## Uganda: IMF staff report (1ugaea2026002) — Executive Summary and Key Findings ## Source details **Canonical URL:** [Uganda: IMF staff report (1ugaea2026002) — Executive Summary and Key Findings](https://www.imf.org/-/media/files/publications/cr/2026/english/1ugaea2026002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1ugaea2026002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1ugaea2026002.pdf.json) --- ### Context and near-term outlook - Growth momentum supported by strong domestic demand, low inflation, and pickup in private sector credit growth. - Start of oil production expected in late 2026; projected to strengthen fiscal and external balances over the medium term. - Major near-term downside risks: prolonged/intensified conflict in the Middle East, tighter global financial conditions, further delays in oil production, and climate‑related shocks. - Authorities’ Tenfold Growth Strategy targets agro-industrialization, tourism, mineral development, and science, technology, ICT, and innovation (ATMS). ### Recent macroeconomic developments - Real GDP growth: - 6.3 percent in FY2024/25; 6.5 percent in FY2025/26H1; growth remained around 6 percent overall. - Inflation: - Headline and core inflation at 3 percent in April 2026; below BoU’s 5 percent core target. - External sector: - Current account deficit: 8.0 percent of GDP in FY2023/24 → 6.2 percent in FY2024/25; widened markedly in FY2025/26H1. - FX reserves: $6 billion at end-March 2026; covered about 3.1 months of goods imports; excluding temporary cross-currency repo contracts, coverage 2.7 months of goods and services. - Stock of foreign holdings: $2.7 billion as of March 2026 (4 percent of GDP and 45 percent of FX reserves). - Oil imports ~2.8 percent of GDP in FY25/26. - Fiscal sector: - Overall fiscal deficit increased sharply; public debt rose to above 50 percent of GDP at end-2025. - Public debt: 52.3 percent of GDP (2024/25) rising to 55.1 percent of GDP (2025/26) in projections. - Monetary and credit: - Tight monetary policy anchored inflation expectations; pickup in private sector credit driven by foreign currency‑denominated lending. - BoU policy: real policy rate ≈ 6.5 percent; neutral rate estimated at 4.5 percent; policy rate kept at 9.75 percent since 2025; cash reserve requirement ratio raised from 9.5 percent to 11 percent in March 2026. ### Outlook and key projections - Growth and inflation: - Real GDP growth projected to slow to 5.7 percent year-on-year in FY2025/26H2 (from 6.5 percent in FY2025/26H1). - Start of oil production projected to lift growth above 8 percent per year during FY2026/27–FY2027/28. - Headline inflation: 5.4 percent in FY2026/27 (aligned with April 2026 WEO commodity price assumptions). - Core inflation anchored around BoU’s 5 percent target over the medium term. - External and reserves: - FY2025/26 CAD projected to widen to 7.1 percent of GDP; forecast to narrow to 5.4 percent in FY2026/27 and to around 2 percent over the medium term as oil exports materialize. - End-June 2026 FX reserves coverage projected to decline to 2.7 months of imports; reserves expected to rise above 3 months by FY2027/28 and above 3.5 months in the medium term. - Fiscal and debt: - Overall fiscal deficit projected: -7.1 percent of GDP in FY2025/26. - Public debt projected: 55.1 (2025/26), 55.5 (2026/27), 55.9 (2027/28), 57.1 (2028/29), 58.2 (2029/30), 59.2 (2030/31) percent of GDP (baseline). - Under baseline, public debt projected to reach 60 percent of GDP by FY2030/31. - Interest payments: 3.7 (2024/25), 4.6 (2025/26), 4.5 (2026/27), 4.8 (2027/28), 5.1 (2028/29), 5.4 (2029/30), 5.9 (2030/31) percent of GDP. - Revenues and Grants: 14.7 (2024/25), 14.6 (2025/26), 15.4 (2026/27), 16.3 (2027/28), 16.5 (2028/29), 16.8 (2029/30), 17.1 (2030/31) percent of GDP. - Tax Revenues: 13.0 (2024/25), 13.2 (2025/26), 13.2 (2026/27), 13.2 (2027/28), 13.3 (2028/29), 13.5 (2029/30), 13.8 (2030/31) percent of GDP. - Oil Revenues*: 0.1 (2024/25), 0.1 (2025/26), 0.6 (2026/27), 1.7 (2027/28), 1.9 (2028/29), 2.1 (2029/30), 2.2 (2030/31) percent of GDP. - Expenditures: 20.7 (2024/25), 21.7 (2025/26), 22.0 (2026/27), 22.5 (2027/28), 22.8 (2028/29), 23.1 (2029/30), 23.3 (2030/31) percent of GDP. - Overall balance: -6.0 (2024/25), -7.1 (2025/26), -6.6 (2026/27), -6.2 (2027/28), -6.3 (2028/29), -6.4 (2029/30), -6.2 (2030/31) percent of GDP. ### Fiscal findings and recommended measures - Findings: - Public debt remains sustainable under staff assessment but with moderate risk of debt distress and heightened vulnerabilities under stress. - Interest payments projected to absorb almost a third of domestic revenues in FY2025/26; total debt service costs around 10 percent of GDP (up from 6–7 percent pre-pandemic). - High real interest rates in the 10–14 percent range and sizable domestic financing crowd out private credit. - Staff recommended consolidation and measures: - Strengthen domestic revenue mobilization (finalize DRMS-2 with implementation plan; systematically cost tax expenditures). - Enforce stronger budgetary discipline: control supplementary budgets, adopt Cabinet-approved binding aggregate spending ceilings and a distinct capital spending ceiling. - Oil revenue management: establish withdrawal rules for Petroleum Revenue Investment Reserve (PRIR); introduce semi-annual reporting to Parliament; enhance external oversight (e.g., independent fiscal council). - Public financial management (PFM): strengthen framework for supplementary budgets, fiscal risk management from SOEs and contingent liabilities, and public investment management. - Expenditure composition: shift to more productive development and social spending and away from less well-targeted subsidies and tax expenditures. - Proposed fiscally credible adjustment: measures worth roughly 1 percent of non-oil GDP annually over FY2027/28–FY2031/32, evenly split between higher tax revenues and reductions in current spending; projected to reduce interest-payments-to-revenue ratio to 23 percent and public debt to 41 percent of GDP under that scenario. - Authorities’ stance: - More optimistic growth outlook: expect real GDP growth >10 percent in FY2026/27 and ~7 percent medium term; view some tax expenditures as supporting real activity and are cautious about rationalization. - Working with IMF on CFR and pension reform; considering marginally higher use of oil revenues for development spending. ### Revenue strategy (DRMS-2) — authorities’ reported measures (percent of non-oil GDP) - DRMS-2 revenue impact items: 1. Tax Policy Reforms total: 1.10 - VAT Reforms & VAT Expenditure Rationalisation 0.35 - Rental Income Tax Harmonisation 0.15 - Presumptive Tax Reform 0.12 - Excise Duty Reform (multi-year, EAC aligned) 0.18 - Withholding Tax Reforms 0.20 - Digital Services & Digital Commerce Tax Adjustments 0.10 2. Administrative Reforms total: 3.30 - Expansion of the Electronic Fiscal Receipting and Invoicing System & Digital Invoicing 1.00 - Integration of Registries & Utilities 0.75 - Formalisation of Informal Businesses 0.40 - Third-party Data Integration 0.35 - Compliance Risk Management 0.55 - Customs Enforcement 0.25 ### Monetary, exchange rate, and financial sector policies - Monetary policy: - BoU tight stance appropriate given upside risks; maintain data‑driven, forward‑looking approach; be ready to tighten if inflation expectations de-anchor; gradual easing conditional on fiscal consolidation and exchange rate flexibility. - Special Deposit Facility (Nov 2025) and FX swaps introduced to strengthen liquidity and policy transmission; Mortgage Refinance Institutions Act (2025) established regulatory framework for mortgage refinance. - Exchange rate and reserves: - External position assessed moderately weaker than fundamentals; preliminary 2025 EBA-lite indicates REER overvalued by 10.2 percent (adjusted for temporary oil-project imports ~3.2 percent of GDP). - FX reserves below optimal 3.5–4.5 months; staff recommend accumulation to that range via exchange rate flexibility, prudent use of oil revenues, fiscal consolidation, structural reforms. - Cross-currency repo stock: $770 million (maturities Dec 2026–Mar 2028); staff caution rollover and haircut risks. - BoU gold purchase program pilot started April 2025; staff highlight price, liquidity, operational, AML/CFT, and reputational risks and call for robust safeguards. - Financial sector: - Banking system sound: NPLs to total gross loans 5.3 (Dec-22); 4.6 (Dec-23); 3.2 (Dec-25). Regulatory capital to RWA: 23.9 (Dec-22); 25.3 (Dec-23); 25.4 (Dec-25). Return on assets: 2.8 (Dec-22); 3.2 (Dec-23); 3.8 (Dec-25). - Banks’ claims on government as share of claims on private sector rose to 65 percent in 2024 from 44 percent in 2019; around 30 percent of bank assets in government debt as of March 2025. - Policy priorities: reduce sovereign-bank nexus risks, expand deposit mobilization, improve credit information, promote long-term savings mobilization, strengthen oversight of SACCOs and NBFIs. - Private credit and financial deepening: - Private sector credit increased by 6.7 percentage points of GDP between 2001–05 and 2021–25 (comparators: Kenya 13.3 ppts, Tanzania 9.4 ppts, Rwanda 13.9 ppts). - Interest rate spreads highest in EAC; net effects include weak pass-through to savers and depressed deposit mobilization. ### Structural reforms and governance - Key constraints: governance weaknesses, high cost of doing business and trade, low policy predictability, non-tariff barriers, limited product diversification (exports concentrated in coffee and gold), and limited infrastructure. - Reform priorities: - Reduce non‑tariff barriers and improve trade logistics to exploit AfCFTA and EAC opportunities. - Improve predictability, coverage, and efficiency of the tax system; broaden tax base. - Strengthen anti‑corruption frameworks, judicial independence, and transparency (address acting judges, Inspectorate of Government appointment practices, and asset-declaration verification). - Strengthen institutions for climate adaptation and mobilize climate finance: estimated