Kampala, February 24, 2025 – Uganda’s economy has shown remarkable resilience, achieving a robust 6.1 percent Gross Domestic Product (GDP) growth in the financial year 2023/24, driven by strong performances in the services, industrial, and agriculture sectors, according to the just-released World Bank 24th Economic Update. The country’s post-COVID-19 recovery has been bolstered by improved exports, eased supply chain disruptions, and stable monetary policies, contributing to a sharp decline in inflation from 8.8 percent to 3.2 percent. However, despite these gains, Uganda faces persistent challenges, including a 7.9 percent current account deficit, declining foreign exchange reserves, and fiscal discipline concerns. The report also underscores the critical role of oil production, expected to begin in FY2025/26, in shaping Uganda’s future economic trajectory. Yet, delays in infrastructure projects like the East African Crude Oil Pipeline (EACOP) pose risks to revenue generation and economic stability. Additionally, the report highlights the urgent need for structural reforms in domestic revenue mobilization and greater investments in early childhood development (ECD) to ensure sustainable, long-term economic transformation. While Uganda’s growth outlook remains positive, addressing these economic vulnerabilities will be crucial in maintaining stability and fostering inclusive prosperity.
Inflation in Uganda has declined significantly, dropping from 8.8 percent in FY2022/23 to 3.2 percent in FY2023/24, according to the report. This decline has been largely attributed to favorable weather conditions, which have improved agricultural yields and lowered food prices. Additionally, the Bank of Uganda’s tight monetary policy has played a crucial role in controlling inflation expectations and stabilizing the economy. The report notes that the stability of exchange rates has also contributed to curbing imported inflation, preventing drastic price surges in essential goods. Food prices saw only a 3.3 percent increase, a stark contrast to the 22.7 percent rise in the previous fiscal year. Core inflation, which excludes volatile components such as food, fuel, and electricity, declined from 7.4 percent to 3.0 percent, further demonstrating effective inflation management. Uganda has maintained one of the lowest inflation rates in East Africa, though risks persist due to global supply chain disruptions, geopolitical tensions, and fluctuating commodity prices.
Uganda’s current account deficit remained elevated at 7.9 percent of GDP in FY2023/24, though it has improved slightly compared to the previous year. This improvement has been driven by strong export performance, particularly in gold, coffee, and metals. Export prices have risen by nearly 13 percent, while import prices have declined by 4 percent, boosting the country’s trade balance. Coffee exports, in particular, have surged by 46 percent, fueled by increasing global prices and higher demand from key markets such as the United Arab Emirates and India. Despite these gains, high import demand for infrastructure and oil-related projects has widened the deficit. The trade in services has also deteriorated due to rising freight transportation costs, exacerbated by ongoing global disruptions.
Foreign exchange reserves have declined to $3.4 billion, covering only three months of imports. This decline is attributed to increased foreign currency demand for financing oil infrastructure imports, falling foreign direct investment (FDI) inflows, and higher debt repayments. The Ugandan shilling depreciated by 6 percent in the first eight months of FY2023/24 against the U.S. dollar but showed signs of recovery in November 2024 with a 6.6 percent appreciation. These external pressures highlight the need for stronger foreign reserve buffers to mitigate currency volatility and ensure macroeconomic stability.
Fiscal consolidation remains a key priority, as Uganda’s fiscal deficit narrowed to 4.8 percent of GDP in FY2023/24. However, this figure remains higher than projected due to unplanned supplementary budgets, which accounted for 2.2 percent of GDP. Revenue mobilization has been insufficient, necessitating urgent reforms to strengthen domestic revenue generation. The government has proposed several fiscal reforms, including the implementation of a Tax Expenditure Governance Framework to manage tax exemptions, the repeal of income tax exemptions for high-net-worth individuals, and stricter enforcement of VAT collection on digital services. Without significant improvements in tax revenue, the government risks budgetary constraints that could impact essential investments in education and health.
Oil production is expected to begin in FY2025/26, with peak production anticipated to reach 230,000 barrels per day. This development is projected to drive GDP growth to 10.8 percent in FY2025/26, up from 6.2 percent in FY2024/25. The government stands to gain substantial revenues from oil production, with potential earnings of $3.3 billion annually by 2030, covering approximately 4.9 percent of GDP. However, delays in infrastructure projects, particularly the East African Crude Oil Pipeline (EACOP), pose significant risks to this forecast. Strengthening fiscal rules and oil revenue management policies will be essential to preventing economic volatility and ensuring that oil revenues contribute to sustainable long-term growth.
Uganda’s economic outlook remains positive, with real GDP growth projected at 6.2 percent in FY2024/25. However, several risks could hinder this trajectory, including inflation vulnerability, debt sustainability concerns, and external shocks. Inflationary pressures may resurface due to commodity price fluctuations, adverse weather conditions, and currency depreciation. Debt levels are projected to exceed 52% of GDP, necessitating structural reforms to enhance fiscal discipline and reduce reliance on borrowing. To sustain long-term economic growth, Uganda must invest in human capital, infrastructure, and industrial diversification.
The World Bank’s report highlights the importance of investing in early childhood development (ECD) as a critical driver of Uganda’s future economic success. Education, health, and nutrition for young children are fundamental to improving productivity, economic growth, and job creation in the long run. However, challenges such as inequitable access to healthcare and education, poor pre-primary education quality, and limited affordable childcare options continue to undermine ECD progress. Women’s participation in the workforce is also constrained by inadequate childcare facilities, while insufficient government funding further exacerbates these issues.
To address these challenges, the report recommends increasing public spending on ECD, enhancing quality assurance mechanisms through data-driven policies, and strengthening the ECD workforce by improving teacher training and career incentives. Key priority investment areas include expanding primary healthcare and community hospitals in underserved areas, introducing one year of public pre-primary education, developing affordable childcare solutions for informal sector workers, and scaling up parenting support programs. These measures will ensure a skilled and healthy workforce, laying a strong foundation for Uganda’s long-term economic transformation.
Uganda’s economic trajectory remains promising, supported by low inflation, a strong export sector, and future oil production. However, the country faces significant structural challenges that require immediate attention. Fiscal discipline, reduced dependence on imports, and improved domestic revenue mobilization will be crucial in sustaining economic stability. Strategic investments in human capital, infrastructure, and oil governance will play a pivotal role in shaping Uganda’s economic future. By prioritizing sustainable economic policies and investing in critical sectors such as early childhood development, Uganda can unlock its full potential and achieve long-term prosperity.
