day interbank weighted average rate increased to 11.7% , compared to 11.1% in the previous quarter. These elevated rates have made borrowing more expensive, further constraining businesses and households reliant on credit.
Sluggish Private Sector Credit Growth
Annualized private sector credit growth slowed to 7.8% in December 2024, down from 8.9% in September 2024. This decline was particularly evident in sectors like manufacturing and trade, where reduced financing has hampered operations and expansion plans. For instance:
- Manufacturing : Lower credit availability has constrained investments in food processing, textiles, and other subsectors, limiting their ability to meet growing demand.
- Trade : Reduced financing for retail activities, restaurants, and hotels has dampened business activity, exacerbating the slowdown in this sector.
Sectoral Variations in Lending Rates
While telecommunications benefited from lower lending rates due to prime borrowing, other sectors faced elevated risk assessments. Housing and personal loans, in particular, experienced higher interest rates, reflecting lenders’ concerns about repayment risks amid uncertain economic conditions. This uneven distribution of credit has created disparities in sectoral performance, further complicating efforts to achieve balanced economic growth.

2. Underlying Causes of Financial Constraints

Government Borrowing Pressures
Increased government borrowing to finance budgetary shortfalls has crowded out private sector credit. In the first half of FY2024/25, recurrent government expenditure totaled Shs. 17,399.4 billion , falling short of projections by Shs. 1,203.8 billion , while capital expenditure amounted to Shs. 2,107.7 billion , significantly below the planned amount. This underperformance was largely due to low fund absorption, which exacerbated liquidity pressures.
Reduced External Funding
The suspension of USAID health sector support and tighter global financial conditions have limited external funding inflows. With reduced donor assistance and constrained fiscal space, the government has relied more heavily on domestic borrowing, further tightening liquidity in the financial system.
Risk Aversion Among Lenders
Banks and financial institutions have adopted a cautious approach, prioritizing lower-risk corporates and government securities over small and medium enterprises (SMEs). This shift has limited access to affordable credit for SMEs, which are the backbone of Uganda’s economy.

3. Implications for Economic Growth

Stifled Investment and Innovation
Limited access to credit has curtailed investment in key sectors, stifling innovation and productivity growth. For example, manufacturers unable to secure financing for new machinery or technology upgrades face challenges in competing globally.
Reduced Employment Opportunities
Slower credit growth has constrained business expansion, leading to fewer job creation opportunities. This is particularly concerning given Uganda’s youthful population and high unemployment rates, especially among youth and women.
Widening Trade Deficit
Reduced financing for import-dependent sectors, such as manufacturing and trade, has exacerbated the trade deficit. Imports of machinery, vegetable oils, and base metals surged by 20.3% in 2024, outpacing export growth and widening the trade gap to US$3,662.9 million .

4. Strategies to Ease Financial Constraints

Monetary Policy Interventions
The Bank of Uganda must adopt targeted measures to ease liquidity pressures. Potential interventions include:
- Open Market Operations (OMO) : Injecting liquidity into the financial system through repurchase agreements or issuing Bank of Uganda Bills at competitive rates.
- Lowering the Central Bank Rate (CBR) : Gradual easing of monetary policy could reduce borrowing costs and stimulate private sector credit growth.
Enhancing Access to Affordable Credit
To address credit constraints, the government and financial institutions should implement initiatives such as:
- Credit Guarantee Schemes : Providing guarantees for SME loans to reduce perceived risks and encourage lending.
- Development Finance Institutions (DFIs) : Establishing DFIs to channel affordable credit to priority sectors like agriculture, manufacturing, and renewable energy.
Improving Fund Absorption Capacity
Strengthening institutional capacity to absorb and utilize funds effectively is crucial. Key measures include:
- Streamlining Procurement Processes : Reducing bureaucratic delays to ensure timely disbursement of funds for public projects.
- Capacity Building : Training government officials and stakeholders to enhance project implementation and monitoring.
Promoting Financial Inclusion
Expanding access to formal financial services, particularly in rural areas, can unlock untapped potential. Mobile banking platforms and digital financial services offer innovative solutions to reach underserved populations.
Strengthening Public-Private Partnerships (PPPs)
Collaborations between the government and private sector can mobilize resources for large-scale infrastructure projects, reducing the burden on public finances and freeing up liquidity for private sector activities.

5. Broader Economic Benefits

Boosting Manufacturing and Trade
Easing financial constraints will enable manufacturers and traders to invest in modern equipment, expand operations, and enhance competitiveness. This, in turn, will reduce reliance on imports and narrow the trade deficit.
Supporting Agricultural Transformation
Improved access to credit will empower farmers to adopt climate-smart practices, invest in irrigation systems, and purchase high-quality inputs. These interventions will boost agricultural productivity and contribute to food security.
Fostering Inclusive Growth
By targeting SMEs and marginalized groups, financial interventions can promote inclusive growth, creating opportunities for all segments of society to participate in and benefit from economic development.