climate finance needs 2022–2030 of USD 28.1 billion (USD 17.7 billion adaptation; USD 10.3 billion mitigation); recommended blended finance platforms and careful fiscal risk management. - Labor market and demographic challenge: - Fewer than 0.4 million jobs created between 2021–2024; new entrants to labor market over next five years could exceed 6 million; working-age population projected to increase by 60 percent by 2040. ### Risks, illustrative downside scenario, and contingency guidance - Risk matrix highlights domestic and external risks with assigned likelihood/time horizon categories (Low/Medium/High and Short/Medium term) and policy responses. - Box 1 illustrative downside scenario (conflict in the Middle East) assumptions and impacts: - Assumptions: petroleum spot price index ≈ $110 per barrel in 2026 and ≈ $125 in 2027; external borrowing costs +200 basis points; fiscal revenues lowered by 0.5 percentage points of GDP for one year; transportation costs +10 percent; tourism and remittances −5 percent each; growth declines by 3.4 and 0.5 ppts in FY2026/27 and FY2027/28; inflation +1.0 and +1.1 ppts. - Impacts: CA deficit deteriorates by 2 and 1.1 percentage points of GDP in FY2026/27 and FY2027/28; reserves drop to 2.1 months of imports in FY2027/28; fiscal deficit widens by 0.6 and 1.4 ppts of GDP in FY2026/27 and FY2027/28; public debt increases by an extra 3½ percentage points of GDP in FY2027/28. - Policy guidance: support economy while guarding buffers, allow exchange rate to absorb shocks, avoid price controls, prefer on‑budget transfers to vulnerable groups, condition recurrent spending increases on additional resources. ### Debt sustainability, coverage, and vulnerabilities - Public debt indicators and composition: - Public and publicly guaranteed debt: 46.8 percent of GDP (other reporting: authorities report 51.0 percent of GDP for FY2024/25 due to valuation/exclusion differences). - External debt: US$17,212 million (52.0 percent of total debt); domestic debt: US$15,917 million (48.0 percent). - Multilateral creditors: US$10,138 million (30.6 percent of total debt); IMF: US$1,363 million (4.1 percent). - Total public debt (FY24/25): 33,129 (millions of US$). - Nominal GDP entries shown: 61,831; 68,319; 75,334. - Debt service and thresholds: - Total interest payments: 3.7 percent of GDP in FY24/25 (3.1 percent in FY23/24). - Debt-carrying capacity composite indicator: 2.855 (medium). - PV of PPG external debt-to-GDP ratio peaks at 21.0 (threshold 40); PV of external debt-to-exports ratio peaks at 77.2 (threshold 180). - Debt service-to-revenue ratio reaches 21.4 in FY25/26 and 19.9 in FY26/27 (breaching indicative 18 percent threshold briefly). - Stress tests show moderate risk of debt distress; contingent liability and adverse scenarios could cause breaches. - Public domestic debt structure and investor holdings: - T-bonds ≈ 85 percent of total domestic debt securities at end-FY24/25. - Holdings of government securities (as of June 30, 2025) include Pension and Provident Funds: T-bonds 35.7 percent; Commercial Banks: T-bills 80.2 percent; Offshore holdings ~10 percent of total. - Offshore investor holdings ≈ US$3 billion (roughly half of BoU’s FX reserves). - Re-securitization of BoU advances reduced outstanding BoU advances to 0.8 percent of GDP at end-FY24/25 from 4.1 percent a year earlier. ### Data, capacity development, and technical assistance - Data adequacy for surveillance: Data Adequacy Assessment Rating: B; sectoral ratings include National Accounts B, Prices A, Government Finance Statistics B, External Sector Statistics C, Monetary and Financial Statistics B. - Ongoing TA: industrial production index, residential property price index, producer price index, quarterly GDP expenditure improvements, oil sector statistics, transition to accrual GFS (delayed). - IMF Capacity Development (CD) priorities aligned with NDPIV: macro stability, DRM, financial sector development, climate adaptation; CD spending and coordination with partners emphasized. ### Concluding policy priorities (staff appraisal) - Urgent need for stronger fiscal consolidation anchored in revenue mobilization and expenditure restraint to reduce debt vulnerabilities and crowding out. - Maintain BoU’s data‑driven tight monetary stance while strengthening policy transmission and promoting financial deepening. - Preserve two‑way exchange rate flexibility and build FX reserves to the 3.5–4.5 months range. - Implement structural reforms to improve governance, reduce non‑tariff barriers, improve tax predictability and coverage, strengthen anti‑corruption framework and judicial independence, and mobilize climate finance through blended mechanisms. - Prepare credible medium‑term fiscal consolidation plan and prudent oil revenue management arrangements to safeguard intergenerational equity. *International Monetary Fund — Uganda: IMF staff report (1ugaea2026002), excerpts as presented in the provided content.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Uganda’s robust growth momentum continues, supported by strong domestic demand, low inflation, and a pickup in private sector credit growth. - The outlook is set to strengthen further with the expected start of oil production in late 2026, which would strengthen fiscal and external balances over the medium term. - Spillovers from the conflict in the Middle East have so far been limited, but a prolonged or intensified conflict poses a significant downside risk in the near term. - Other risks include tighter global financial conditions, further delays in oil production, and climate‑related shocks. - The authorities have articulated an ambitious development agenda (tenfold growth strategy) to promote agro-industrialization, tourism, mineral development, and science, technology, ICT, and innovation (ATMS). ### Recent economic developments - Real GDP growth: - Growth remained robust at around 6 percent despite repeated external shocks. - Growth was 6.3 percent in FY2024/25 and increased to 6.5 percent in FY2025/26H1. - Inflation: - Both headline and core inflation stood at 3 percent in April 2026, below the Bank of Uganda’s (BoU’s) 5 percent target for core inflation. - External sector: - The current account deficit (CAD) narrowed in FY2024/25 (from 8.0 percent of GDP in FY2023/24 to 6.2 percent) but widened markedly in FY2025/26H1. - Deterioration in FY2025/26H1 reflects higher private sector imports of capital goods, increased gold imports, and a wider services account deficit. - Financial account surplus remained strong, driven by sizable portfolio inflows that strengthened further in FY2025/26H1. - Fiscal sector: - Fiscal outcomes have deteriorated markedly: the overall fiscal deficit increased sharply and public debt rose to above 50 percent of GDP at end-2025. - High debt-servicing burden and sizeable financing needs are crowding out private sector credit and creating fiscal vulnerabilities. - Monetary and credit developments: - Proactive and tight monetary policy has ensured price stability amid volatile commodity prices and an uncertain external environment. - There has been a pickup in private sector credit growth, driven by foreign currency‑denominated lending. - Other context: - Uganda held general elections in January 2026; President Museveni won a seventh five-year term. - Uganda is a net oil importer; the main near-term impacts from the Middle East conflict have been through rising fuel prices, some depreciation pressures, and higher yields on government bonds. - High-frequency indicators point to continued expansion supported by robust domestic demand. ### Outlook and risks - Expected start of oil production in late 2026 would strengthen fiscal and external balances over the medium term. - Major near-term downside risks: - Prolonged or intensified conflict in the Middle East. - Tighter global financial conditions. - Further delays in oil production. - Climate-related shocks. ### Fiscal policy — findings and recommendations - Findings: - Public debt remains sustainable, but debt service costs and sizeable financing needs are crowding out private sector credit and creating fiscal vulnerabilities. - Overall fiscal deficit increased sharply; public debt rose to above 50 percent of GDP at end-2025. - Policy recommendations: - Strengthen domestic revenue mobilization. - Enforce stronger budgetary discipline to build durable fiscal space for development and social spending. - The Charter of Fiscal Responsibility should ensure prudent use of upcoming oil revenues, balancing increased development and social spending with safeguarding intergenerational equity. - Achieve a durable fiscal consolidation that preserves space for development and social spending while reducing debt-related vulnerabilities. ### Monetary, financial, and external sector policies — findings and recommendations - Findings: - The Bank of Uganda’s (BoU) tight monetary stance has helped anchor inflation expectations. - Uganda’s exchange rate regime is considered floating with the external position assessed as moderately weaker than warranted by fundamentals. - The financial sector remains resilient, but macro‑financial risks and structural constraints to lending persist. - Policy recommendations: - Monetary policy should remain data‑driven to focus on meeting the BoU’s medium‑term inflation target and foster financial deepening. - Preserve two‑way exchange rate flexibility and continue efforts to build adequate foreign exchange reserves buffers. - Maintain vigilance over macro‑financial risks and address structural constraints to lending to promote financial deepening. ### Structural policies — findings and recommendations - Findings: - Structural weaknesses—governance weaknesses, high costs of doing business and conducting trade, and low policy predictability—constrain private‑sector led growth. - Priority reforms: - Reduce non‑tariff barriers. - Improve the predictability, coverage, and efficiency of the tax system. - Strengthen the anti‑corruption framework and judicial system. - Address governance weaknesses and lower costs of doing business and trade to bolster private sector‑led growth. ### Mission, timing, and contacts (summary) - The mission team consisted of Ms. Rahman (head), Messrs. Qu and Tchaidze (AFR), Mr. Fernández Martin (MCM), and Mr. Kiiashko (SPR). Ms. Armas (MCM) contributed to preparation. The mission was assisted by Mr. Walker (Resident Representative) and Ms. Babirye (local economist). Mr. de Castro (LEG) participated remotely. - Discussions were held in Kampala during April 22-30, 2026, with senior government and BoU officials and with civil society, development partners, and the private sector. *International Monetary Fund — Uganda: Executive Summary (May 28, 2026).