Uganda’s economic landscape has shown remarkable resilience, even in the face of multiple successive shocks. According to the latest World Bank report, Uganda’s real gross domestic product (GDP) grew from 5.3% in the fiscal year 2022/23 to an estimated 6% in 2023/24. This growth was primarily driven by oil-related construction activities and the mining and quarrying sector, which benefited from sustained increases in gold prices and a favorable domestic environment for artisanal mining.
Key Drivers of Economic Growth
Oil and Mining Sectors
The expansion of the oil and mining sectors has been a significant contributor to Uganda’s economic growth. The ongoing investments in oil-related infrastructure have provided a substantial boost to economic activities. Additionally, the mining sector, particularly gold mining, has thrived due to the rising global gold prices, which have encouraged more artisanal mining activities.
Consumption and Private Investment
Low inflation and the recovery of real income and employment have bolstered consumption in Uganda. Despite unfavorable domestic and global financial conditions, private investment has remained resilient. This resilience has translated into increased exports and manufacturing orders between August 2023 and May 2024, further stimulating economic growth. As a result, Uganda’s per capita income reached approximately $980 in FY22/23, pushing the country closer to the lower-middle-income threshold.
Future Economic Outlook
The Uganda Economic Update (UEU), a biannual analysis of the country’s near-term macroeconomic outlook, projects a positive economic trajectory. The report anticipates GDP growth to reach 6.2% in FY24/25 and accelerate to over 7% in the medium term, primarily due to continued investments in the oil and gas sector. This optimistic outlook is underpinned by robust coffee and gold exports, improved infrastructure, and a growing energy supply, which are expected to bolster aggregate demand.
Risks to Economic Growth
Despite the positive outlook, several risks could threaten Uganda’s growth trajectory. These include:
- Global Economic Conditions: Rising geopolitical tensions could reduce Uganda’s exports and disrupt import supply chains.
- Inflationary Pressures: Mounting inflation and prolonged monetary tightening could constrain economic activity and reduce household incomes.
- Infrastructure Project Delays: Delays in implementing major infrastructure projects could hinder growth.
- Foreign Direct Investment (FDI) Volatility: Volatile FDI inflows could impact economic stability.
- Diminished Donor Financing: As the 2026 election approaches, there is a risk of reduced donor financing.
Public Health and Human Capital
One of the critical areas of concern highlighted in the UEU is Uganda’s public spending on health. The report emphasizes the need for stronger expenditure rules to manage the country’s transition to an oil-exporting economy and increase social spending in areas like health to ensure equitable and sustainable growth. Currently, Uganda’s government spends significantly less on health compared to peer countries in the region. Households and external development partners finance a combined 84% of total health spending, with the share of government resources devoted to health spending declining from 6.5% of total public spending in FY14/15 to 3.9% in FY20/21.
Recommendations for Health Sector Improvement
To address these challenges, the UEU recommends several measures:
- Strengthen Health Financing: Enhance the adequacy, equity, effectiveness, efficiency, and sustainability of health financing.
- Invest in Primary Healthcare: Focus on primary health care, health promotion, and disease prevention.
- Public-Private Partnerships: Strengthen collaborations between public and private sectors for health.
- Improve Health Workforce: Increase the availability and productivity of the health workforce.
- Access to Medicines: Increase access to affordable and effective medicines and health technologies.
- Healthcare Service Quality: Improve the quality of healthcare services and engage clients in health-service design, planning, delivery, and oversight.
Economic Diversification and Export Growth
Uganda’s economic resilience is also supported by diversified exports and investments in developing oil export infrastructure. The start of oil production in 2025 is expected to transform Uganda’s trade profile significantly. Moreover, efforts to promote tourism and agro-industrialization should help foster export diversification. For instance, Uganda’s coffee exports to Turkey have seen a substantial increase, from 2,000 bags in 2019 to 44,000 bags in 2024, highlighting the potential for growth in this sector.
Public Debt and Financial Management
Uganda’s public debt has been rising, with total public debt reaching $24.69 billion (49.9% of GDP) by the end of December 2023. Although the country’s debt distress remains moderate, debt vulnerability could increase due to an uncertain external outlook, environmental shocks, and delays in oil production. The World Bank’s report emphasizes the need for Uganda to manage its debt carefully, strengthen revenue mobilization, and improve public investment management to ensure sustainable economic growth.
Conclusion
Uganda’s economy has shown remarkable resilience and growth potential despite various challenges. Continued investment in key sectors, effective management of public resources, and improved social spending, particularly in health and education, will be crucial for sustaining this growth and achieving inclusive economic development. The positive outlook for Uganda’s economy is encouraging, but addressing the highlighted risks and challenges will be essential for realizing the country’s full potential.
