Growth Returns to Uganda, but Rising Debt and Spending Risks Shadow the Recovery

Uganda's economy has staged a strong recovery after the pandemic, according to a recent assessment by the International Monetary Fund, prepared in collaboration with the World Bank. Drawing on IMF staff analysis and joint IMF–World Bank debt sustainability work, the report finds that Uganda has regained growth momentum and restored macroeconomic stability, even as deeper fiscal problems continue to simmer beneath the surface. After years of global shocks, Uganda now stands at a crossroads, balancing short-term stability against longer-term risks.

Growth Is Strong, Inflation Is Tamed

Economic growth picked up to about 6.3 percent in the 2024/25 fiscal year, driven by rising domestic demand, a rebound in services, and steady performance in agriculture and construction. Inflation, which surged in 2022 as food and fuel prices spiked globally, has been firmly brought under control. By late 2025, inflation was below 4 percent, helped by tight monetary policy from the Bank of Uganda, lower global prices, and a more stable shilling. This stability has boosted confidence among consumers, businesses, and investors, reinforcing Uganda's reputation as one of the more resilient economies in the region.

A Brighter External Picture, With Caveats

Uganda's external position has improved alongside the domestic recovery. Strong coffee exports helped narrow the current account deficit, while foreign investors poured money into Uganda's domestic bond market in search of high returns. These inflows allowed the central bank to rebuild foreign exchange reserves, which reached close to USD 6 billion by late 2025, just over three months of import cover. While this offers a stronger buffer against external shocks, it also leaves Uganda exposed to sudden shifts in investor sentiment, especially if global financial conditions tighten.

Fiscal Pressures Are Building

Behind the positive headlines, fiscal stress is growing. The budget deficit widened to around 6 percent of GDP in 2024/25, reflecting rising recurrent spending and higher interest costs. Public debt climbed above 52 percent of GDP, breaching Uganda's own fiscal rules. With concessional foreign loans becoming scarcer, the government has relied more on domestic borrowing at high interest rates. Interest payments now consume a large share of government revenues, leaving less money for health, education, and social programs. Banks have increased their exposure to government debt, reducing the flow of credit to businesses and tying the health of the financial system more closely to government finances.

Oil Offers Hope, But No Guarantees

The expected start of oil production in late 2026 looms large in Uganda's economic story. Oil is projected to temporarily lift growth to near double digits and provide a steady stream of government revenue over the next decade. Much of this income is planned to be saved in a sovereign wealth fund to protect future generations. Still, the IMF cautions that oil is not a cure-all. Delays, global price swings, and governance challenges could quickly erode expected gains. To make the most of the opportunity, the IMF urges Uganda to strengthen tax collection, cut wasteful spending, and improve budget discipline. Monetary policy is broadly on track, but lasting stability will depend on tough fiscal choices made before the oil starts flowing.