Uganda’s economy exhibited signs of resilience and growth in February 2025, as reflected by key economic indicators.
According to the Ministry of Finance’s latest performance report, business conditions improved, private sector confidence remained optimistic, and economic activity showed sustained expansion. However, inflationary pressures and a widening fiscal deficit posed challenges that require close monitoring.
Business Confidence
The Purchasing Managers’ Index (PMI), a key measure of business conditions, rose to 52.6 in February 2025 from 49.5 in January, signaling an improvement in private sector activity. Similarly, the Composite Index of Economic Activity (CIEA) increased from 168.10 in December 2024 to 169.20 in January 2025, pointing to sustained economic expansion.
The Business Tendency Index (BTI) also reflected heightened confidence in the economy, climbing from 58.27 in January to 59.49 in February 2025. This optimism was fuelled by higher consumer demand across key sectors.
Inflation and price movements
Despite remaining within target levels, annual headline inflation inched up to 3.7% in February from 3.6% in January. The increase was largely driven by food crop inflation, which spiked to 4.3% from a meager 0.2% in the preceding month. On the other hand, core inflation eased to 3.9% from 4.2%, owing to price declines in education and passenger transport services.
Financial sector performance
The Ugandan Shilling strengthened against the US Dollar, appreciating by 0.3%. The average mid rate of the dollar fell from sh3,689.0 in January to sh3,677.7 in February, driven by higher dollar inflows from portfolio investors.
The Central Bank maintained its benchmark interest rate (CBR) at 9.75%, balancing the need for inflation control and economic growth. Lending rates for Shilling-denominated credit fell for the third consecutive month, dropping to 16.50% in January from 17.37% in December 2024, partly due to discounts on oil-related loans. However, foreign currency lending rates edged up from 7.9% to 8.3% over the same period.
Credit to the private sector saw a marginal increase, rising to sh22,880.45 billion in January from sh22,818.96 billion in December. This was mainly supported by a rise in Shilling-denominated loans, which grew from sh16,272.98 billion to sh16,371.30 billion, bolstered by higher deposits in financial institutions.
The government raised sh2,266.6 billion from the sale of securities in February, with sh742.8 billion from Treasury Bills and sh1,523.7 billion from Treasury Bonds. However, sh646.6 billion was used to refinance maturing debt, while sh1,619.9 billion was allocated to finance the budget.
Yields on government securities declined for most tenors due to increased demand and the lagged effects of monetary easing. The 182-day and 364-day Treasury Bill yields dropped to 14.0% and 15.0%, respectively, from 14.4% and 15.3% in January. Similarly, yields on 2-year, 5-year, and 15-year bonds fell to 15.8%, 16.3%, and 17.0%, respectively. However, the 91-day Treasury Bill yield edged up slightly to 10.7% from 10.4%.
Trade deficit widens amid strong export growth
The merchandise trade deficit widened by 28.5% year-on-year, growing from $187.81 million in January 2024 to $241.25 million in January 2025. The expansion was driven by a surge in imports, which outpaced export growth.
Despite the widening deficit, export earnings soared by 50.4% to reach $859.22 million (approximately Sh3.1t) in January 2025, compared to $571.16 million (Sh2.11 trillion) in the same month last year. This growth was largely driven by higher revenues from coffee and gold, which rose by 82.9% and 77.9%, respectively.
The coffee industry played a significant role in the rise of export earnings, registering an 82.9% growth. Coffee earnings increased by 36.1% from $115.03 million (Sh425.61 billion) in January 2024 to $156.50 million (sh578.05 billion) in January 2025. The increase was fuelled by higher coffee prices, which soared by over 60% in the past year, alongside a 14.3% rise in export volume.
The global coffee price hike was a result of supply shortages in Brazil and Vietnam, the world’s largest Arabica and Robusta coffee producers, which experienced adverse dry weather conditions. Uganda capitalized on this shortfall, expanding its market presence, with Italy remaining the largest buyer of Ugandan coffee, accounting for 36.9% of total exports. Other significant buyers include Belgium (11.9%), India (9.8%), Sudan (9.4%), and Germany (8.3%).