* ### 2.2 percent of GDP from 1 percent of GDP in FY2024/25. FX reserves continued to grow, reaching $6 ### 1ugaea2026002 - 2.2 percent of GDP from 1 percent of GDP in FY2024/25. FX reserves continued to grow, reaching $6 ### Recent macro-financial developments and key indicators - FX reserves reached $6 billion at end-March 2026 and covered about 3.1 months of goods imports. - Excluding temporary cross-currency repo contracts, reserve coverage stands at 2.7 months of imports of goods and services. - Both nominal and real effective exchange rates appreciated during most of 2025. - Oil imports accounted for about 2.8 percent of GDP in FY25/26. - As of early May, the authorities adopted five supplementary budgets authorizing additional spending amounting to 3.2 percent of GDP for: the 2026 general elections, defense and security needs, several infrastructure projects, acquisition of additional aircraft for Uganda Airlines, operationalization of the national ambulance system, preparations for the Non-Aligned Movement ministerial meeting, recruitment of teachers for newly created secondary schools, and health-related costs within the bilateral cooperation agreement with the U.S. - Repayments to the BoU have proceeded in line with the revised amortization schedule previously agreed with the MoFPED. - The stock of foreign holdings stood at $2.7 billion as of March 2026, equivalent to 4 percent of GDP and 45 percent of FX reserves. ### Outlook and projections - Real GDP growth projected to slow to 5.7 percent year-on-year in FY2025/26H2, from 6.5 percent in FY2025/26H1. - Headline inflation pushed to 5.4 percent in FY2026/27 (aligned with April 2026 WEO commodity price assumptions). - FY2025/26 current account deficit (CAD) projected to widen to 7.1 percent of GDP driven by increased fuel imports and higher transportation costs. - End-June 2026 FX reserves coverage in months of imports projected to decline to 2.7. - Start of oil production projected to lift growth above 8 percent per year during FY2026/27-FY2027/28. - Core inflation expected to be anchored around the BoU’s 5 percent target for core inflation over the medium term. - CAD forecast to narrow to 5.4 percent of GDP in FY2026/27 and decline further to around 2 percent over the medium term, driven by oil exports and declining oil-project-related imports. - Foreign exchange reserves expected to rise above 3 months of import coverage by FY2027/28. ### Risks - Near-term risks largely on the downside stemming from heightened global uncertainties, in particular the war in the Middle East; intensification could disrupt trade and capital flows and remittances, resulting in lower growth, higher inflation, elevated borrowing costs and CADs, and declining buffers. - Medium-term external downside risks: rising protectionism, geopolitical tensions, and higher interest rates in advanced economies. - Medium-term domestic downside risks: further erosion of fiscal discipline, delays in oil production (technical, legal, or financial), vulnerability to climate shocks due to reliance on rain-fed agriculture. - Upside scenarios: timely start to oil production and persistently high oil prices; renewed reform momentum following the 2026 elections. ### Fiscal developments and public debt - Overall fiscal deficit projected to widen in FY2025/26 to 7.1 percent of GDP, mostly reflecting higher interest payments. - Financing continues to rely heavily on the domestic market, including offshore inflows and pension and provident funds. - Public debt projected to reach 55.1 percent of GDP in FY2025/26, a 13 percentage points of GDP increase since 2019, and constitutes a violation of the limits specified in the Charter of Fiscal Responsibility (CFR). - Interest payments projected to absorb almost a third of domestic revenues in FY2025/26, while total debt service costs stand at around 10 percent of GDP, up from the 6-7 percent of GDP pre-pandemic range. - High real interest rates in the 10-14 percent range. - Under staff’s baseline (no adjustment) fiscal scenario (Text Table 2): - Revenues and Grants: 14.7 (2024/25), 14.6 (2025/26), 15.4 (2026/27), 16.3 (2027/28), 16.5 (2028/29), 16.8 (2029/30), 17.1 (2030/31) percent of GDP. - Tax Revenues: 13.0 (2024/25), 13.2 (2025/26), 13.2 (2026/27), 13.2 (2027/28), 13.3 (2028/29), 13.5 (2029/30), 13.8 (2030/31) percent of GDP. - Oil Revenues*: 0.1 (2024/25), 0.1 (2025/26), 0.6 (2026/27), 1.7 (2027/28), 1.9 (2028/29), 2.1 (2029/30), 2.2 (2030/31) percent of GDP. - Expenditures: 20.7 (2024/25), 21.7 (2025/26), 22.0 (2026/27), 22.5 (2027/28), 22.8 (2028/29), 23.1 (2029/30), 23.3 (2030/31) percent of GDP. - Interest payments*: 3.7 (2024/25), 4.6 (2025/26), 4.5 (2026/27), 4.8 (2027/28), 5.1 (2028/29), 5.4 (2029/30), 5.9 (2030/31) percent of GDP. - Overall balance: -6.0 (2024/25), -7.1 (2025/26), -6.6 (2026/27), -6.2 (2027/28), -6.3 (2028/29), -6.4 (2029/30), -6.2 (2030/31) percent of GDP. - Public Debt: 52.3 (2024/25), 55.1 (2025/26), 55.5 (2026/27), 55.9 (2027/28), 57.1 (2028/29), 58.2 (2029/30), 59.2 (2030/31) percent of GDP. - Under the baseline, Uganda’s public debt projected to reach 60 percent of GDP by FY2030/31; the debt sustainability assessment indicates sustainability with a moderate risk of debt distress, though stress tests show heightened vulnerabilities under adverse scenarios. - Domestic debt and domestic debt service-to-revenue ratios projected to remain well above LIC medians throughout the DSA horizon. - Uganda has arrears to Nigeria (US$11.5 million) and Iraq (US$657, given massive depreciation of the Iraqi dinar, or US$15.2 mn claimed by Iraq; a reconciliation process is ongoing); validity of arrears to Tanzania (US$58 million) is disputed. ### Staff’s recommended fiscal consolidation and policy measures - Staff recommended a more vigorous revenue-based fiscal consolidation, better budgetary discipline, vigilant monetary policy addressing inflationary concerns and facilitating credit recovery, and continued exchange rate flexibility. - Proposed fiscal adjustment: measures worth roughly 1 percent of non-oil GDP annually over FY2027/28-FY2031/32, evenly split between higher tax revenues and reductions in current spending; projected impact: - Reduce the interest-payments-to-revenue ratio to 23 percent. - Reduce public debt to 41 percent of GDP. - Specific recommendations: - Domestic revenue mobilization: finalize DRMS-2 with an implementation plan and timeline; revisit and systematically cost tax expenditures (TE). - Oil revenue management: establish clear withdrawal rules for the Petroleum Revenue Investment Reserve (PRIR); introduce regular semi-annual reporting to Parliament on PRIR flows; enhance external oversight (e.g., independent fiscal council). - Public finance management (PFM): strengthen the draft framework to control supplementary budget expenditures (clearer process for reviewing requests, specify Parliament’s role, legal basis); strengthen top-down budgeting with Cabinet-approved binding aggregate spending ceilings and a distinct capital spending ceiling; strengthen fiscal risk management from SOEs and contingent liabilities; improve public investment management institutions and project implementation. - Expenditure composition: shift toward higher and more productive development and social spending and away from less well-targeted subsidies and tax expenditures; conduct diagnostic study on under-execution of social spending. - Pension reform: authorities reforming public service pension scheme to move to a contributory system; fiscal costs during transition yet to be estimated; authorities requested technical assistance from the Fund. ### DRMS-2 and revenue measures (Authorities’ plan as reported) - DRMS-2 revenue impact items (percent of non-oil GDP): 1. Tax Policy Reforms total: 1.10 - VAT Reforms & VAT Expenditure Rationalisation 0.35 - Rental Income Tax Harmonisation 0.15 - Presumptive Tax Reform 0.12 - Excise Duty Reform (multi-year, EAC aligned) 0.18 - Withholding Tax Reforms 0.20 - Digital Services & Digital Commerce Tax Adjustments 0.10 2. Administrative Reforms total: 3.30 - Expansion of the Electronic Fiscal Receipting and Invoicing System & Digital Invoicing 1.00 - Integration of Registries & Utilities 0.75 - Formalisation of Informal Businesses 0.40 - Third-party Data Integration 0.35 - Compliance Risk Management 0.55 - Customs Enforcement 0.25 ### Authorities’ views - Authorities more optimistic than staff: expect real GDP growth to exceed 10 percent in FY2026/27 and remain around 7 percent in the medium run reflecting investments under the Tenfold Growth Strategy. - They agreed on risks, particularly spillovers from the war in the Middle East. - Core inflation expected to range from 5.0 to 5.3 percent over the next 12 months, with upside risks from a prolonged war. - Authorities see low revenue intake and high informality as key constraints; view tax expenditures as instrumental in supporting real activities and not convinced that rationalization will yield net economic benefits. - Authorities indicated the new CFR will guide future measures; they are working with the Fund to strengthen the framework governing supplementary budgets and requested IMF technical assistance on pension reform. *Source: INTERNATIONAL MONETARY FUND (excerpts from UGANDA staff report).