Navigating domestic financial constraints requires a coordinated effort from policymakers, financial institutions, and other stakeholders. Tight liquidity conditions have strained Uganda’s financial markets, dampening private sector credit growth and hindering economic progress. However, targeted interventions that ease access to affordable credit, improve fund absorption, and promote financial inclusion can alleviate these constraints and unlock the country’s growth potential. As Uganda advances towards its medium-term growth target of 7.0% , addressing these challenges will be critical to ensuring sustainable and inclusive development. The Bank of Uganda’s cautious yet accommodative monetary policy stance, coupled with strategic government initiatives, will play a pivotal role in fostering an environment conducive to investment, innovation, and prosperity.

Fiscal Prudence Amidst Revenue Shortfalls: Navigating Challenges and Opportunities in Uganda

Preliminary fiscal data for the first half of FY2024/25 paints a nuanced picture of Uganda’s financial landscape, highlighting both progress and persistent challenges. While total government revenue fell short of targets due to lower-than-expected grant inflows, domestic tax collection demonstrated resilience, with corporate tax revenues surging by 48%. This underscores the impact of improved compliance measures under initiatives like the Domestic Taxes Compliance Improvement Plan (CIP). However, inefficiencies in fund absorption and underperformance in recurrent and capital expenditures reveal structural bottlenecks that must be addressed to ensure fiscal prudence and sustainable growth.

1. Revenue Performance: A Tale of Two Realities

Shortfall in Grants
Total government revenue, including grants, amounted to Shs. 16,375.5 billion , falling short of projections by Shs. 251.2 billion . This shortfall was primarily driven by a significant decline in grant receipts, which were Shs. 585.0 billion below target. Reduced donor funding, particularly from international organisations and NGOs, reflects shifting global priorities and constrained absorption capacity within government projects. For instance, delays in project implementation have led to deferred disbursements, further exacerbating the revenue gap.
Domestic Tax Revenue Surplus
Despite the shortfall in grants, domestic tax revenue exceeded expectations, growing by 16.3% year-on-year to Shs. 14,339.0 billion . Corporate tax collections surged by an impressive 48% , reaching Shs. 1,567.2 billion , compared to the target of Shs. 1,179.2 billion . This overperformance highlights the success of enhanced tax administration measures, such as digitalisation efforts and stricter enforcement mechanisms implemented by the Uganda Revenue Authority (URA). Similarly, direct domestic taxes, including Pay-As-You-Earn (PAYE) and withholding taxes, also recorded robust growth, contributing to the overall surplus.
Underperformance in Indirect Taxes
While direct taxes performed well, indirect taxes, such as VAT on manufactured goods and excise duties, fell short of targets. Excise duty collections from phone talk time and soft drinks, for example, lagged behind projections, reflecting subdued consumer demand and potential leakages in the tax system. This mixed performance underscores the need for targeted interventions to address weak spots in the tax base.

2. Expenditure Underperformance: Structural Bottlenecks

Recurrent Expenditure
Recurrent expenditure totalled Shs. 17,399.4 billion , falling short of the planned amount by Shs. 1,203.8 billion . This underperformance was largely attributed to inefficiencies in other expenses and compensation of employees. Delays in salary payments and procurement processes contributed to the shortfall, highlighting systemic issues in budget execution.
Capital Expenditure
Capital expenditure, crucial for long-term development, also underperformed, with actual spending of Shs. 2,107.7 billion representing a shortfall of Shs. 2,260.6 billion . This significant gap points to low absorption capacity, stemming from bureaucratic hurdles, delayed project approvals, and inadequate planning. For example, large-scale infrastructure projects, such as roads and energy installations, often face delays due to land acquisition disputes or insufficient technical expertise.
Implications for Development Priorities
The underutilisation of allocated funds has far-reaching implications for Uganda’s development agenda. Key sectors like health, education, and agriculture, which rely heavily on government financing, may face resource constraints, undermining service delivery and economic transformation. Additionally, the suspension of USAID health sector support further compounds these challenges, necessitating greater reliance on domestic resources.

3. Strengthening Institutional Capacity and Aligning Budgets

To address these challenges and ensure fiscal prudence, several measures must be prioritised:

Enhancing Fund Absorption Capacity
Strengthening institutional capacity is critical to improving fund absorption. This includes:
- Streamlining Procurement Processes : Reducing bureaucratic delays and enhancing transparency in public procurement will accelerate project implementation.
- Capacity Building : Training government officials and stakeholders in project management and financial oversight will improve planning and execution.
- Monitoring and Evaluation : Establishing robust monitoring frameworks will enable timely identification and resolution of bottlenecks.
Aligning Budgets with Strategic Priorities
Budget allocations must align with Uganda’s strategic priorities, such as Vision 2040 and the Third National Development Plan (NDPIII). Key focus areas include:
- Infrastructure Development : Accelerating investments in roads, railways, and energy projects will enhance connectivity and reduce logistical costs.
- Human Capital Development : Increasing funding for health, education, and skills development will build a productive workforce and foster inclusive growth.
- Climate Resilience : Prioritising climate-smart initiatives, such as irrigation systems and renewable energy projects, will mitigate the impact of adverse weather conditions.
Leveraging Technology for Efficiency
Embracing digital solutions can enhance fiscal management and transparency. For instance:
- Integrated Financial Management Systems (IFMS) : Automating financial processes will reduce errors and improve accountability.
- Tax Digitalisation : Expanding the use of electronic platforms for tax collection will broaden the tax base and minimise evasion.
Promoting Public-Private Partnerships (PPPs)
Collaborations between the government and private sector can mobilise additional resources for large-scale projects. PPPs can help bridge funding gaps while ensuring efficient project execution and maintenance.

