Uganda’s economic performance in the month of 2025 presents a mixed picture of both challenges and resilience.
Rising inflation, currency depreciation, and a slowdown in private sector activity have raised concerns, while strong business confidence and a narrowing trade deficit offer a more optimistic outlook. According to the Ministry of Finance’s latest report on the Performance of the Economy (January 2025), these trends highlight the need for strategic economic management to sustain growth and stability.
Inflationary pressures mount, but the central bank target maintained
Annual headline inflation rose to 3.6% in January 2025, up from 3.3% in December 2024. This increase was driven by price hikes in both core and food-related inflation. Notable price increases were observed in commodities such as refined oil, laundry bar soap, and alcoholic beverages, alongside key food crops including Irish potatoes, tomatoes, and passion fruits. Additionally, services such as hotel accommodation and lodging experienced rising costs.
Despite this increase, the inflation remains within the Bank of Uganda’s (BoU) medium-term target of 5.0%, indicating that while prices are rising, they are still under control. However, persistent increases in food and essential commodity prices could put pressure on household incomes and consumer purchasing power if not addressed.
The inflation trends align with broader regional patterns observed across the East African Community (EAC), where Uganda, Kenya, and Rwanda all recorded higher inflation rates in January 2025. In contrast, Tanzania’s inflation remained stable at 3.1%, while South Sudan recorded a decline from 13.2% in December 2024 to 9.6% in January 2025.
Private sector performance: A temporary slowdown?
A key measure of private sector performance, the Purchasing Managers’ Index (PMI), fell to 49.5 in January 2025, marking the first time it dropped below the 50.0-mark threshold since March 2024. A reading below 50.0 indicates a decline in private sector activity, largely attributed to reduced consumer demand, lower employment levels, and higher input prices.
However, the slowdown is expected to be temporary, as reflected in the Business Tendency Index (BTI), which remained strong at 58.10 in January 2025, signaling positive investor sentiment about the economy over the next three months.
The Composite Index of Economic Activity (CIEA) also showed resilience, rising by 0.2% to 168.4 in December 2024 from 168.0 in November 2024, suggesting continued economic growth despite short-term pressures.
The decline in the PMI reflects higher costs of doing business, influenced by factors such as rising input prices, currency fluctuations, and external economic pressures.
However, positive sentiment among businesses and the expected recovery in demand suggest that Uganda’s private sector is likely to rebound in the coming months.
Ugandan Shilling Depreciates Amid Higher Dollar Demand
The Ugandan Shilling depreciated by 0.7% against the US Dollar in January 2025, with the exchange rate averaging Sh3,688.96/USD, compared to Sh3,664.08/USD in December 2024.
The depreciation was primarily driven by increased corporate demand for the dollar, particularly from sectors such as energy, oil and gas, telecommunications, and manufacturing.
The currency’s performance mirrors broader regional trends, as the Rwandan Franc also depreciated by 0.7 percent, while the Burundian Franc saw a marginal depreciation of 0.2 percent.
In contrast, the Tanzanian Shilling appreciated by 0.3 percent, while the Kenyan Shilling remained stable at Kshs 129.4 per USD.
To counter excessive depreciation and maintain macroeconomic stability, the Bank of Uganda (BoU) maintained the Central Bank Rate (CBR) at 9.75 percent in January 2025. This decision was aimed at balancing inflation control with economic growth, ensuring that monetary policy remains conducive for investment and credit access.
Lending rates for shilling-denominated credit continued to decline, falling from 18.08% in November 2024 to 17.37% in December 2024.
This decline was driven by a gradual easing of the monetary policy stance and increased lending to prime corporate borrowers, who secured lower rates due to their lower risk profiles.
Fiscal Sector: Rising Government borrowing and revenue shortfalls
The government’s fiscal operations in January 2025 resulted in a net borrowing of Sh2,065.45 billion, exceeding the planned fiscal deficit of Sh1,952.72 billion. This was due to higher-than-planned expenses and revenue shortfalls.
Net tax revenue collections for January 2025 stood at Sh2,344.50 billion, falling short of the Sh2,411.82 billion target. The shortfall of Sh67.32 billion was mainly due to lower collections in indirect taxes (shortfall of Sh45.12 billion) and international trade taxes (shortfall of Sh17.19 billion).
Government expenditure also exceeded planned levels, totaling Sh4,040.76 billion against the target of Sh3,630.96 billion.
The increased spending was driven by supplementary budget allocations, leading to higher-than-anticipated expenses on employee compensation, local government grants, and hospital funding.
Investment in non-financial assets, including infrastructure, fell below target, with Sh531.70 billion spent in January, representing only 51.6% of the planned Sh1,031.14 billion. Delays in the execution of planned projects contributed to this underperformance.
Trade Performance: exports grow, trade deficit narrows
The merchandise exports grew by 13.9% year-on-year, increasing from USD 633.87 million in December 2023 to USD 721.93 million in December 2024. The growth was primarily driven by higher export earnings from coffee, minerals, sesame (simsim), and fish products.
However, imports also rose by 17.8%, increasing from USD 893.37 million in December 2023 to USD 1,052.07 million in December 2024. The rising import bill resulted in an annual trade deficit increase of 27.2 percent, reaching USD 330.14 million in December 2024.
On a month-to-month basis, however, the trade deficit narrowed by 21.3%, decreasing from USD 419.41 million in November 2024 to USD 330.14 million in December 2024.
This improvement was driven by a combination of higher export earnings and reduced import costs.
Trade within the East African Community (EAC) saw Uganda recording a lower trade deficit of USD 41.86 million in December 2024, compared to USD 73.64 million in November 2024.
The improvement was attributed to a 14.0% decline in imports from EAC partner states, which outpaced the 3.4% decline in Uganda’s exports to the region.
Economic outlook for 2025: cautious optimism amid fiscal pressures
Looking ahead, the economy is expected to maintain moderate growth, supported by strong business confidence, export growth, and stable monetary policy.
The Bank of Uganda’s policy stance, combined with declining lending rates, is likely to encourage credit growth and investment.
However, fiscal pressures remain a key risk, particularly with higher-than-planned government borrowing and revenue shortfalls. Inflationary pressures could also persist, especially if global commodity prices remain volatile.
Despite these risks, Uganda’s economy has demonstrated resilience, and with appropriate policy interventions, it remains well-positioned for continued growth in 2025.