* ### 20.5 million. The 2024 audit of the pension system by the Auditor General suggests that the pension bill would rise ### 1ugaea2026002 - 20.5 million. The 2024 audit of the pension system by the Auditor General suggests that the pension bill would rise ### Fiscal: Pension Bill and Numerical Fiscal Rules - The 2024 audit of the pension system by the Auditor General suggests that the pension bill would rise from 0.6 percent of non-oil GDP in FY2023/24 to 1 percent in FY2033/34. - Authorities noted they would be more parsimonious in terms of the numerical fiscal rules, focusing on the debt trajectory and liquidity indicators, such as debt servicing costs. - Authorities indicated they may consider marginally higher use of oil revenues to finance development spending. - Current CFR has six numerical targets for the following indicators: total public debt, overall fiscal balance, domestic debt interest payment to total revenues, publicly guaranteed debt, the growth rate of non-oil revenues, and the growth rate of recurrent spending. ### Monetary Policies: Ensure Low and Stable Inflation, Promote Financial Deepening Findings - The Bank of Uganda (BoU) has maintained a tight monetary policy stance since mid-2023. - The real policy rate is currently at around 6.5 percent, above the estimated neutral rate of 4.5 percent. - In March 2026, the BoU raised the cash reserve requirement ratio from 9.5 percent to 11 percent. - The tight policy stance has anchored inflation expectations amid heightened global uncertainties and a closed output gap, but has contributed to subdued credit growth and higher government borrowing costs—particularly at the short end of the yield curve. - Monetary policy transmission is constrained by structural bottlenecks, including shortage of bankable projects, weak credit information, and restricted access to financial instruments. - Low deposit mobilization, high-interest rate spreads, and elevated government borrowing needs have constrained private sector credit growth. - Private sector credit remains below peers (see Box 2). Policy actions and reforms - In November 2025, BoU introduced a Special Deposit Facility to enhance interbank market functioning and anchor short-term interest rates within the policy corridor. - BoU added foreign exchange swaps to its liquidity management toolkit to deepen financial markets and strengthen monetary policy transmission via interest rate and exchange rate channels. - The Mortgage Refinance Institutions Act (2025) established a formal regulatory framework for mortgage refinance institutions to support longer-term funding, lower mortgage costs, and improve credit market depth. Staff recommendations - Monetary policy should remain data-driven and forward-looking, alongside sustained efforts to strengthen policy transmission. - Given high fiscal deficits and passthrough of exchange rate movements to inflation estimated to be about 0.3, maintaining the policy rate at its current level is appropriate amid heightened global uncertainties. - BoU should be ready to tighten further if risks of de-anchoring inflation expectations materialize; conversely, a gradual and well-sequenced easing of monetary policy—aligned with fiscal consolidation and continued exchange rate flexibility—would support stronger private sector credit recovery. - Continued efforts to enhance credit information, banks’ operational efficiency, and digital data/payment infrastructure are needed to reduce screening and servicing costs and improve access for borrowers with limited credit histories. - These reforms would complement, but not substitute for, fiscal consolidation that lowers sovereign-yield benchmarks and eases crowding-out pressures. - The recent TA on Forecasting and Policy Analysis System will help strengthen BoU’s analytical capacity and inform monetary policy calibration. BoU autonomy and central bank claims - BoU’s claims on the government peaked at about 43 percent of total assets in May 2025. - Authorities tightened the scope for central bank budget financing through regulatory changes to the PFM Act and committed to repaying the stock of advances outstanding as of end-October 2024. - Compliance with the PFM Act provision that caps BoU advances at 10 percent of government recurrent revenues and requires full repayment by the end of each fiscal year is important. - Continued implementation of remaining recommendations from the 2021 Safeguards Assessment, including those related to the legal framework of the BoU, is crucial to strengthen autonomy and governance arrangements. Authorities’ views - Authorities indicated the monetary policy stance has remained moderately tight to keep inflation close to the medium-term target and that policy actions will continue to be forward-looking and data-dependent. - They noted tight stance contributed to high borrowing costs, and that subdued credit growth also reflects banks’ cautious lending behavior and elevated government financing needs. - Authorities emphasized ongoing financial deepening reforms (digital financial services, credit-reference infrastructure, market-infrastructure upgrades) should strengthen monetary transmission and support private-sector credit growth. - Independence of the BoU is enshrined in the Constitution; Board Charter expected to be revised in line with the 2021 SA recommendations. ### Exchange Rate Policies: Maintain Exchange Rate Flexibility, Continue Building Reserves External position and REER - Uganda’s external position is assessed to be moderately weaker than the level implied by fundamentals and desired policies. - Preliminary 2025 EBA-lite assessment indicates the real effective exchange rate (REER) was overvalued by 10.2 percent. - Staff’s model-based assessment is adjusted partially to account for large and temporary oil-project-related imports (around 3.2 percent of GDP), which are expected to taper off over the coming years; the magnitude of this adjustment is subject to considerable uncertainties. FX reserves and policy recommendations - Uganda’s FX reserves position has improved but remains mostly below peers and below the optimal range of 3.5-4.5 months of import coverage. - Over the medium term, staff recommended increasing FX reserves to the 3.5-4.5 months range through a combination of continued two-way exchange rate flexibility, prudent use of oil revenues, fiscal consolidation, and structural reforms to enhance competitiveness. - Maintaining two-way exchange rate flexibility remains important for macroeconomic stability. - FX market interventions (sale), which have not been used since June 2022, should remain limited to addressing disorderly market conditions. - Institutional, policy, and communication constraints, as well as market development considerations, warrant a cautious use of FX intervention in Uganda’s context. Gold program and FX instruments - BoU is at an advanced stage of adopting a domestic gold purchase program to diversify foreign reserves through acquisition of non-monetary gold in UGX, subsequent refining, and eventual inclusion in foreign reserves as monetary gold. - In April 2025, BoU conducted the first test purchase under the 3-year pilot phase. - The initiative exposes the central bank to risks related to price volatility, liquidity, operational, AML/CFT, and reputational risks. - Staff underscored the importance of robust safeguards including a strong internal control framework to ensure prudent and transparent implementation. - The stock of cross-currency repo agreements stands at $770 million, up from $400 million in December 2025, with maturities ranging from December 2026 to March 2028. - Staff cautioned that FX repos entail rollover risks and potential exposure to large haircuts, limiting their effectiveness. Authorities’ views - Authorities broadly agreed with staff’s assessment but considered the degree of exchange rate overvaluation to be somewhat smaller, reflecting their preference to fully adjust the current account gap for oil project–related imports. - They concurred that further accumulation of FX reserves is needed and indicated intention to continue purchases, subject to favorable market conditions. - Despite a near-doubling of the nominal level of FX reserves in 2025, reserve coverage increased more modestly due to the sharp rise in the nominal value of imports driven by elevated gold prices. - Authorities viewed cross-currency repo instruments as a temporary tool to meet short-term reserve targets during periods of limited foreign currency inflows and assessed the risk of portfolio outflows as low. - They reaffirmed that exchange rate flexibility would remain the first line of defense in the event of significant portfolio outflows. ### Financial Sector: Safeguard Financial Stability, Promote Deepening System soundness and risks - The banking system remains sound and resilient, supported by strong capital and liquidity buffers, improved asset quality, and robust profitability. - Asset quality continues to improve, profitability and liquidity indicators remain solid, and the capital adequacy ratio is comfortably above the regulatory minimum. - Deposit concentration presents a liquidity risk, given the large share of corporate deposits in system funding. - Spillovers from the war in the Middle East to credit markets appear limited so far, though effects could emerge with a lag if the shock persists. Sovereign–bank nexus - Banks hold around 30 percent of their assets in Ugandan government debt, placing Uganda above the SSA average. - Some institutions exceed 50 percent of total assets in holdings of government debt. - Recent supervisory stress tests show capital buffers remain adequate under a sizable valuation shock. - Elevated fiscal financing needs warrant close monitoring of: exposure to valuation risk from rising yields, liquidity risks, crowding out of private sector credit, and risks from a shifting investor base for domestic government debt toward pension and provident funds. - Steadfast fiscal consolidation will ease domestic market pressures and halt rising financial system exposure to government debt. Financial