KAMPALA — Uganda’s economy is expanding faster than most in Africa. Fields are green, factories are busy, and investors are eyeing the country’s oil potential with renewed optimism. Yet behind the upbeat numbers lies a quieter warning: without serious fiscal reform, the country’s growth could prove far less durable than it appears.
That’s the central message of the 25th Uganda Economic Update released this week by the World Bank. The report paints a picture of a nation moving forward. GDP rose 6.8 percent in the first nine months of the 2024/25 financial year, but still dragging the weight of fragile public finances, widening inequality, and underfunded social services.
“Uganda’s economic momentum remains strong,” the report notes, “but fiscal reforms are imperative to secure long-term stability.”
Growth is being powered by familiar engines: agriculture, construction, and manufacturing. Favorable weather has revived crop yields, helping rural incomes recover after years of erratic rainfall. Manufacturing is expanding too, especially in construction materials and pharmaceuticals, which now employ thousands and attract foreign investment.
Inflation is tame at around 3.5 percent, and foreign investment, particularly in oil infrastructure, continues to rise. But the World Bank warns that this progress is not evenly felt. While poverty has fallen nationally to about 26 percent, inequality remains stark: in Karamoja, more than three-quarters of residents live below the poverty line, compared to fewer than 5 percent in Kampala.
“Uganda’s growth story is real,” said one economist involved in the study, “but it’s not yet inclusive. Too many regions are being left behind.”
For all its growth, Uganda still struggles to collect enough revenue to fund basic services. Tax revenues amount to roughly 14 percent of GDP, well below the government’s target of 16–18 percent and far behind regional peers such as Kenya and Rwanda.
This shortfall has forced Kampala to borrow heavily at home, pushing public debt to 53 percent of GDP. The fiscal deficit, the gap between what the government earns and spends, has also widened to 7.6 percent, nearly two percentage points above budgeted levels.
“Low revenue effort limits the government’s fiscal space,” the World Bank cautions, “and undermines its capacity to invest in health, education, infrastructure, and social protection.”
The consequences are visible everywhere: crowded classrooms, under-equipped clinics, and stalled local projects.
Fixing the Tax System
The Bank’s report calls for what it delicately terms “urgent fiscal surgery,” with a prescription centered on fairness and efficiency. It recommends adjusting personal income tax brackets so that high earners pay more while low-income workers are protected from inflation; reviewing the generous 10-year tax holidays for large corporations that have shown little proven benefit; and eliminating politically protected exemptions, such as those for MPs, judges, and security officers, which cost taxpayers more than half a trillion shillings each year. The report also urges the government to strengthen data systems to track high-net-worth individuals and enforce asset disclosure for Ugandans abroad.
“If Uganda’s budget is to meet the needs of a growing population,” said Qimiao Fan, the World Bank’s country director for Uganda, Kenya, Rwanda, and Somalia, “it must do much more to mobilize domestic revenue.”
The Bank’s analysts argue that raising taxes alone won’t fix Uganda’s fiscal problem; the government must also spend better. Education spending currently sits at just 2.7 percent of GDP, far below the regional average of 4.2 percent. Health and social protection lag too, with many local governments struggling to implement even basic programs.
Reforms in how money is shared between central and local governments, the report says, could ensure more equitable delivery of services. Greater transparency and citizen engagement would also help rebuild public trust, a crucial ingredient for tax compliance.
Oil on the Horizon — Promise and Peril
The most eye-catching prospect in Uganda’s future is oil. If all goes according to plan, commercial production will begin by 2027, potentially lifting GDP growth to double digits.
But the World Bank warns that the global transition away from fossil fuels could make Uganda’s oil wealth more fleeting than expected. “The risk,” it says, “is that anticipation of oil revenue fuels complacency, debt, or waste, the classic pre-resource curse.”
To avoid this, the report urges Uganda to channel oil revenues into non-oil industries, promote private sector growth, and maintain strict fiscal discipline — especially as the 2026 elections approach.
Uganda’s story, at its core, is one of progress that risks stalling. The economy is resilient and growing, but the foundations, how the state raises and spends money, remain shaky.
The World Bank’s advice is blunt: without reform, even 7 percent growth will not deliver lasting prosperity. But with a smarter, fairer tax system and disciplined spending, Uganda could turn its current momentum into something rarer, stability that endures.
For now, the country stands at a familiar crossroads: rich in potential, but facing choices that will determine whether its next decade is one of shared prosperity or widening divides.