4. Implications for Fiscal Sustainability

Reducing Reliance on External Funding
With reduced donor inflows, Uganda must increasingly rely on domestic resources to finance its development agenda. Strengthening domestic revenue mobilisation through innovative tax policies and improved compliance measures will be critical to achieving fiscal sustainability.
Managing Debt Servicing Costs
Rising interest payments on external debt, which increased by 10% to Shs. 1,087.1 billion , underscore the importance of prudent borrowing practices. Prioritising high-impact projects with clear returns on investment will ensure that debt is used effectively to drive growth.
Balancing Growth and Stability
Fiscal policies must strike a balance between supporting economic growth and maintaining macroeconomic stability. For example, increasing capital expenditure while containing recurrent spending will create a conducive environment for private sector-led growth.

5. Broader Economic Benefits

Boosting Investor Confidence
Improved fiscal management will enhance investor confidence, attracting Foreign Direct Investment (FDI) beyond the oil sector. Transparent and predictable fiscal policies are essential for fostering a business-friendly environment.
Supporting Inclusive Growth
By aligning budgets with strategic priorities, fiscal policies can promote inclusive growth, reducing poverty and inequality. Targeted investments in rural infrastructure, education, and healthcare will empower marginalised groups and enhance social cohesion.
Building Resilience to External Shocks
Strengthening fiscal buffers through prudent revenue and expenditure management will enhance Uganda’s resilience to external shocks, such as global trade disruptions and commodity price volatility.

Fiscal prudence amidst revenue shortfalls requires a concerted effort to address structural inefficiencies and align budgets with strategic priorities. While Uganda has made commendable progress in domestic tax collection, underperformance in recurrent and capital expenditures highlights the need for enhanced institutional capacity and streamlined processes. By strengthening fund absorption, leveraging technology, and promoting public-private partnerships, Uganda can unlock its growth potential and achieve sustainable development. As the country advances towards its medium-term growth target of 7.0% , ensuring fiscal discipline and transparency will be pivotal to navigating both domestic and global uncertainties. The cautious yet accommodative approach adopted by the Bank of Uganda, coupled with strategic government interventions, will play a critical role in fostering an environment conducive to investment, innovation, and prosperity.

Exchange Rate Stability Amid Global Volatility: The Ugandan Shilling’s Resilience and Challenges

Despite the prevailing global uncertainties, including geopolitical tensions, tighter financial conditions in advanced economies, and fluctuations in commodity prices, the Ugandan Shilling (UGX) demonstrated notable resilience in early 2025. This stability is a testament to prudent monetary policy actions, steady inflows from key sectors such as remittances and exports, and structural reforms aimed at enhancing Uganda’s external position. However, underlying pressures persist, as evidenced by month-on-month depreciation trends, underscoring the need for continued vigilance to sustain exchange rate stability amid an unpredictable global environment.

1. Factors Supporting the Shilling’s Resilience

Monetary Policy Actions
The Bank of Uganda (BoU) played a pivotal role in maintaining exchange rate stability through its accommodative yet cautious monetary policy stance. By keeping the Central Bank Rate (CBR) at 9.75% , the BoU struck a balance between supporting economic growth and ensuring price stability. Additionally, interventions in the foreign exchange market, where necessary, helped stabilise the Shilling during periods of heightened volatility.
Steady Inflows from Remittances and NGOs
Despite some challenges, remittances from Ugandans working abroad remained robust, providing a steady source of foreign currency inflows. These inflows, alongside contributions from non-governmental organisations (NGOs), supported the demand for the Shilling and reduced pressure on the exchange rate. Personal transfers, particularly ahead of the school term, further bolstered this trend.
Strong Export Earnings
Uganda’s export sector performed admirably, with significant contributions from agricultural commodities like coffee and cocoa. Favourable global prices for coffee, coupled with increased international demand, drove export revenues higher. For instance, coffee export earnings surged due to strong harvests and improved post-harvest handling practices. Similarly, cocoa exports contributed meaningfully to foreign exchange inflows, reinforcing the Shilling’s value.
Capital Inflows from the Oil Sector
Investments in Uganda’s burgeoning oil sector also supported the Shilling. Robust Foreign Direct Investment (FDI) inflows, which increased by 12.5% to US$3,365.3 million , reflected confidence in the country’s extractive industry. These inflows not only strengthened foreign exchange reserves but also alleviated short-term pressures on the currency.

