With Uganda’s 2025/26 budget set for presentation on 12th June 2025, the fiscal strategy targets debt control without stalling economic growth.
Dubbed the 2025/26 Budget, the envelope represents a significant departure from prior years, balancing austerity with strategic investment in infrastructure, key industries, and social services.
This year’s national budget stands at approximately UGX.72.3 trillion, marginally higher than the previous fiscal year’s UGX 72.1 trillion.
While superficially appearing stable, it reflects deep structural shifts, including a pronounced reduction in domestic borrowing and public expenditure.
These changes aim to address mounting debt burdens and adverse credit ratings, all while safeguarding the momentum of Uganda’s development ambitions.
Charting a Course for Fiscal Consolidation
A central pillar of this budget is fiscal consolidation, designed to reduce reliance on debt and streamline government spending significantly.
Initially, the finance ministry proposed a modest UGX 57.4 trillion envelope, a 20% reduction from the UGX 72.1 trillion in 2024/25, alongside a 53.9% cut in domestic borrowing to UGX 4.01 trillion.
Although subsequent revisions raised the envelope to approximately UGX 72.4 trillion, the key commitments remain intact: curbing domestic debt issuance, limiting discretionary spending, and reorienting public finances toward sustainable growth.
These adjustments reflect the political will to halt debt escalation, even if it means tightening fiscal space.
Understanding the Grip of Public Debt
Uganda’s public debt has become a pressing concern. At the close of June 2023, total debt stood at 46.9% of GDP, a level deemed sustainable but trending dangerously close to the 50% threshold.
By mid‑2024, debt had climbed further, driven by infrastructure, oil‑sector funding, and borrowing to cover domestic budget deficits.
Debt servicing now consumes a daunting share of government revenue. Projections for 2025/26 indicate that 40.3% of domestic revenue will go toward interest payments alone, well above the internationally recommended maximum of 12.5%.
When combined with repayments of existing arrears, the cost of servicing threatens to crowd out investment in essential public services.
Allocating Scarce Resources to High‑Impact Priorities
Despite fiscal limits, Uganda prioritizes agro-industrialization, tourism, and minerals ( including oil and gas), key pillars of its National Development Plan IV.
The revised budget outlines substantial allocations for infrastructure. The Standard Gauge Railway, crucial to connecting Kampala with regional markets, receives continued funding.
Another major chunk is designated for the East African Crude Oil Pipeline, which will be vital for Uganda’s imminent oil exports.
Meanwhile, the oil refinery backed by UAE investment is slated for commencement later in 2025, enhancing the industrial logic of petroleum‑led growth.
Human capital remains an important, though pressured, spending stream. Education, health, including enhancements to the Uganda Heart and Cancer Institutes, and social welfare programs are earmarked for funding, albeit within a tight overall fiscal envelope.
Public outreach initiatives will discourage tax evasion and promote revenue transparency under the Domestic Revenue Mobilization Strategy, overseen by the Uganda Revenue Authority.
Service Delivery under Fiscal Strain
Though strategic sectors receive emphasis, budget cuts inevitably bite. Public expenditure discretionary envelopes have shrunk from UGX 28.1 trillion to UGX 24.2 trillion.
This reduction tightens funding across numerous programs from local public services to education and healthcare, raising fears of unmet needs.
Another looming obstacle is domestic arrears. Explicitly, the government plans to allocate only UGX 200 billion toward arrears with existing stock estimated well above UGX 3 trillion, a gap that could take decades to close.
Accumulated obligations to contractors and suppliers not only erode market confidence; they also risk compromising future public‑private partnerships.
Revenue Mobilization
To manage the fiscal landscape, the government is leaning heavily on the Uganda Revenue Authority.
The URA tax collection target of UGX 35.7–36.7 trillion for 2025/26 represents a sharp increase from UGX 32.1 trillion realized in 2024/25.
However, actual revenue has hovered near 13.4–14% of GDP, highlighting a vulnerability in achieving these targets.
Due to slow revenue growth from COVID-19 impacts, the government has offered industry relief and adjusted its revenue strategy, but meeting revenue targets is still vital for development goals.
The Economic Outlook
Uganda’s economic projections remain cautiously optimistic. Real GDP growth is expected to hover near 6.4% in the short term, rising markedly once oil production begins.
The International Monetary Fund has forecast a jump to 10.8% GDP growth by 2025/26, reflecting the impact of commercial crude exports.
Inflation remains anchored at around 3–5%, supported by synchronized monetary and fiscal policy. However, the growth potential is precariously balanced.
If revenue falls short, debt servicing escalates, or arrears linger, growth could falter, undermining confidence and constraining fiscal policy flexibility.
Additional risks include potential cost overruns on infrastructure projects, slower revenue performance, and stiff public pushback against service reductions. Any of these could derail the post‑2025 growth outlook.
What to Watch during the 12 June Budget Reading
As the June 12, 2025, national budget reading approaches, analysts and stakeholders are closely watching several critical areas that will shape Uganda’s fiscal and economic trajectory in the coming financial year.
A key focus is how Uganda’s UGX 71.9–72.4 trillion budget will fund health, education, infrastructure, and agribusiness.
The specifics of these allocations will determine the extent to which essential services and development programs are supported amid broader fiscal consolidation.
A key concern is whether Uganda will cap domestic borrowing at UGX 4.01 trillion or turn to more concessional external loans.
This decision will have implications for interest rates, credit availability to the private sector, and the overall sustainability of public debt.
Debt servicing plans, including interest, amortization, and arrears, will test the government’s commitment to fiscal reform.
Given the rising share of domestic revenue consumed by debt servicing, how the government plans to manage these obligations will speak volumes about its fiscal priorities.
Revenue assumptions, including URA’s target, will be scrutinized to gauge the realism of fiscal planning.
If the targets appear overly ambitious or disconnected from current economic realities, it could raise concerns about the credibility of the entire budget framework.
Oil sector investment, including pipeline and refinery funding, will reveal Uganda’s readiness for oil production.
The extent of investment in these projects will also signal the urgency and seriousness with which Uganda is positioning itself to benefit from oil revenues in the medium to long term.
Walking the Fiscal Tightrope
Uganda’s 2025/26 budget aims to balance debt stability and growth, with reduced borrowing and spending.
Success depends on revenue gains, disciplined projects, and smart debt use. Parliament’s decisions on 12 June will shape Uganda’s post-oil future.