Apart from coffee, the export earnings were boosted by increased revenue from gold, electricity, tobacco, simsim, oil re-exports, fish, and related products. Monthly export earnings grew by 16.6% from $736.81 million (sh2.73t) in December 2024 to $859.22 million (sh3.178t) in January 2025, signaling an overall rise in the country’s export performance. Exports excluding coffee and gold increased by 18.1%, reaching $378.87 million in January 2025.
The agriculture sector has also played a crucial role in the rising exports, with cotton exports amounting to $1.32 million (sh4.884 billion), tea (sh21.09 billion), tobacco (sh35.15 billion), fish (sh50.32 billion), simsim (sh21.83 billion), maize (sh33.3 billion), beans (sh9.62 billion), and flowers (sh20.03 billion).
However, the annual inflation for food crops and related items increased to 4.3% in February 2025, up from 0.2% in January 2025, primarily due to supply constraints attributed to dry weather conditions in some regions.
Upward price pressures were recorded for cooking bananas (matooke), tomatoes, avocados, apples, pumpkins, onions, Irish potatoes, sweet potatoes, cowpeas, milk, and dry beans.
The Middle East emerged as the biggest destination of Uganda’s exports, accounting for 32.9% of the total exports in January 2025. Within the Middle East, the United Arab Emirates accounted for 97.7% of Uganda’s exports to the region.
Other notable destinations were the East African Community (EAC) at 27.4%, the European Union (16.9%), Asia (14.8%), and the Rest of Africa (4.0%). Within the European Union, Italy, Belgium, Germany, and the Netherlands accounted for close to 90% of exports to the region.
Within the EAC, the Democratic Republic of Congo (DRC) emerged as the largest importer of Uganda’s merchandise, taking up 33.4% (sh291.06b) of total exports. This was followed by South Sudan at 27.1% (sh236.66b) and Kenya at 21.6% (sh188.22b).
Merchandise imports also grew significantly, rising by 45.0% from $758.98 million in January 2024 to $1,100.46 million in January 2025. This was attributed to increased private-sector non-oil imports and project-related government imports.
Fiscal challenges and revenue shortfalls
Government operations in February 2025 resulted in a fiscal deficit of sh1,016.81 billion, exceeding the projected deficit of sh763.46 billion. This was primarily due to lower-than-expected revenue collections, which fell short by sh468.33 billion.
Total revenue collected in February amounted to sh2,382.76 billion, against a target of sh2,851.10 billion. The shortfall stemmed from underperformance in tax collections (sh138.36 billion), other revenues (sh63.70 billion), and grants (sh266.27 billion) from development partners.
Government expenditure stood at sh3,399.57 billion, achieving a 94.1% performance rate against a planned sh3,614.56 billion.
East African Community (EAC) economic trends
Inflation increased across most East African countries in February 2025. Kenya’s headline inflation rose to 3.5% from 3.3%, driven by food and beverage prices. Tanzania’s inflation edged up to 3.2% from 3.1%, primarily due to rising housing, water, and utility costs. Burundi, which reports a one-month lag, recorded a significant rise in inflation to 38.2% in January, up from 36.5% in December. In contrast, Rwanda’s inflation eased to 6.3% from 7.4%.
The Ugandan and Kenyan Shillings appreciated against the US Dollar, gaining 0.3% and 0.1%, respectively. However, the Burundi Franc, Rwanda Franc, and Tanzanian Shilling depreciated by 0.2%, 0.9%, and 4.4%, respectively.
Uganda recorded a trade surplus of $2.43 million with the EAC in January 2025, a notable improvement from the $27.80 million deficit in December 2024. Surpluses were recorded in trade with the Democratic Republic of Congo ($74.11 million), South Sudan ($61.05 million), Rwanda ($24.00 million), and Burundi ($4.63 million). However, trade deficits persisted with Tanzania ($131.84 million) and Kenya ($29.52 million).
Outlook: Balancing growth with fiscal stability
Uganda’s economy is demonstrating robust growth, buoyed by increased business activity, improved private sector confidence, and strong export earnings. However, inflationary pressures, a growing fiscal deficit, and widening trade imbalances present risks that require careful policy interventions.
The government will need to strengthen revenue collection, manage spending efficiently, and sustain investor confidence to ensure long-term economic stability. As global uncertainties persist, maintaining a stable monetary policy and fostering trade diversification will be key to sustaining Uganda’s economic momentum in 2025.
