Uganda's economy has shown strong growth, with real GDP rising from 6.1% to 6.8% between July 2024 and March 2025, according to the latest World Bank report. The growth was mainly driven by agriculture, manufacturing, construction, and both household and government consumption. However, the services sector experienced a slowdown.
The 25th Uganda Economic Update notes that inflation remained low at 3.5% in FY2024/2025, compared to 3.2% the previous year. This rate is below the central bank’s target of 5%, helped by stable food supplies, lower global energy prices, a steady exchange rate, and careful monetary policy.
Looking ahead, the report projects economic growth could accelerate to 10.4% in FY2026/2027 as oil production begins before stabilizing around 6%. However, several risks remain. These include uncertainties about when oil production will start due to incomplete infrastructure like the crude oil export pipeline. There are also concerns about how the global shift toward clean energy might reduce oil prices and create stranded assets for Uganda. Other potential risks include falling global oil prices due to lower demand or higher supply, disruptions in supply chains from conflicts in the Middle East, uncertain global economic policies, climate shocks, and delays in implementing key reforms such as domestic revenue mobilization.
“Increased spending this current election cycle, and with public debt-to-GDP reaching almost 53%, raises uncertainties and requires authorities to minimize unplanned expenditures and increase effectiveness in generating domestic revenues rather than cutting development spending,” said Francisca Ayodeji (Ayo) Akala, World Bank Country Manager for Uganda. “Moreover, considering recent cuts in Overseas Development Assistance, raising domestic revenues has become even more critical, as only then can the government ensure sustained and adequate public spending on key social services, particularly health and education.”
This edition of the Uganda Economic Update focuses on improving domestic revenue collection and making better use of public funds so that borrowing can be reduced while maintaining investment in social sectors and important infrastructure.
“Uganda’s tax system, despite its comprehensive design, continues to struggle with low revenue yield, significantly lagging the Sub-Saharan Africa average and the government’s own medium-term targets,” said Silver Namunane, World Bank Tax Economist and co-author of the Uganda Economic Update. “With a tax revenue-to-GDP ratio of only 14% in FY2024/2025, Uganda remains below the critical 15% threshold deemed essential for accelerated growth and sustainable development. The policy reforms suggested in this report are intended to broaden the tax base, reduce tax expenditures, and improve progressivity and equity of the tax system. If implemented, tax revenues could improve by 0.5% of GDP and inch closer to the Vision 2040 targets.”
The report recommends several measures:
- Adjust personal income tax rates for inflation by increasing exemption thresholds while introducing a new higher rate for top earners.
- Strengthen taxation frameworks for high-net-worth individuals.
- Reassess corporate income tax exemptions to prevent erosion of the tax base.
- Rethink investment incentive policies so they are better targeted.
- Address private sector concerns during tax policy formulation.
- Improve efficiency in public spending by balancing investments between human capital development and activities that promote growth.
- Reduce wasteful expenditures through cuts to public administration budgets and stronger anti-corruption efforts.
- Address inefficiencies such as staff absenteeism within social sectors.
- Reform local government revenue policies so they match those of similar countries.