inclusion and deepening - Authorities have achieved notable success in increasing financial inclusion across five areas: (i) broadening financial access; (ii) using digital platforms; (iii) enhancing credit infrastructure via the Credit References Bureau (CRB); (iv) introducing targeted lending facilities such as the Agricultural Credit Facility and Parish Revolving Fund; and (v) developing capital markets with new instruments like green bonds, sukuk, and diaspora bonds, and operationalizing legal framework for Islamic finance. - Digital finance has risen sharply over the past decade but has not yet impacted high lending spreads or banking sector efficiency; high government borrowing needs have also kept lending spreads high. - Priorities to support sustainable financial deepening include promoting long-term savings mobilization, further strengthening credit infrastructure by addressing data gaps and improving the quality of CRB reporting, and expanding financial and digital literacy campaigns. Authorities’ views - Authorities agreed on the need to safeguard financial stability while supporting deeper intermediation. - They noted bank efficiency has improved, reflected in declining aggregate cost-to-income ratios driven by agent banking, digitalization, and operational improvements. - They argued digital credit supports financial inclusion and that reported NPLs for digital loans are overstated due to very short classification windows. - On the sovereign–bank nexus, authorities considered risks manageable, with holdings of government securities broadly stable and monitored through supervisory engagement and stress tests, while acknowledging pockets of elevated exposure. - Ongoing transfer of large SACCOs to BoU oversight is expected to strengthen the regulatory perimeter, improve governance and prudential monitoring, and help contain risks in fast-growing nonbank credit segments. ### Structural Policies: Advancing Reforms for Strong and Sustainable Growth Growth and labor market - Despite strong growth, Uganda has had limited income convergence with other emerging and developing economies over the past decade. - Between 2021 and 2024, fewer than 0.4 million jobs were created. - New entrants to the labor market over the next five years could exceed 6 million. - The share of working-age population is projected to increase by 60 percent by 2040, highlighting the need for comprehensive inter-linked reforms to absorb this demographic dividend while boosting labor productivity. Structural weaknesses and reform priorities - Key structural weaknesses: trade facilitation, corruption vulnerabilities, perception of business environment, and government effectiveness. - To raise contributions of net exports to growth, Uganda needs to reduce non-tariff barriers and improve trade logistics. - Uganda’s export base remains heavily concentrated in commodities such as coffee and gold; value-added exports are lower than in peer countries. - High trading costs—reflecting non-tariff barriers and difficult trade logistics—constrain deeper trade integration, including with global and regional value chains. - Priorities to exploit AfCFTA and EAC Customs Union opportunities: remove discriminatory domestic charges on imports and trade-prohibitive measures; cut border delays; harmonize regulations; simplify Rules of Origin; tackle infrastructure gaps in transport, electricity, and information and communications technology sectors. _International Monetary Fund_ ### 100. Aggregate scores of less than 20 indicate persistent gaps. ### Aggregate scores of less than 20 indicate persistent gaps. ### Governance and business environment - Firms report the tax system as unpredictable and cumbersome, with frequent amendments and an unfair narrow base. - Progress in addressing governance gaps has been limited; indicators continue to trail peers in SSA. - Recommendations: - Enhance tax policy predictability by limiting ad-hoc amendments. - Broaden the tax base. - Strengthen transparency and taxpayer services to encourage formalization. - Strengthen the independence and capacity of anti-corruption institutions and improve transparency. - Anti-corruption framework weaknesses: - Institutional and enforcement gaps persist. - Asset declaration effectiveness constrained by limited coverage, verification capacity, and public access. - Use of contractual appointments in the Inspectorate of Government undermines security of tenure and the agency’s independence and effectiveness. ### Rule of law and judiciary - Weak rule of law and concerns over judicial independence reduce business predictability. - Specific issues: - Undue influence over appointments can compromise judicial independence and integrity. - Use of “acting judges” undermines security of tenure. - Impasse on appointments to the Judicial Services Commission (JSC) weakens its independence. - Judicial selection lacks transparency and clear objective criteria, although objective testing was recently piloted. - The e‑court system has improved case processing and reduced corruption risks, but further progress requires: - Strengthening checks and balances. - Enhancing merit‑based and transparent judicial appointments and discipline. - Deepening integration of justice‑sector digital systems. ### Climate adaptation, finance, and resilience - Uganda is highly vulnerable to climate change; climate-related shocks, especially floods and droughts, strain the agriculture-based economy and pressure energy, forests, and critical infrastructure. - Estimated climate finance needs for 2022–2030: - USD 28.1 billion total. - USD 17.7 billion for adaptation actions. - USD 10.3 billion for mitigation. - Domestic resources are insufficient; mobilizing climate finance is a major challenge unlikely to be met by the domestic financial sector. - Recommended approach: - Create a financing platform that integrates capacity development, project preparation, and de-risking mechanisms through blended finance to improve project bankability and attract investment. - Carefully design measures to manage fiscal costs and risks. ### Protection of Sovereignty Act - The Protection of Sovereignty Act 2026 received Presidential assent on May 17 and is intended to prevent foreign interference in domestic matters. - Concerns raised: - Potential adverse effects on the economy and operations of development partners. - Earlier draft Bill caused societal and CSO concerns; private sector feared restrictions on legitimate commercial transactions in a context of weak rule of law. - Development partners expressed unease about impacts on their operations. - Authorities revised the earlier Bill following stakeholder engagement; IMF staff have not yet seen the final Act assented by the President and will assess any impact on Fund engagement and staff policy dialogue once the final Act is reviewed. ### Authorities’ views - Authorities agree on the urgency of reforms to boost growth potential. - Key points from authorities: - Persistent NTBs, limited product diversification, and challenges with international quality standards hinder deeper trade integration. - NTB reduction should focus on strengthening regional NTB elimination mechanisms and implementing the EAC Development Strategy to promote product diversification and broaden export markets beyond the EAC. - Appointing acting judges and using contractual staff within the Inspectorate of Government are viewed as providing managerial flexibility for disciplining and removing underperforming officials. - Asset declaration system can be strengthened via more stringent verification, requiring additional resources. - Regarding the Protection of Sovereignty Bill, authorities acknowledge potential adverse economic effects but emphasize the Bill’s role in addressing perceived legal gaps to prevent foreign interference. ### Staff appraisal — Growth outlook and inflation - Robust economic growth is expected to continue, with limited spillovers from the war in the Middle East, and medium‑term prospects remain favorable as oil production is set to begin in FY2026/27. - Current drivers: robust domestic demand, low inflation, pickup in private sector credit growth. - Near-term inflation outlook: - Exchange rate depreciation, elevated energy prices, and higher transportation costs expected to push headline inflation above 5 percent in FY2026/27. - Core inflation is projected to reach the BoU’s 5‑percent medium-term target before end‑2026. - Start of oil production in late 2026 expected to durably strengthen fiscal and external balances. - Historical shock: the 2016/17 drought slowed growth, culminating in a 3.5 percent decline in real GDP in 2019; the shock pushed up headline inflation, subdued credit growth, and deteriorated bank asset quality, with NPLs rising by over 200 basis points in some banks. ### Risks - Near-term risks are tilted to the downside; medium-term risks more balanced. - External downside risks: - Intensification/prolongation of war in the Middle East could disrupt trade, trigger capital outflows, and weaken remittances. - Rising protectionism, higher interest rates in advanced economies, and heightened geopolitical tensions. - Domestic risks: - Further erosion of fiscal discipline. - Delays in oil production. - Vulnerability to climate shocks due to predominance of rain-fed agriculture. - Upside possibilities: - Timely start of oil production amid favorable oil prices. - Higher concessional financing. - Renewed reform momentum following the 2026 elections. ### Fiscal policy and public debt - Urgency of stronger fiscal consolidation is rising. - Current concerns: - Uganda’s debt is on an upward path, in violation of Uganda’s fiscal rules. - Debt service costs consume a third of domestic revenues. - Large financing needs crowd out private lending. - Recommendations: - Prioritize expanding fiscal space through strengthened domestic revenue mobilization and expenditure restraint. - With upcoming oil revenues, ensure effective use: fund growth-supporting and social spending and save the rest to ensure