2. Persistent Pressures and Depreciation Trends

Month-on-Month Depreciation
While the Shilling appreciated by 3.05% year-on-year in January 2025, it experienced a 0.68% depreciation month-on-month , highlighting ongoing vulnerabilities. This depreciation was primarily driven by:
- Strong Corporate Demand : High demand for foreign currency from energy firms, telecom companies, and manufacturers exerted downward pressure on the Shilling.
- A Stronger U.S. Dollar : The U.S. dollar’s appreciation, fueled by expectations of prolonged tightening by the Federal Reserve, added to the Shilling’s depreciation pressures.
Global Uncertainties
Geopolitical tensions, supply chain disruptions, and volatile commodity prices continue to pose risks to Uganda’s external stability. For example, conflicts in key shipping routes, such as the Red Sea, have raised freight costs and affected import-dependent industries. These factors underscore the fragility of the Shilling’s stability despite recent gains.
Trade Imbalances
Uganda’s widening trade deficit, which rose by 16.3% to US$3,662.87 million in 2024 , remains a concern. Rising imports of machinery, vegetable oils, and base metals outpaced export growth, putting additional strain on the exchange rate. Although lower oil prices provided some relief, the overall import bill remains elevated.

3. Strategies for Sustaining Exchange Rate Stability

Prudent Management of Foreign Exchange Reserves
Maintaining adequate foreign exchange reserves is critical to cushioning the economy against external shocks. As of December 2024, Uganda’s reserves stood at US$3,302.8 million , equivalent to 3.0 months of future import cover . Strengthening these reserves through targeted interventions and diversifying sources of inflows will enhance the country’s ability to manage exchange rate volatility.
Enhancing Export Competitiveness
Efforts to boost export earnings should focus on diversifying export markets and products. Leveraging frameworks like the African Continental Free Trade Area (AfCFTA) can expand market access for Ugandan goods, while promoting value addition in agriculture and manufacturing will increase export competitiveness. For example, processing raw coffee into instant coffee or roasted beans could fetch higher prices in international markets.
Mitigating External Shocks
To reduce reliance on imported inputs and energy, Uganda must accelerate investments in renewable energy and local production. Expanding solar and hydroelectric power capacity, for instance, will lower dependence on imported petroleum products, easing pressure on the trade deficit and the Shilling.
Promoting Financial Market Reforms
Deepening the domestic financial market and attracting portfolio investments can provide alternative sources of foreign currency inflows. Encouraging diaspora bonds and other instruments tailored to Ugandans abroad will channel remittances into productive investments, further supporting the exchange rate.
Monitoring Corporate Demand
Addressing the persistent demand for foreign currency from corporates requires targeted measures. For example, incentivising local sourcing of intermediate goods and promoting backward linkages in key industries can reduce reliance on imports. Collaborations with regional partners to establish shared supply chains will also mitigate corporate demand pressures.

4. Broader Implications for the Economy

Impact on Inflation
Exchange rate stability has been instrumental in keeping inflationary pressures in check. Annual headline and core inflation remained moderate at 3.6% and 4.2%, respectively, in January 2025 . A stable Shilling reduces the cost of imported goods, particularly energy and fuel, thereby easing upward pressure on prices.
Boosting Investor Confidence
A resilient exchange rate enhances investor confidence by reducing currency risk. This stability is particularly important for Uganda’s oil sector, where large-scale infrastructure projects require predictable exchange rates to attract and retain investment.
Supporting Economic Growth
Exchange rate stability fosters a conducive environment for economic expansion by lowering input costs and improving purchasing power. Sectors such as manufacturing, trade, and services benefit directly from a stable Shilling, contributing to broader GDP growth.

5. Risks and Contingency Measures

External Shocks
Any escalation in global conflicts or disruptions in key shipping routes could reverse gains in exchange rate stability. Contingency measures, such as securing alternative trade corridors and increasing strategic reserves, are essential to mitigate these risks.
Domestic Financing Constraints
Tight liquidity conditions and reduced external funding, particularly following the suspension of USAID health sector support, could constrain public and private sector activities. Prioritising high-impact projects and enhancing domestic resource mobilisation will be crucial to addressing these constraints.
Weather-Related Risks
Adverse weather conditions, such as prolonged droughts or flooding, threaten agricultural output and rural incomes. Implementing climate-smart agricultural practices and establishing early warning systems will help safeguard export earnings and household livelihoods.

The Ugandan Shilling’s resilience amidst global volatility reflects a combination of prudent monetary policy, steady inflows from remittances and exports, and structural reforms aimed at strengthening the external position. However, the month-on-month depreciation and ongoing pressures from corporate demand and a stronger U.S. dollar highlight the need for continued vigilance. By managing foreign exchange reserves effectively, enhancing export competitiveness, and mitigating external shocks, Uganda can sustain exchange rate stability and foster an environment conducive to inclusive and sustainable economic growth. As the country advances towards its medium-term growth target of 7.0% , maintaining a stable Shilling will remain a cornerstone of macroeconomic stability and resilience.

