Uganda

Accelerating growth driven by oil investments

In 2025, economic growth is set to accelerate further, spurred by significant foreign and private investment focused on developing the oil sector. China National Offshore Oil Corporation (CNOOC) and TotalEnergies initiated major projects as early as 2023. These initiatives include the exploitation of deposits located around Lake Albert, in the west of the country, notably at the Tilenga and Kingfisher sites. At the same time, complementary infrastructures such as the East African Oil Pipeline (EACOP) and Kabalega airport, scheduled to open in 2025, are under construction. The country also plans to install a refinery to limit fuel imports, a project budgeted at USD 4 billion and entirely self-financed. Oil production is scheduled to start at the end of 2025, with oil revenues set to further accelerate growth in 2026. However, delays in the launch of production could occur. Progress since the discovery of oil in 2007 has been slow and the sector faces strong international opposition due to environmental and human rights concerns. Moreover, agriculture will remain an essential pillar of the economy, accounting for 24% of GDP and 33% of external revenues, led by coffee. Sales of the latter will benefit from higher prices on international markets. The performance of the gold sector is also set to remain strong. In 2025, the government will continue to focus on the development of services, particularly tourism, as part of the fourth National Development Plan (NPD IV). However, this sector will face strong regional competition, particularly from Kenya and Tanzania. On the demand side, domestic consumption will be another essential lever, supported by the adoption of an expansionary fiscal policy, at least until the next elections scheduled for early 2026.

Inflation eased in 2024 due to lower oil and food prices, stabilisation of the shilling and restrictive monetary policy. A slight rebound is expected in 2025 on back of imported inflation owing to strong demand for goods needed to develop the oil sector. Nevertheless, it will remain below the 5% threshold due to the influx of capital into the oil and mining sectors, which will strengthen the shilling. However, a slowdown in interest-rate cuts by the US Federal Reserve could fuel fears of monetary depreciation. With inflation converging towards the 5% target, the Central Bank will continue the gradual reduction of its key rate in 2025, set at 9.75% in October 2024.

Twin deficits drag on public debt

During fiscal year 2025, the budget deficit is expected to widen as public spending peaks, with the government prioritising development of the oil sector and strategic infrastructure. However, oil revenues will only start to make a significant contribution to fiscal revenues from 2026 onwards due to the start of production, which is expected in late 2025. At the same time, a sharp increase in short-term debt repayment obligations will also weigh on the budget balance. Public debt (60% external) should increase slightly in 2025, reaching the ceiling of 50% of GDP set by the authorities, which would have been exceeded had growth not been so strong. By June 2024, public debt had already risen to almost USD 25 billion. To curb the increase, the government plans to reduce domestic borrowing via Treasury bonds in the next fiscal year, starting in July 2025, with planned debt issuance down 54% on the previous period. At the same time, it plans a gradual return to fiscal consolidation, cutting spending by more than a fifth and continuing to rationalise tax exemptions as part of the Domestic Revenue Mobilisation Strategy (DRMS).

Although exports are benefiting from rising gold and coffee prices, imports of capital goods and technical services needed to develop energy projects will continue to weigh on the current account deficit, which will widen in 2025. However, with oil production scheduled for the end of 2025 and exports for 2027, the outlook for the country's current account balance looks more favorable in subsequent years. The Ugandan authorities have been struggling to obtain external loans since the World Bank suspended financing for new projects in retaliation for the enactment of a new anti-LGBT+ law in May 2023. However, the Bank is considering lifting the freeze on its loans in return for a guarantee to include LGBT+ people in the projects it finances. In addition, the expiry of the IMF's Extended Facility in June 2024, with no new agreement in view over the short term, will exacerbate financing risks in 2025. FDI will therefore remain the main source of financing. Outstanding foreign debt, most of which is public (80%), will fall as the government plans to reduce foreign borrowing by 98% by 2025.

Ongoing security threats on the border with Congo

In power since 1986, President Yoweri Museveni and his party, the National Resistance Movement (NRM), which has a majority in the National Assembly, dominate the political landscape. President Museveni was consequently able to stand for re-election in 2021, and should be able to do so again in the next elections scheduled for early 2026. The support of the army and the absence of a strong, united opposition should enable him to win the next elections. However, the NRM's persistent failures to combat corruption and improve public services will continue to fuel social discontent. Anti-government demonstrations are quickly put down by the security forces, preventing them from evolving into a nationwide movement.

In 2025, the Ugandan and Congolese armed forces will continue their collaboration under Operation Shujaa, an initiative launched in 2021 to combat the Allied Democratic Forces (ADF), a group of Islamist rebels of Ugandan origin who have taken refuge in the north-east of the Democratic Republic of the Congo (DRC). Conversely, UN experts attest to Uganda's support for the M23 rebel group, which is active in the same region and is backed by Rwanda, pointing to the tolerance of cross-border movements by the M23 and the hosting of rebel movement leaders on its territory. These facts threaten to undermine bilateral military cooperation with the DRC. Nevertheless, in September 2024, the DRC and Uganda agreed to redraw their common borders, which are the sources of recurrent tension. Work is due to start in May 2025, and delegations from both countries met in Goma to discuss the budget for the operation.

Enacted in 2023, the country's tough anti-LGBT+ laws will continue to cause tensions with its trading partners, as evidenced by Washington’s decision to exclude Uganda from the AGOA preferential trade agreement in 2024. In addition, ongoing oil projects, which are criticised for their environmental and human rights impacts, are fuelling international outrage. However, the development of the nascent oil sector will strengthen bilateral ties with Tanzania, China and France, given their involvement in the EACOP project.

Last updated:December 2024