Kampala, February 25, 2025 – Uganda’s economy is poised to take a huge leap forward, buoyed by the anticipated commencement of oil production in the financial year 2025/26 and strong export performance. According to the World Bank’s 24th Economic Update, the country recorded a 6.1 percent gross domestic product (GDP) growth in FY2023/24, a trajectory expected to accelerate significantly with peak oil production reaching 230,000 barrels per day. This development is projected to boost GDP growth to 10.8 percent in FY2025/26, generating an estimated US$3.3 billion annually by 2030, equivalent to 4.9 percent of GDP. Projected annual oil revenues of $3.3 billion by 2030 could have transformative implications for a developing country like Uganda. This revenue stream has the potential to reduce fiscal deficits, boost infrastructure development, and fund critical sectors like education, healthcare, and job creation. If managed effectively, it could help strengthen foreign exchange reserves, improve public services, and reduce reliance on external borrowing.
However, Uganda faces persistent fiscal challenges, including a 7.9 percent current account deficit, declining foreign exchange reserves, and external financial constraints, all of which pose risks to its economic stability. Managing oil revenues, trade imbalances, and foreign investment inflows will be critical in determining whether Uganda achieves long-term economic transformation or remains vulnerable to financial instability.
The expansion of Uganda’s oil sector is expected to reshape the country’s economic landscape. Investments in major oil projects, such as the Tilenga and Kingfisher oil fields, the East African Crude Oil Pipeline (EACOP), and Kabalega International Airport, have attracted substantial foreign and domestic capital. These infrastructure developments not only support oil extraction and transportation but also stimulate job creation and economic diversification. While oil revenues are projected to reduce Uganda’s budget deficit, their effective management remains a pressing concern. The government has adopted a fiscal rule aimed at stabilizing public finances and mitigating the risks associated with volatile oil prices. However, the Petroleum Revenue Investment Reserve (PRIR), Uganda’s sovereign oil fund, currently lacks clear regulatory frameworks, raising concerns about the transparent allocation of oil revenues. Legal reforms are urgently needed to prevent mismanagement and ensure that oil wealth contributes to long-term fiscal stability rather than short-term expenditure pressures.
Despite the promising outlook, Uganda’s current account deficit remains elevated, with only a slight improvement from previous years. The trade balance has been influenced by strong export performance, particularly in key commodities such as gold, coffee, and metals. Merchandise exports surged by 46 percent, following a 42 percent increase in the previous fiscal year, largely driven by a 40 percent rise in global coffee prices. The United Arab Emirates and India accounted for nearly 75 percent of Uganda’s export growth, reinforcing the importance of diversifying export markets. However, while Uganda has benefited from favorable commodity price trends, the persistent rise in import volumes—up 30.6 percent has widened the trade deficit. High demand for infrastructure and oil-related imports, particularly mineral products, machinery, and food, has offset gains made in export revenue.
The trade-in services have further exacerbated Uganda’s external imbalances. Increased freight and transportation costs, influenced by global logistics disruptions, particularly in the Middle East, have raised import prices and weakened trade competitiveness. This deterioration in services trade has contributed to external financing pressures, limiting Uganda’s ability to reduce its reliance on external borrowing. Foreign Direct Investment (FDI) has remained a crucial source of capital inflows, averaging 6% of GDP in recent years, largely due to oil-related investments. However, Uganda has experienced a sharp decline in official external financing, with budgetary support contracting by 86 percent, leading to a US$841 million reduction in foreign exchange reserves. The depletion of reserves, now standing at US$3.4 billion, equating to only three months of import coverage, signals the urgent need to strengthen foreign reserve buffers to cushion the economy against external shocks.
The fiscal deficit narrowed to 4.8 percent of GDP in FY2023/24, yet it remains higher than projected due to unplanned supplementary budgets accounting for 2.2 percent of GDP. Domestic revenue mobilization has been insufficient to bridge the fiscal gap, necessitating structural reforms to improve tax collection. The government has proposed key fiscal measures, including the implementation of a Tax Expenditure Governance Framework to regulate tax exemptions, the repeal of income tax exemptions for high-net-worth individuals, and the strict enforcement of VAT collection on digital services. Without significant improvements in domestic revenue mobilization, Uganda risks cutting essential investments in education, healthcare, and infrastructure, undermining its long-term growth potential.
The delayed rollout of oil production remains a major risk factor in Uganda’s economic forecast. While oil is expected to drive growth, revenue generation, and job creation, infrastructure bottlenecks and regulatory uncertainties could derail the sector’s contributions to economic development. Delays in completing EACOP and other supporting infrastructure projects threaten to postpone revenue inflows, potentially widening the fiscal deficit and increasing reliance on external borrowing. The government must strengthen fiscal rules and enhance oil revenue management policies to ensure that resource wealth contributes to sustainable economic growth rather than cyclical volatility.
Looking ahead, Uganda’s economic prospects depend on its ability to balance short-term fiscal pressures with long-term structural reforms. The country must prioritize strategic investments in infrastructure, oil governance, and human capital development to sustain economic momentum. Strengthening domestic revenue mobilization, reducing import dependency, and diversifying exports will be critical in stabilizing the current account balance. Additionally, Uganda must enhance the resilience of its foreign reserves and mitigate external financial constraints to safeguard macroeconomic stability.
While Uganda’s growth outlook remains positive, policy execution will determine whether the country fully capitalizes on its economic potential. The success of oil production, trade performance, and fiscal management will shape Uganda’s trajectory, making it imperative for policymakers to implement sound economic strategies that foster stability, resilience, and inclusive prosperity.