Growth Prospects and Structural Challenges: Navigating Opportunities and Risks in Uganda

Uganda’s economic growth trajectory has shown resilience, with real GDP growth accelerating to 6.7% in Q1 2024/25 , up from 6.2% in Q4 2023/24 and 5.6% in Q1 2023/24 . This robust performance was underpinned by strong contributions from key sectors such as agriculture, industry, and services. However, weakening business and consumer confidence, coupled with structural challenges, signals the need for vigilance and proactive measures to sustain this momentum.

1. Drivers of Economic Growth

Agriculture Sector Resilience
The agriculture sector demonstrated remarkable performance, growing by 8.7% in Q1 2024/25 , albeit slightly lower than the 11.3% growth recorded in Q4 2023/24. This growth was driven by favourable weather conditions, increased acreage under cultivation, and improved post-harvest handling practices. Key contributors included food crops like maize, beans, and cassava, alongside cash crops such as coffee and cocoa, which benefited from higher global prices and heightened international demand.
Industrial Recovery
Industrial activity surged to 5.9% in Q1 2024/25 , reversing the sluggish 0.5% growth observed in Q4 2023/24. This recovery was primarily attributed to mining and quarrying, particularly in the extractive industries, where investments in oil exploration and development have gained traction. Additionally, manufacturing subsectors such as food processing and textiles showed signs of improvement, supported by steady domestic demand and export opportunities.
Services Sector Expansion
The services sector grew by 5.9% in Q1 2024/25 , reflecting sustained demand for trade, transport, hospitality, and telecommunications. Increased tourist arrivals, particularly from regional markets, boosted hotel and lodging services, while mobile money transactions and internet penetration drove growth in telecommunications. Despite these gains, slower growth compared to 6.8% in Q4 2023/24 highlights emerging headwinds.

2. Structural Challenges and Risks

Weakening Business and Consumer Confidence
While growth remains robust, weakening business and consumer confidence signals caution ahead. The Purchasing Managers’ Index (PMI) for January 2025 declined to 49.5 , indicating a contraction in business activity due to weaker demand and reduced new business orders. Similarly, the Business Tendency Index (BTI) fell by 1.2 points to 58.1 , reflecting a more pessimistic outlook among business executives, particularly in trade and construction.
On the consumer side, the Consumer Confidence Index (CCI) dropped by 3.5 points to 48.6 , driven by declining perceptions of current economic conditions and future expectations. These trends underscore concerns about economic uncertainty, tighter liquidity conditions, and rising living costs, which could dampen private consumption and investment.
Geopolitical Tensions and Trade Disruptions
Global geopolitical tensions and escalating trade wars pose significant risks to Uganda’s growth prospects. Disruptions in shipping routes, such as those in the Red Sea, could drive up freight costs and reduce market access for Ugandan exports. Additionally, retaliatory tariffs on intermediate goods could elevate production costs, further constraining manufacturing and trade.
Extreme Weather Events
Adverse weather conditions remain a persistent challenge, threatening agricultural output and rural incomes. Erratic rainfall patterns, prolonged droughts, and flooding have disrupted food crop production, exacerbating food insecurity and inflationary pressures. For instance, spikes in tomato and avocado prices in early 2025 highlight vulnerabilities in the agricultural supply chain.
Constrained Financing Conditions
Tight domestic financing conditions, exacerbated by reduced external funding, pose a significant risk to public and private sector investment. The suspension of USAID health sector support has created fiscal gaps, necessitating increased borrowing to maintain service delivery. Furthermore, delays in capital expenditure due to low fund absorption capacity hinder progress on critical infrastructure projects.

3. Pathways to Accelerate Growth

Increased Investment in Extractive Industries
Investments in Uganda’s burgeoning oil sector hold immense promise for accelerating growth beyond projections. Capital inflows from foreign direct investment (FDI), which increased by 12.5% to US$3,365.3 million , are driving developments in oil exploration, pipeline construction, and related infrastructure. The anticipated commencement of oil production is expected to boost export revenues, narrow the current account deficit, and create jobs along the value chain.
To maximise these benefits, policymakers must ensure transparent governance frameworks, equitable revenue sharing, and environmental safeguards to mitigate potential social and ecological impacts.
Effective Government Programs and Interventions
Strategic government initiatives, such as the Domestic Taxes Compliance Improvement Plan (CIP) and climate-smart agricultural programs, are critical to fostering inclusive growth. Strengthening tax administration will enhance domestic resource mobilisation, reducing reliance on external funding. Similarly, promoting climate-resilient farming practices and expanding irrigation systems will stabilise agricultural productivity and safeguard rural livelihoods.
Enhancing Regional Integration and Trade
Strengthening regional partnerships under frameworks like the African Continental Free Trade Area (AfCFTA) can unlock new opportunities for trade diversification and market expansion. Simplifying cross-border trade procedures and harmonising standards will enhance competitiveness and reduce reliance on traditional export destinations. Collaborations with neighbouring countries, such as Kenya and Tanzania, can also foster shared prosperity through joint investments in infrastructure and energy projects.
Leveraging Technology and Innovation
Embracing digital solutions and innovation will enhance productivity and competitiveness across sectors. For example:
- Agriculture : Digital platforms for market linkages and extension services can empower farmers to access better prices and improve yields.
- Manufacturing : Adoption of advanced technologies, such as automation and artificial intelligence, can streamline operations and reduce costs.
- Services : Expanding e-commerce and fintech solutions will create new avenues for growth, particularly in underserved rural areas.