intergenerational equity. - Formulate a credible medium-term fiscal consolidation plan to support investor confidence. ### Monetary policy and reserves - Monetary policy stance: - BoU’s tight stance is warranted given upside inflation risks from volatile commodity prices and exchange rate pressures. - Monetary policy should remain data‑dependent and forward‑looking. - BoU should monitor price pressures and be ready to recalibrate in line with its medium‑term inflation target. - Strengthening policy transmission—via improved credit information, bank efficiency, and digital infrastructure—would support private sector credit recovery. - Reserves: - Despite progress in reserve accumulation, further buildup is needed to bolster resilience. - Maintain two-way exchange rate flexibility as the primary shock absorber. - Uganda’s external position is assessed to be moderately weaker than the level implied by fundamentals and desirable policies. - Pilot gold purchase program can contribute to reserve accumulation but must be tightly controlled to mitigate financial and operational risks. ### Financial sector and financial deepening - Financial sector remains resilient but faces macro-financial risks and structural constraints to lending. - Current status: - Banks are well capitalized, liquid, and profitable, with improving asset quality. - Spillovers from the war in the Middle East have not yet materially affected credit markets, but potential lagged effects require monitoring (borrower performance, FX exposures, liquidity, deposit concentration). - Sovereign‑financial nexus remains a key risk: sizable and uneven bank holdings of government securities and high sovereign yields can weaken credit allocation and crowd out private investment. - Rapid digital finance expansion improved access and payments but has not yet lowered intermediation costs or deepened productive credit. - Policy priorities to deepen finance and translate inclusion into productive credit: - Strengthen credit infrastructure, operational efficiency, digital and financial literacy, consumer protection, SACCO oversight. - Enhance cross-sector monitoring of NBFIs. - Box 2 findings on private sector credit-to-GDP: - Uganda’s private sector credit increased by only 6.7 percentage points (ppts) of GDP between 2001-05 and 2021-25. - Comparators: Kenya increased by 13.3 percentage points, Tanzania by 9.4 percentage points, and Rwanda by 13.9 percentage points. - Interest rate spreads are the highest in the EAC region; wide spreads reflect high operating costs, substantial loan-loss provisions, and the cost of reserve requirements. - High spreads alongside relatively low deposit remuneration suggest weak pass-through to savers, dampening deposit mobilization and keeping borrowing costs elevated. ### Structural reforms and next steps - Advancing structural reforms is critical for strong, job-rich, sustainable growth: - Accelerate trade integration and broaden participation in regional and global value chains by reducing trade costs and logistical barriers. - Improve the business environment and address governance weaknesses to foster private sector–led growth. - Strengthen institutional capacity for climate adaptation and resilience. - It is proposed that the next Article IV consultation with Uganda take place on the standard 12-month cycle. ### Box 1 — Illustrative downside scenario (conflict in the Middle East) - Context: Conflict can affect Uganda via adverse commodity prices, trade disruptions, capital outflows, weakened remittances, tourism declines, and potential delays to oil production. - Assumptions used in the illustrative sensitivity analysis: - Oil prices increase in line with the April 2026 WEO’s “severe” scenario: average petroleum spot price index of about $110 per barrel in 2026 and about $125 in 2027. - External borrowing costs increase by 200 basis points. - Fiscal revenues are lowered by 0.5 percentage points of GDP relative to the baseline for one year. - Transportation costs increase by 10 percent. - Tourism and remittance flows decrease by 5 percent each. - Growth in FY2026/27 and FY2027/28 declines by 3.4 and 0.5 percentage points respectively relative to the baseline, partly reflecting a one-year delay in oil production. - Inflation increases by 1.0 and 1.1 percentage points respectively. - Impact under these assumptions: - Current account (CA) deficit could deteriorate by 2 and 1.1 percentage points of GDP in FY2026/27 and FY2027/28 respectively relative to the baseline. - International reserves coverage would drop to 2.1 months of imports in FY2027/28. - Fiscal deficit would widen by 0.6 and 1.4 percentage points of GDP in FY2026/27 and FY2027/28 respectively. - Resulting in an extra 3½ percentage points of GDP of public debt in FY2027/28. - Policy response guidance: - Focus on supporting the economy while guarding existing buffers. - Allow the exchange rate to act as a shock absorber and permit full pass-through of changes in international commodity prices. - Resist price controls; prefer direct, on‑budget transfers to the most vulnerable. - Increases in recurrent spending should be contingent on identifying additional financial resources, preferably domestic revenues or concessional lending. - Formulate a credible medium-term fiscal consolidation plan to support investor confidence. *Source: IMF staff summary of the Uganda Article IV consultation chapter (1ugaea2026002).* ### Box 2. Financial Deepening in Uganda: Unpacking Barriers to Facilitate Growth (concluded) ### Box 2. Financial Deepening in Uganda: Unpacking Barriers to Facilitate Growth (concluded) ### Summary of constraints to financial deepening - Financial deepening is constrained by a mutually reinforcing set of frictions across borrowers, banks, and the broader institutional environment. - Demand-side constraints: - Weak credit demand reflecting the prevalence of informal and cash-based incomes. - Limited creditworthiness and low repayment capacity among prospective borrowers. - Supply-side constraints: - Banks’ risk appetite, lending capacity, and operational constraints limit private credit expansion. - Structural and institutional constraints: - Conservative lending practices driven by information gaps and conservative underwriting standards that limit access for MSMEs and borrowers with thin credit histories. - A relatively concentrated banking sector. - Limited long-term funding. - A strong sovereign‑bank nexus that contributes to crowding out of private credit. ### Key quantitative indicators and dynamics (preserved exactly as in source) - Uganda’s deposit-to-GDP ratio remains below the EAC average (no numeric value given in source for the EAC average). - Banks’ claims on government as a share of claims on the private sector rose to 65 percent in 2024 from just 44 percent in 2019. - Notes accompanying Text Figure 3: - Interest rate spreads computed as the spread between lending rates charged and the weighted average deposit rates offered by banks. - Banking-sector indicators (selected, December 2022–December 2025): - NPLs to total gross loans: 5.3 (Dec-22); 4.6 (Dec-23); 3.2 (Dec-25). - Regulatory capital to risk-weighted assets: 23.9 (Dec-22); 25.3 (Dec-23); 25.4 (Dec-25). - Return on assets: 2.8 (Dec-22); 3.2 (Dec-23); 3.8 (Dec-25). - Net interest margin: 10.6 (Dec-22); 10.8 (Dec-23); 10.8 (Dec-25). - Liquid assets to total deposits: 43.2 (Dec-22); 45.0 (Dec-23); 56.6 (Dec-25). - Liquidity coverage ratio: 223.3 (Dec-22); 285.2 (Dec-23); 408.9 (Dec-25). - Foreign currency loans to foreign currency deposits: 55.7 (Dec-22); 56.0 (Dec-23); 53.4 (Dec-25). - Bank claims on government versus private sector (monetary accounts context): - Claims on central government (net) growth in monetary accounts noted across projections (figures in Tables not restated here beyond the highlighted sovereign‑bank nexus). ### Implications and channels - The combination of limited deposits (limited funding base) and increasing sovereign exposures amplifies the sovereign‑bank nexus, reducing banks’ capacity or willingness to expand private-sector credit. - Conservative underwriting and information gaps disproportionately hinder MSME access to formal credit, reinforcing informality and cash-based incomes that further depress formal credit demand. - Banking concentration and limited long-term funding restrict the diversity of credit products and maturities available to the private sector. ### Policy-relevant points for facilitating financial deepening (inferred from constraints and indicators presented) - Address information gaps and underwriting conservatism to improve MSME access (targeted credit information improvements, credit scoring, and alternative data). - Expand deposit mobilization to raise deposit-to-GDP and broaden the funding base available for private credit. - Reduce sovereign crowding-out by managing banks’ large claims on government (policy options include diversifying government financing away from short-term domestic bank funding and developing long-term local-currency instruments). - Enhance competition in the banking sector and expand long-term funding sources to support durable private credit growth. *Prepared by Jean Christine A. Armas; source material: Box 2, Text Figure 3, associated notes, and Tables and Figures as presented in the provided content.