Domestic revenue mobilization alone should be supported by policies to identify and eliminate wasteful expenditures. Improved export diversification will also be important.
The World Bank has recommended three policy priorities in the short term to drive Uganda’s economy forward.
In successful economies, the government and private sector work together to allocate resources for equitable growth and job creation. The government provides an enabling environment of policies, institutions and public services that helps factor and product markets to work efficiently. This, in turn, allows private sector-led growth to take place.
In the past decades, Uganda has achieved strong, broad-based economic growth, with low inflation and an improved balance of payments, through implementing a wide range of macroeconomic policies and structural reforms.
However, the World Bank country director for Uganda, Kenya, Somalia, and Rwanda, Mr Qimiao Fan, said that Uganda should continue fiscal consolidation, from both the revenue and expenditure management sides.
“Uganda’s fiscal consolidation can be more effective with growth accelerating by pursuing a balanced adjustment in spending by allocating more resources to human capital development and growth-enhancing activities while improving domestic revenue mobilization effort,” he said.
While Mr Qimiao said higher revenues will raise the government’s capacity to spend (which is critical during the upcoming election year).
However, Mr Qimiao observes that domestic revenue mobilisation alone is not enough. It should be supported by policies to identify and eliminate wasteful expenditures along with deepening reforms in public investment management. Public sector rationalisation is an important initiative if done well as discussed in the report.
So far, the World Bank has produced 24 reports on the Uganda economy with different recommendations.
“Efficiency gains in capital utilisation could generate an additional 0.2–0.5 percentage points of GDP [Gross Domestic Product] growth annually,” he said.
In the second budget circular call, the Permanent Secretary/Secretary to Treasury, Mr Ramathan Ggoobi said in line with the fiscal consolidation strategy, the government will undertake the fiscal principles in the budget for FY 2025/26 as follows:
The government will improve on revenue collection, undertake prudent management of public expenditure, and public debt. Proposals should be restricted to only high-priority development areas of the ATMs and enablers.
New administrative units, including districts, cities, municipalities, sub-counties, parishes, and constituencies, should also be created or operationalised in FY 2025/26
Government should also maintain the freeze on purchasing vehicles except for security, health service delivery, and revenue mobilisation; prioritise completion of critical ongoing projects and other multi-year commitments; implement Rationalization of Government Agencies and Expenditure (RAPEX) to improve coordination of service delivery.
Critical public procurement reforms should also be implemented to increase efficiency and achieve value for money. Government should prioritise the settlements of domestic arrears during budget execution to support private sector growth. Enforcement of regulations that are critical to support economic growth in the ATMS and enabler interventions.
Secondly, Mr Qimiao said elevated current account deficit and limited capital inflows still weigh on Uganda’s international reserves. Despite strong coffee and gold exports, the current deficit remains high due to rising oil project-related imports.
“Improved export diversification along with exchange rate flexibility will be important going forward,” he said.
The Bank of Uganda (BoU) says the Current Account Deficit (CAD) remained elevated reflecting the strong investment demand of the domestic economy. In the year to December 2024, CAD widened to $4.8 billion, from $3.8 billion in the year to December 2023, driven by deterioration in all sub-accounts.
BoU says at the end of December 2024, foreign reserves stood at $3.3 billion (3.0 months), down from $3.7 billion (3.6 months) at the end of December 2023.
Third, Mr Qimiao said Uganda needs to address its development challenge – how to adjust the current growth model to the one where private sector leads to economic growth.
“The cost of credit in Uganda has increased significantly (lending rate in November 2024 stood at 18 percent or more than 100 basis points higher than the same period last year). High interest rates exacerbate other structural constraints on credit access, including crowding-out the private sector,” he said.
The director of Makerere University Business School Economics, Dr Fred Muhumza said the national budget is 50 percent of the total budget for administrative costs.
Quoting from the recent Auditor General report to Parliament, Dr Muhumza said the report indicated that there was Shs186 billion for supplementary budgets which was not asked for and there was Shs13.8 trillion government arrears.
“Finding the money for children for early childhood development remains a problem. We need to change the economic indicators, though economic growth is at 6 percent. 98 percent of the budget is predetermined,” he said.
Dr Muhumuza said interest rates at premium are still high at 18 percent and the non-premium is in the range of 30 percent to 40 percent while there is low investment in the economy because of low demand and the aggregate demand is low.
The director and advocacy Uganda Manufacturers Association (UMA), Mr Allan Ssenyondwa said Uganda’s population is growing at 3.2 percent. The depreciation is 4.2 percent interest rate on government bonds is in the range of 15 percent to 18 percent, the return on investment is 5 percent, which is not good for the private sector.
“Productivity development should be done early at the primary level. The best primary schools are in the private sector,” he said.
The technical advisor of economic affairs in the Finance Ministry, Mr Moses Bekabye said the government is undertaking the tenfold economic growth strategy and all the actions to improve productivity in the economy.
“The aim is to raise the household income by increasing production in agricultural products,” he said.
Mr Bekabye also said the government is repurposing resources in the budget to improve allocative efficiency, while focusing on the priorities already agreed.
“The tax base is going to expand because there are strategies to increase Uganda’s tax ratio to the GDP,” he said.
In the second budget circular call, the government intends to raise Shs35.692 trillion from domestic revenue to finance the budget for the FY2025/26.