4. Mitigating Risks to Sustain Growth

Strengthening Disaster Preparedness
Establishing robust early warning systems and disaster risk management frameworks will enable timely responses to natural disasters, reducing their impact on food security and incomes. Investing in resilient infrastructure, such as flood-resistant roads and climate-proof storage facilities, will further mitigate risks.
Improving Fund Absorption Capacity
Addressing bottlenecks in project implementation is critical to enhancing fund absorption. Streamlining procurement processes, training government officials, and adopting digital tools for financial oversight will improve efficiency and ensure timely disbursement of funds.
Promoting Financial Inclusion
Expanding access to affordable financing, particularly for small and medium enterprises (SMEs), will stimulate private sector growth. Encouraging the adoption of mobile banking and other digital financial services will empower marginalised groups, fostering inclusive economic participation.

5. Broader Implications for Development

Job Creation and Poverty Reduction
Accelerating growth through targeted investments and effective policies will create employment opportunities, particularly for youth and women. By prioritising labour-intensive sectors such as agriculture, manufacturing, and tourism, Uganda can address unemployment and reduce poverty levels.
Building Resilience to External Shocks
Diversifying export markets, strengthening domestic resource mobilisation, and enhancing institutional capacity will bolster resilience to external shocks. A stable macroeconomic environment, supported by prudent fiscal and monetary policies, will attract investment and promote long-term sustainability.
Supporting Sustainable Development Goals (SDGs)
Aligning growth strategies with the SDGs, particularly those related to zero hunger, quality education, and climate action, will ensure that economic progress translates into tangible improvements in human well-being. Investments in renewable energy, healthcare, and education will lay the foundation for a prosperous and equitable future.

Uganda’s economic growth prospects remain promising, driven by robust performance in agriculture, industry, and services. However, structural challenges such as geopolitical tensions, extreme weather events, and constrained financing underscore the need for proactive measures to sustain progress. By leveraging increased investment in extractive industries, implementing effective government programs, and addressing structural inefficiencies, Uganda can accelerate growth beyond projections and achieve its medium-term target of 7.0% GDP growth . The cautious yet accommodative approach adopted by the Bank of Uganda, coupled with strategic interventions by the government, will play a pivotal role in navigating risks and unlocking opportunities. As Uganda advances towards its Vision 2040 goals, ensuring inclusive and sustainable growth will be critical to building a resilient and prosperous economy.

Inflation Management in a Complex Environment: Navigating Underlying Pressures in Uganda

While headline inflation in Uganda remains moderate at 3.6% as of January 2025, the rise in core inflation to 4.2% underscores underlying price pressures that require careful management. This complex inflationary environment is shaped by both domestic and global factors, including seasonal fluctuations, sector-specific dynamics, and external uncertainties.

1. Drivers of Inflationary Pressures

Core Inflation: Rising Underlying Pressures
Core inflation, which excludes volatile food and energy prices, rose to 4.2% in January 2025 from 3.9% in December 2024. This increase reflects persistent upward pressure on prices for goods and services outside the energy and food sectors. Key contributors include:
- Services Sector : Inflation in services reached 6.3% , driven by higher costs in passenger transport and hotel/lodging services. These increases are partly linked to rising operational costs, such as fuel surcharges and utility expenses, which are passed on to consumers.
- Other Goods : Prices for non-food items, such as smoked tilapia, new clothing, sugar, and laundry soap, also contributed to the uptick. These price movements suggest supply-side constraints and rising production costs.
Energy Prices: A Mixed Picture
Annual Energy, Fuel, and Utilities (EFU) inflation declined to 0.3% in January 2025 from 1.0% in December 2024, reflecting lower solid fuel prices and subdued global oil prices. While this decline has mitigated cost-push effects, the risk of volatility in global energy markets remains, particularly given geopolitical tensions and supply chain disruptions.
Food Crop Inflation: Seasonal and Weather-Related Factors
Food crop inflation edged higher to 0.2% in January 2025, reversing a previous decline of -0.7% in December 2024. This reversal was driven by significant price increases for specific commodities, such as tomatoes (3.5% ) and avocados (11.2% ), which were affected by seasonal supply shortages and adverse weather conditions. These fluctuations highlight the vulnerability of Uganda’s agricultural sector to climatic variability and post-harvest handling challenges.

2. Challenges in Managing Inflation

Underlying Price Pressures
The divergence between headline and core inflation indicates that while temporary factors like lower energy prices have kept overall inflation moderate, structural issues persist. Rising costs in services and other goods suggest that demand-side pressures and inefficiencies in key sectors are contributing to inflationary trends.
External Uncertainties
Global risks, such as geopolitical conflicts, trade wars, and volatile commodity prices, pose significant threats to Uganda’s inflation outlook. For instance:
- Exchange rate depreciation could amplify imported inflation, particularly for essential goods and intermediate inputs.
- Supply chain disruptions could lead to higher production costs, further driving up prices for consumers.
Domestic Vulnerabilities
Domestic factors, including tight liquidity conditions, reduced external funding, and fiscal expansion, add complexity to inflation management. For example:
- Increased government spending, particularly in response to emergencies like the recent Ebola outbreak, could stoke aggregate demand and push prices higher.
- Adverse weather conditions, such as prolonged droughts or flooding, threaten food security and exacerbate food crop inflation.