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Domestic Risks - Slow progress on fiscal reforms, including improving revenue mobilization and public sector efficiency - Likelihood / Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: High — Would lower growth dividend and increase risk of debt distress - Policy Response: - Improve the quality of public spending - Define operational debt ceiling with annual budget deficit and a binding expenditure envelope - Climate-induced shocks. Higher-frequency of natural disasters causes severe economic damage. - Likelihood / Time Horizon: Medium / Medium/Long-term - Expected Impact on Economy: High — Lower growth, increase in poverty levels, worsened public debt sustainability - Policy Response: - Improve economic resilience to shocks, build fiscal and external buffers - Oil production delay. Logistical and legal issues or unfavorable global oil prices may lead to delays in domestic production of oil. - Likelihood / Time Horizon: Medium / Medium Term - Expected Impact on Economy: Medium — Lower growth, fiscal and export revenues, worsened public debt sustainability - Policy Response: - Formulate credible medium-term fiscal path to support investor confidence - Allow exchange rate to act as a shock absorber, and adjust monetary policy if currency weakening leads to inflationary pressures - Lack of progress in tackling corruption and governance deficiencies, which could erode oil revenue through embezzlement and exacerbate social unrest, undermining support for reforms - Likelihood / Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: High — Lower growth, fiscal and export revenues, worsened public debt sustainability - Policy Response: - Step up governance and anti-corruption reforms - Formulate credible medium-term fiscal path to support investor confidence - Allow exchange rate to act as a shock absorber, and adjust monetary policy if currency weakening leads to inflationary pressures - Deterioration of security conditions. Spillovers from crises in the region and domestic terrorist attacks could worsen security, and give rise to financing pressures. - Likelihood / Time Horizon: Low / Short term - Expected Impact on Economy: Medium — Economic activity would be disrupted. Investor confidence would decline. - Policy Response: - Formulate credible medium-term fiscal path to support investor confidence - Note on RAM probabilities and horizons: - “Low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent. - “Short term” and “medium term” indicate the risk could materialize within 1 year and 3 years, respectively. - The Risk Assessment Matrix shows events that could materially alter the baseline path. Non-mutually exclusive risks may interact and materialize jointly. ### External Risks - Geopolitical Tensions and intensification of conflicts raise the risk of an escalation in military conflicts, accompanied by damage to key physical and financial infrastructure, disruptions in major transit routes and supply chains, higher migration pressures, additional financial frictions and market volatility. - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Would weaken the recovery, impact trade routes and remittance inflows, and intensify the inflationary pressure through surging commodity prices. - Policy Response: - Allow exchange rate to act as a shock absorber and adjust monetary policy in response to the inflationary pressure - Accommodative fiscal policy to mitigate the impact on the poor - Formulate credible medium-term fiscal path to support investor confidence - Protectionism and Trade Disruptions. Tariff and non-tariff measures disrupt global supply chains, weighing on activity while increasing inflation. Trade diversion triggers broader protectionism. - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Would dampen exports and growth, exert pressure on the exchange rate and inflation. - Policy Response: - Allow exchange rate to act as a shock absorber and adjust monetary policy in response to the inflationary pressure - Formulate credible medium-term fiscal path to support investor confidence - Commodity price volatility. Supply and demand imbalances fuel commodity price swings, amplifying external and fiscal pressures, social unrest, and macro instability. - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Poor households would be particularly vulnerable to the rising commodity prices. Renewed inflationary pressure and weaker recovery. As a net food exports, Uganda could also benefit from higher export receipts. - Policy Response: - Provide targeted fiscal support to vulnerable households - Formulate credible medium-term fiscal path to support investor confidence - Allow exchange rate to act as a shock absorber and adjust monetary policy response to the inflationary pressure - Fiscal Vulnerabilities and Higher Interest Rates sharply tighten global financial conditions and amplify currency volatility. Disruptions are amplified by increased role of price-sensitive investors and leveraged NBFIs, higher roll-over needs, and strong sovereign-financial nexus. Con concurrently, capital outflows from emerging and developing economies elicit a sharp increase in short-term rates. - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Would exert pressure on the exchange rate and inflation and raise sovereign and corporate risk premia. - Policy Response: - Allow exchange rate to act as a shock absorber and adjust monetary policy in response to the inflationary pressure - Accommodative fiscal policy to mitigate the impact on the poor - Formulate credible medium-term fiscal path to support investor confidence *Annex I. Risk Assessment Matrix — IMF staff assessment as presented in the document.* ### References ### Annexes IV–VI: Capacity Development, Data Issues, and Debt Assessment ### Capacity Development Strategy (Annex IV) - An extensive Capacity Development (CD) agenda has been implemented in recent years under both program and surveillance engagements with mixed success. - Milestones and constraints: - Uganda’s removal from the FATF’s list of jurisdictions under increased monitoring (“grey list”) was supported by IMF CD. - Progress has been limited in the areas of tax policy and PFM despite heavy TA engagement. - Implementation and follow-up have often been constrained by limited political commitment and capacity, resulting in delayed or muted impacts. - Strong high-level political support will be essential to advance key reforms, notably to rationalize tax expenditures and to contain supplementary budgets. - IMF CD priorities aligned with the National Development Plan (NDPIV): - Support for macroeconomic stability, domestic revenue mobilization, financial sector development, and sustainable use and management of natural resources. - Continued focus on tax policy and revenue administration, public financial management, climate adaptation and mitigation (building on the recent Climate Policy Diagnostic), financial supervision and regulation, macroframeworks, and macroeconomic statistics. - CD delivery will continue to inform staff’s policy recommendations in macro-critical areas. - Coordination: - Effective coordination of CD across development partners (World Bank, UN, African Development Bank, European Union, and bilateral partners) is essential to avoid duplication, exploit synergies, and deliver consistent policy advice while avoiding overstretching the authorities’ absorptive capacity. - CD spending and composition: - Figures and charts on CD Spending (FY2021/22-FY2025/26, Million USD), CD Spending by Sector (FY2021/22-FY2025/26, Million USD), CD Spending by Workstream (FY2025/26, USD), and CD Spending by Department (FY2025/26, Percentage Share) are presented (source: IMF staff calculations based on CDMAP data). Note: Data for FY2021/22 to FY2024/25 are actual data; data for FY2025/26 and FY2026/27 are based on planned activities in CDMAP as of March 2026. Only projects in the stages "Approval", "Execution" and "Complete" are included. Average spending includes all single country spending in AFR divided by 45. ### Data Issues and Adequacy (Annex V) - Overall data adequacy assessment for surveillance: - Data Adequacy Assessment Rating: B - Questionnaire Results / Assessment (heatmap summary): Median Rating B A B C B B B (presented as "BABCBBB") - Detailed questionnaire results (sectoral assessments): - National Accounts: B - Prices: A - Government Finance Statistics: B - External Sector Statistics: C - Monetary and Financial Statistics: B - Intersectoral Consistency: B - Data quality characteristics (table): - Coverage: A A B A A - Granularity: B A C B - Consistency: A C B - Frequency and Timeliness: B A B B B - Rationale for assessment: - Data provision is broadly adequate for surveillance, but weaknesses remain in coverage and timeliness, partly reflecting capacity constraints and requiring TA. - The expenditure breakdown of the GDP is not available on a quarterly basis. - Sizeable errors and omissions in the BOP and fiscal data complicate projections and accurate assessment of external and fiscal positions. - Public debt data does not cover several elements of the general government debt, such as extra budgetary funds. - Data on arrears should be available on a quarterly basis. - More granularity in some areas (e.g., an accurate breakdown for imports) would have been helpful in the context of the 2021-24 ECF arrangement. - Some gaps in “from-whom-to-whom” balance sheet data (e.g., financial statistics by type of currency) exist but do not significantly limit analysis of macro-financial linkages in key sectors. - Changes since last Article IV consultation: - There have been no substantive changes since the last Article IV consultation. - Corrective actions and capacity development priorities: - Fund TA work is ongoing on development of Industrial Production Index, Residential Property Price Index, Producer Price Index, and improvements to quarterly GDP expenditure data. - Efforts are underway to improve oil sector statistics to address data quality issues related to External Sector Statistics. - Work on transition to accrual GFS accounting has been delayed due to staffing issues at the Ministry. - With oil production about to start, authorities are encouraged to start calculating oil and non-oil GDP. - Use of alternative data in staff analysis: - To compensate for the lack of quarterly GDP expenditure breakdown, staff follow a PMI index produced by a local commercial bank; the index is based on responses from a panel of around 400 private sector companies, stratified by sector and company workforce size. - Other data gaps: - Labor market data (available only annually through 2021). - Data on damages and losses to public infrastructure and other fiscal costs from climate-related disasters. - Data Standards Initiatives: - Uganda participates in the Enhanced General Data Dissemination System (e-GDDS) and has published data on its National Summary Data Page since November 2016. - Table of Common Indicators Required for Surveillance (as of May 05, 2026): - Exchange Rates: Date of Latest Observation 2026-05-04; Date Received 2026-05-05; Frequency entries include "D" designations in the table. