Uganda’s Economy Expands, World Bank Calls for Stronger Domestic Revenues

Uganda’s economy continues to show resilience, with the latest World Bank Economic Update highlighting stronger growth, stable inflation, and a positive medium-term outlook. The 25th edition of the Uganda Economic Update, launched today, projects that while the country’s real GDP is expected to accelerate further in coming years, domestic revenue mobilization and efficient public spending will be critical to sustaining growth.

Strong Growth Momentum

Uganda’s real GDP growth rose from 6.1% to 6.8% in the nine months from July 2024 to March 2025. The report attributes this performance to solid gains in agriculture, manufacturing, construction, and household and government consumption.

In contrast, the services sector showed signs of weakening, reflecting both global uncertainty and local structural challenges.

Looking ahead, the World Bank forecasts growth could accelerate to 10.4% in FY2026/2027, largely due to the anticipated start of oil production, before stabilizing around 6% in subsequent years.

Inflation and Economic Stability

Inflation remains well-managed at 3.5% in FY2024/2025, slightly higher than 3.2% the previous year, but comfortably below the Bank of Uganda’s target of 5%. This has been supported by:

• A favorable food supply environment,

• The easing of global energy prices,

• Exchange rate stability, and

• Prudent monetary policy management.

Risks to the Outlook

Despite optimism, the World Bank warned of several risks:

• Delays in oil production and large infrastructure projects, including the crude oil export pipeline, could hinder growth.

• The global transition to clean energy may reduce oil demand and prices, creating risks of stranded assets.

• Other risks include volatility in global oil markets, supply chain disruptions from conflicts in the Middle East, climate shocks, global policy uncertainty, and slower-than-expected reform implementation.

Debt and Spending Concerns

With public debt-to-GDP approaching 53%, the World Bank urged caution. Francisca Ayodeji (Ayo) Akala, World Bank Country Manager for Uganda, said rising spending pressures—particularly during the election cycle—make it critical to minimize unplanned expenditures and boost domestic revenues.

“Recent cuts in Overseas Development Assistance have made domestic resource mobilization even more urgent,” she said. “Only then can the government sustain adequate public spending on health, education, and other key social services.”

Domestic Revenue Mobilization Challenges

Uganda’s tax revenue-to-GDP ratio stands at 14% in FY2024/2025, below the Sub-Saharan Africa average and short of the 15% threshold considered vital for accelerated growth and sustainable development.

Silver Namunane, World Bank Tax Economist, noted that despite Uganda’s comprehensive tax system, the yield remains low. Reforms suggested in the report aim to broaden the tax base, reduce tax exemptions, and improve equity in taxation.

If implemented, these measures could raise revenues by 0.5% of GDP and bring Uganda closer to its Vision 2040 development targets.

Recommended Policy Reforms

The report outlined specific recommendations across taxation and spending:

Taxation and Revenue Mobilization

• Adjust personal income tax brackets to account for inflation and prevent bracket creep.

• Raise the income tax exemption threshold from UGX 2.82 million to UGX 4.02 million annually.

• Introduce a new 35% rate for incomes above UGX 5.82 million, while keeping current rates for most taxpayers.

• Broaden the framework for taxing high-net-worth individuals.

• Reassess corporate tax exemptions to prevent revenue losses.

• Improve targeting of investment incentives to align with development priorities.

• Enhance private sector engagement to improve tax morale.

These changes could generate an additional UGX 149 billion (0.1% of GDP) while improving fairness.

Public Spending and Efficiency

• Balance fiscal consolidation between human capital development and growth-enhancing investments.

• Cut wasteful expenditures, including the oversized public administration budget.

• Strengthen anti-corruption systems to improve accountability.

• Reduce inefficiencies in social sectors, such as staff absenteeism.

• Enhance efficiency in public project execution.

• Introduce stricter guidelines—or a moratorium—on creating new administrative structures.

• Reform local government revenue systems to align with regional best practices.

Building a Sustainable Future

The World Bank stressed that Uganda’s strong near-term growth presents an opportunity to invest wisely and strengthen fiscal sustainability. By raising domestic revenue, improving spending efficiency, and managing debt responsibly, Uganda can protect its economy from external shocks while ensuring sustained investment in health, education, and infrastructure.

“Uganda has the potential to achieve inclusive and sustainable growth,” the report concluded. “The challenge is to mobilize resources fairly and use them efficiently to deliver on the country’s development aspirations.”