3. Strategies for Maintaining Price Stability

Monetary Policy: Striking a Balance
The Bank of Uganda (BoU) must adopt a cautious yet accommodative monetary policy stance to balance growth and inflation objectives. Key measures include:
- Maintaining the Central Bank Rate (CBR) : Keeping the CBR at 9.75% , as decided by the Monetary Policy Committee (MPC), provides a stable anchor for inflation expectations while supporting economic activity.
- Monitoring Liquidity Conditions : Tight liquidity conditions, which have driven up money market rates, need to be managed carefully to prevent excessive borrowing costs from stifling private sector growth.
- Responding to External Shocks : Proactive interventions, such as foreign exchange sales, can stabilise the Uganda Shilling and mitigate imported inflationary pressures.
Fiscal Prudence: Aligning Budgets with Strategic Priorities
Fiscal policy plays a critical role in managing inflationary risks. To ensure prudent fiscal management:
- Enhancing Revenue Mobilisation : Strengthening domestic tax collection under initiatives like the Domestic Taxes Compliance Improvement Plan (CIP) will reduce reliance on external funding and minimise fiscal deficits.
- Improving Fund Absorption : Addressing bottlenecks in project implementation will enhance the efficiency of public spending and reduce wastage.
- Targeted Spending : Prioritising expenditures in high-impact areas, such as infrastructure and social services, will maximise returns on investment and support long-term growth.
Strengthening Supply-Side Resilience
Addressing structural inefficiencies in key sectors will help mitigate inflationary pressures:
- Agriculture : Promoting climate-smart practices, improving post-harvest handling, and investing in irrigation systems will stabilise food crop production and reduce price volatility.
- Energy : Expanding renewable energy capacity, such as solar and hydroelectric power, will lower dependence on imported fuels and reduce exposure to global energy price fluctuations.
- Transportation : Enhancing logistics infrastructure, including roads and railways, will reduce freight costs and improve supply chain efficiency.
Public Communication and Expectations Management
Transparent communication from the BoU and the government will anchor inflation expectations and build public confidence. Regular updates on inflation trends, policy actions, and economic forecasts will reassure households and businesses, reducing the likelihood of self-fulfilling inflationary spirals.

4. Risks to the Inflation Outlook

Upside Risks
Several factors could push inflation above projections:
- Geopolitical Conflicts : Escalating global tensions could disrupt supply chains and elevate commodity prices.
- Weather Shocks : Extreme weather events, such as droughts or floods, could severely impact agricultural output and drive up food prices.
- Exchange Rate Volatility : A weaker Uganda Shilling would increase the cost of imports, amplifying cost-push inflation.
Downside Risks
Conversely, certain developments could ease inflationary pressures:
- Stronger Exchange Rate : Higher capital inflows from investments in the oil sector could strengthen the Shilling, reducing imported inflation.
- Lower Global Oil Prices : A slowdown in global economic growth could lower oil prices, easing domestic cost pressures.

5. Broader Implications for Economic Stability

Household Welfare
Rising inflation, particularly in essential goods and services, erodes household purchasing power, disproportionately affecting low-income groups. Policies aimed at stabilising prices will protect vulnerable populations and promote inclusive growth.
Business Confidence
Stable inflation supports business planning and investment decisions. By maintaining price stability, the BoU creates a conducive environment for entrepreneurship and economic diversification.
Investment Climate
A predictable inflation outlook enhances Uganda’s attractiveness to foreign investors, particularly in the extractive industry and other priority sectors. Sustained efforts to manage inflation will bolster investor confidence and accelerate growth.

Managing inflation in Uganda’s complex economic environment requires a delicate balance between accommodative monetary policies and prudent fiscal management. While headline inflation remains moderate, underlying pressures in core inflation and specific sectors, such as services and food crops, highlight the need for proactive measures. By addressing structural inefficiencies, mitigating external risks, and fostering resilience in key sectors, policymakers can maintain price stability and support sustainable economic growth. The BoU’s cautious approach to monetary policy, coupled with strategic fiscal interventions, will play a pivotal role in navigating this challenging landscape. As Uganda advances towards its medium-term growth target of 7.0% , ensuring price stability will remain a cornerstone of macroeconomic resilience and prosperity.

Conclusion: Charting a Path to Sustainable Economic Growth in Uganda

Uganda’s journey toward sustainable economic growth is a nuanced and multifaceted endeavour, marked by both formidable challenges and promising opportunities. As the nation navigates a complex global environment characterized by geopolitical tensions, fluctuating commodity prices, and tightening financial conditions, it must also contend with domestic constraints such as tight liquidity, structural inefficiencies, and adverse weather conditions. Yet, amidst these hurdles lies immense potential for transformation, driven by strategic investments, regional collaboration, and innovative policymaking.

