Uganda’s economy has shown remarkable resilience, recording an impressive 6.1 percent GDP growth in FY2023/24, according to the World Bank’s 24th Economic Update.
Strong performances in services, industry and agriculture, alongside improved exports and stable monetary policies, have fueled this expansion, the report found. Inflation has also declined sharply, falling from 8.8 percent to 3.2 percent, making Uganda one of the most stable economies in East Africa.
Despite these gains, major challenges persist. The country faces a 7.9 percent current account deficit, declining foreign exchange reserves, and fiscal constraints that could derail progress.
The long-awaited oil production boom, set to begin in FY2025/26, promises to transform Uganda’s economic landscape, yet delays in infrastructure projects like the East African Crude Oil Pipeline (EACOP) pose significant risks, according to the report.
Additionally, the report stresses the urgent need for structural reforms, particularly in domestic revenue mobilization and early childhood development (ECD), to ensure sustainable, long-term growth.
INFLATION DECLINED
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 four 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, exacer- bated 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 six 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 macroeco-nomic stability. Fiscal consolidation remains a key prior ity, 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 per cent 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.