KAMPALA – Uganda’s economy is showing impressive growth, with GDP rising to 6.7 percent and export earnings surging by 21.8 percent in the third quarter of FY 2024/25. However, the widening trade deficit and inefficiencies in service delivery pose challenges to sustained progress. The Ministry of Finance projects steady growth and stable inflation but emphasizes the need for export diversification, fiscal discipline, and investment in human capital to secure long-term economic resilience, according to a recent statement released by Ramathan Ggoobi, the permanent secretary/ secretary to the treasury, said. This analysis breaks down key trends, explains the economic terms, and assesses the implications for Uganda’s future economic outlook.
Uganda’s GDP growth for the first quarter of FY 2024/25 rose to 6.7 percent, an improvement from 5.6 percent recorded in the same period the previous year. This growth was broad-based, driven by increased food crop production in agriculture, significant activity in agro-processing and construction within industry, and robust growth in wholesale trade and transport services. The report suggests that improved sectoral performance has been key to the recovery of the economy and its ability to sustain higher growth rates.
Headline inflation in December 2024 increased slightly to 3.3 percent, up from 2.9 percent in November. The uptick was attributed to seasonal demand during the festive period, but inflation remained well within the Central Bank’s target of 5 percent. Meanwhile, the Ugandan Shilling appreciated marginally against the US Dollar, trading at an average rate of Shs 3,664.08 per USD in December. This stability was supported by increased remittance inflows during the festive season and higher FDI, especially in the oil and gas sector.
On the external trade front, export earnings in Q1 of FY 2024/25 grew by 21.8 percent, amounting to USD 2.262 billion, driven by increased coffee exports and contributions from minerals, flowers, simsim, and tobacco. The import bill also grew, reaching USD 3.161 billion, reflecting increased volumes and values of non-oil imports. Despite the growth in exports, the trade deficit widened by 1.2 percent to USD 898.66 million, underlining the need for policies to address import dependency and promote export diversification.
The report shows a remarkable 25.4 percent growth in FDI during Q1 of FY 2024/25, reaching USD 799.46 million, driven by significant investments in the oil and gas sector. Similarly, remittance inflows increased by 8 percent, totaling USD 389.06 million. These trends demonstrate growing investor confidence in Uganda’s economy and highlight the critical role of diaspora contributions in supporting domestic economic activity.
Domestic revenue collection performed strongly, with Shs 15.33 trillion collected by December 2024, surpassing the half-year target by Shs 326.83 billion. This performance was attributed to improved economic activity and enhanced tax administration. The government expects total collections for the financial year to reach Shs 31.98 trillion, reflecting confidence in its fiscal management strategy.
The government released Shs 15.64 trillion for Q3, representing 21.68 percent of the approved budget. These funds were allocated to critical sectors including health, education, security, and infrastructure. For public sector wages, Shs 2.044 trillion was provided, while education received Shs 112.28 billion for school capitation grants and Shs 92.75 billion for public universities. The health sector was allocated Shs 110.65 billion for National Medical Stores, with additional funding for referral hospitals and specialized institutions such as the Uganda Cancer Institute and Uganda Heart Institute. Infrastructure projects, including the Standard Gauge Railway and Kabalega International Airport, received Shs 396.55 billion. The Parish Development Model (PDM) and Uganda Development Bank were allocated Shs 529 billion and Shs 30 billion, respectively, to promote economic growth at the grassroots level.
The Ministry projects GDP growth of 6-6.5 percent for the full financial year, supported by strong sectoral performance and continued inflows of FDI into the oil and gas sector. Inflation is expected to remain within the Central Bank’s target of 5 percent, while the exchange rate is anticipated to remain stable. Domestic revenues are projected to meet 100% of their target, reflecting effective fiscal management. However, there are risks that could undermine this positive outlook.
A key challenge identified in the report is the widening trade deficit, driven by a higher increase in imports compared to exports. While export earnings have grown significantly, Uganda must prioritize export diversification and value addition to reduce its dependence on imports. Overreliance on investments in the oil and gas sector also presents a structural risk to the economy. While FDI in this sector is driving growth, the government must reinvest gains into other critical sectors, such as agriculture and manufacturing, to ensure a more balanced and resilient economic model.
Service delivery gaps remain a concern, particularly in sectors such as health and education. Despite significant budget allocations, issues such as delayed disbursements, inadequate monitoring, and the accumulation of domestic arrears could hinder the effective delivery of services. Additionally, global economic uncertainties, such as fluctuating commodity prices and geopolitical tensions, pose risks to Uganda’s export performance and foreign investments.
To address these challenges, Uganda must focus on export diversification by investing in value addition for agricultural products and other exports. Strengthening fiscal discipline is critical to ensuring timely payment of service providers and reducing the accumulation of arrears. Supporting small and medium enterprises (SMEs) through access to credit and capacity-building programs could boost job creation and economic resilience. Furthermore, sustained investment in education and health is essential to building the human capital necessary for long-term economic growth.
The Ministry of Finance’s report highlights an economy that is recovering steadily, with strong indicators of growth and fiscal discipline. However, structural challenges such as the trade deficit, overdependence on oil investments, and inefficiencies in service delivery must be addressed to sustain this trajectory. By focusing on diversification, fiscal discipline, and human capital development, Uganda can ensure that the benefits of economic growth are broadly shared and contribute to long-term socio-economic transformation.