Addressing Structural Bottlenecks

To achieve sustained progress, Uganda must prioritise addressing structural bottlenecks that hinder economic performance. Key among these are inefficiencies in public expenditure, low absorption capacity for development projects, and persistent gaps in infrastructure. For instance, delays in capital spending have constrained critical sectors like energy, transportation, and agriculture, limiting their contribution to GDP growth. Strengthening institutional frameworks, streamlining procurement processes, and enhancing transparency will be pivotal in ensuring that resources are utilised effectively. Moreover, promoting private sector participation through public-private partnerships (PPPs) can mobilise additional funding for large-scale projects, reducing pressure on government finances while accelerating development.

Fostering Regional Integration

Regional integration offers a powerful avenue for Uganda to diversify its trade relations and enhance market access. Under frameworks like the African Continental Free Trade Area (AfCFTA) , Uganda can position itself as a regional hub for trade and investment. By simplifying cross-border procedures, harmonising standards, and investing in connectivity infrastructure—such as roads, railways, and digital networks—the country can unlock new export opportunities and reduce reliance on traditional trading partners. Strengthening ties with neighbouring economies, particularly Kenya, Tanzania, and South Sudan, will also foster shared prosperity and resilience against external shocks.

Capitalizing on Transformative Sectors

The extractive industry, particularly oil, represents a transformative opportunity for Uganda. With robust Foreign Direct Investment (FDI) inflows of US$3,365.3 million in 2024, largely driven by developments in the oil sector, the stage is set for significant revenue generation and job creation. However, realising this potential requires careful management of resources, transparent governance frameworks, and equitable revenue-sharing mechanisms. Investments in ancillary industries, such as refining, logistics, and petrochemicals, will further amplify the sector’s impact, creating backward and forward linkages that stimulate broader economic activity.

Beyond oil, other high-potential sectors—including agriculture, manufacturing, and tourism—must not be overlooked. Promoting climate-smart agricultural practices, expanding value addition in agro-processing, and leveraging Uganda’s rich biodiversity for eco-tourism initiatives can drive inclusive growth and empower rural communities. These efforts align with the nation’s Vision 2040 goals, which emphasise diversification and sustainability as cornerstones of long-term development.

Balancing Investment and Stability

Policymakers face the delicate task of balancing the need to stimulate investment with the imperative of maintaining macroeconomic stability. While accommodative monetary policies and targeted fiscal measures are essential for fostering economic expansion, vigilance is required to prevent inflationary pressures and exchange rate volatility from undermining progress. The Bank of Uganda’s decision to maintain the Central Bank Rate (CBR) at 9.75% , coupled with prudent debt management and enhanced tax administration under initiatives like the Domestic Taxes Compliance Improvement Plan (CIP), reflects a cautious yet balanced approach to achieving this equilibrium.

Furthermore, strengthening foreign exchange reserves and improving fund absorption capacity will bolster resilience against external uncertainties. As global dynamics continue to evolve, proactive measures to mitigate risks—such as exchange rate depreciation, supply chain disruptions, and rising commodity prices—will be critical to safeguarding Uganda’s economic trajectory.

Building Resilience Against Global Uncertainties

Global uncertainties present both risks and opportunities for Uganda. On one hand, slower growth in advanced economies and escalating trade wars could dampen demand for Ugandan exports. On the other hand, emerging markets like India offer untapped potential for trade diversification, while lower global oil prices provide relief to import-dependent industries. Navigating these complexities necessitates a forward-looking strategy that leverages domestic strengths while mitigating vulnerabilities. For example, expanding renewable energy capacity and adopting technology-driven solutions can reduce dependence on imported fuels and enhance competitiveness.

Laying the Groundwork for Long-Term Prosperity

Ultimately, Uganda’s success hinges not only on overcoming immediate obstacles but also on laying a solid foundation for long-term prosperity. This entails investing in human capital, fostering innovation, and promoting social inclusion. Expanding access to quality education, healthcare, and skills development will equip citizens with the tools needed to thrive in a rapidly changing world. Similarly, empowering marginalised groups—particularly women, youth, and rural populations—through targeted interventions will ensure that no one is left behind in the pursuit of progress.

A Call to Action

As readers reflect on these insights, they are encouraged to consider their own roles in shaping Uganda’s future. Whether as policymakers, business leaders, or citizens, each stakeholder has a part to play in driving positive change. Collaboration across sectors, innovation in problem-solving, and perseverance in the face of adversity will pave the way forward. Together, we can build a brighter future—one where sustainable growth, shared prosperity, and resilience define Uganda’s place on the global stage.

In conclusion, Uganda stands at a pivotal moment in its developmental journey. By addressing structural challenges, fostering regional integration, and capitalising on transformative opportunities, the nation can fortify its resilience and chart a course toward lasting prosperity. The path ahead may be challenging, but with determination and collective effort, Uganda can achieve its vision of becoming a beacon of hope and progress in East Africa.

Sub delegate

Joram Jojo