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 2025-02 to 2026-04 (MMMQ); Frequency and timeliness entries in table. - Reserve/Base Money, Broad Money, Central Bank Balance Sheet, Consolidated Balance Sheet of the Banking System, Total assets of other depository corporations, Total credit from other depository corporations: Date of Latest Observation 2026-02 to 2026-04 with various frequency/timeliness entries ("MMMM", "1M", "2W", "6W", etc.). - Interest Rates: Date of Latest Observation 2026-05-04; Date Received 2026-05-05; Frequency entries include "D D D M..." and "1M". - Consumer Price Index: Date of Latest Observation 2026-04; Date Received 2026-04; Frequency "MMMM" with expected timeliness "1M" and announced timeliness "1D". - Revenue, Expenditure, Balance and Composition of Financing—General Government: Date of Latest Observation shown as "NA NA" in table with reporting and frequency annotations. - Revenue, Expenditure, Balance and Composition of Financing—Central Government: Date of Latest Observation 2026-02 to 2026-04 with frequency/timeliness entries in table. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 2025-06 to 2025-09 with frequency/timeliness entries "AAQQ 1Q 3M". - Total stock of General Government Debt: entries show "NA NA Q...4M..." consistent with table. - External Current Account Balance, Exports and Imports of Goods and Services, GDP/GNP, Gross External Debt, International Investment Position: Date of Latest Observation 2025-12 to 2026-03 with various frequency/timeliness entries (QQQQ, QQMM, QQA, etc.). - Footnotes and definitions in tables clarify scope (e.g., other depository corporations, required frequencies, coverage of general government, inclusion of currency and maturity composition). ### Status of Key Recommendations from the 2024 Article IV Consultation (Annex VI) - Fiscal Policy recommendations and status: - Vigorous implementation of the DRMS through rationalization of tax expenditure, preservation and strengthening of the tax base, and improved tax administration. - Status: The authorities are close to finalizing the DRMS2 update, which will serve as the basis for the budgetary frameworks over the next few years. - Improved budget preparation and execution to contain current spending. - Status: Authorities are working on a new framework, "Budget discipline and accountability charter," to improve supplementary spending request processes. - Increased spending on social needs—health, education, and social protection. - Status: Authorities plan to undertake a diagnostic study to identify bottlenecks and points of inefficiency and propose appropriate remedies. - Ensuring prudent management of future oil revenues. - Status: Uganda has a comprehensive framework, designed with IMF technical assistance, aimed at shielding the budget from oil price volatility and promoting intergenerational equity; this framework is under review in the context of development of the new Charter for Fiscal Responsibility. - Monetary, Financial, and External Sector recommendations and status: - Monetary policy should remain data driven to ensure price stability. - Status and developments: - The Bank of Uganda (BoU) has maintained a tight monetary policy since mid-2023 reflecting its commitment to price stability. - Policy rate has been kept at 9.75 percent since 2025. - In March 2026, cash reserve ratio was raised from 9.5 percent to 11 percent to mitigate shilling depreciation pressures. - Continue to enhance monetary policy transmission and promote financial inclusion. - Status: Implementation of the BoU’s financial deepening agenda is progressing, including operationalization of a BoU platform enabling trading of government securities via mobile money, efforts to deepen interbank and securities markets, expanded use of the Credit Reference Bureau, and greater reliance on digital platforms. - Close monitoring of sovereign-bank nexus and cross-border exposure of NFCs. - Status: Recent stress tests suggest that banks’ capital buffers remain adequate under a sizable valuation shock, supported in part by BoU’s higher capital requirements. - Rebuild external buffer and maintain exchange rate flexibility. - Status and developments: - The authorities stepped up FX purchases to build up buffers (close to USD 3.5 billion in 2025), reaching 3.1 months of future imports of goods and services. - These purchases have at times contributed to limited movement in the bilateral Ush/USD exchange rate (within ±1 percent) as appreciation pressures were countered. - The exchange rate has shown greater flexibility since October 2025. - Advance regional trade integration and modernization of coffee and tourism sectors. - Status: Under NDPIV, agriculture and tourism are identified as high‑impact sectors with reforms focused on incentives, infrastructure upgrades, and cost reduction. - Structural reforms: - Continue to address financial integrity, corruption, and governance deficiencies. - Status: Limited progress. Courts are undergoing digitalization reforms; some courts are able to provide virtual hearings. - Full implementation of the 2021 Safeguard Assessment recommendations to strengthen the independence of the BoU. - Status: Revisions to the Board Charter are being prepared for consideration by the BoU Board; revisions to other aspects of the legal framework have not progressed. ### Debt Sustainability and Public Debt Coverage - Risk assessments: - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Limited space to absorb shocks - Application of judgment: Yes; short-lived breach of threshold - Uganda’s Composite Indicator: 2.855 (signals a medium debt-carrying capacity based on the October 2025 WEO and CPIA 2024) - Summary conclusions: - Uganda’s public debt continues to be assessed as sustainable. - In line with the previous DSA (prepared in December 2025), Uganda’s risk of external and overall public debt distress is assessed as moderate, with an application of judgement. - All, except one, external PPG debt and total public debt burden trajectories remain below their respective indicative thresholds and benchmarks over the medium term under the baseline scenario. - The two-year breach in the external debt service-to-revenue indicator is minor and short-lived; judgment is applied to arrive at the moderate risk assessment. - Stress tests highlight breaches of external debt burden thresholds and the public debt benchmark. - Continued high dependence on domestic financing is of concern. - Given that a median shock could lead to a breach for the external and total debt service indicators, Uganda has limited space to absorb shocks. - Key risks include slower growth, environmental shocks, tight global financial conditions, delayed reform implementation, delays in oil exports, adverse impact on trade from escalating global trade measures and prolonged uncertainty, and donor financing cuts. - Public debt coverage and contingent liabilities (Text Table 1 and notes): - Public and publicly guaranteed (PPG) external and domestic debt coverage includes central government, state and local government, social security fund, and central bank. - Due to data limitations, debt data does not cover extra-budgetary units (EBUs) and debt issued by state-owned enterprises (SOE). - Contingent liability tailored stress test components and parameters: - Disputed arrears to Tanzania: US$58 million or 0.1 percent of GDP - Estimates of non-guaranteed SOE debt: 1.2 percent of GDP - Default PPP shock (35 percent of PPP stock): 1.7 percent of GDP - Default financial market shock (a minimum starting value): 5 percent of GDP - Total (in percent of GDP): 8.0 - Additional notes: - EBUs and SOEs are not allowed to raise funds through issuance of loans or guarantees without authorization from the Minister of Finance. - The total end-June 2025 debt of public entities, including SOEs and EBUs, was UGX 2,367 bn or 1.2 percent of GDP; this stock is distributed across 12 companies with UGX 1,789 bn owed by Uganda Electricity Distribution Company, UGX 213 bn by Uganda Development Bank, UGX 157 bn by National Water and Sewerage Corporation, and UGX 88 bn by Housing Finance Bank. - Arrears to Tanzania date back to the Uganda-Tanzania War in 1978-79; their validity is disputed and they are not included in officially reported total external debt. - Arrears to Iraq (US$657 or US$15.2 claimed by Iraq; a reconciliation process is ongoing) and Nigeria (US$11.5 million) are pre-HIPC Initiative arrears to non-Paris Club creditors and continue to be treated under the revised arrears policy for official creditors. - Background and recent developments: - The public debt ratio reached 52.3 percent of GDP in FY24/25 (an increase of 1.6 percentage points of GDP following three years of minor increases of 0.2 ppt of GDP a year). - This rise puts the overall level above the limit of 51.2 percent of GDP stipulated by the FY20/21-FY25/26 Charter of Fiscal Responsibility. - Public debt is broadly split between domestic (25.1) and external (27.2), after accounting for offshore investors. - In nominal terms: external debt amounts to US$17.2 billion, and domestic debt to US$15.9 billion. - In present-value terms, total public sector debt stood at (table continued in source). *Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA). May 28, 2026.* ### 46.8 percent of GDP, remaining below the East African Community’s debt target of 50 percent of GDP. ### 1ugaea2026002 - 46.8 percent of GDP, remaining below the East African Community’s debt target of 50 percent of GDP. ### Public debt stock and creditor composition - Public and publicly guaranteed debt: 46.8 percent of GDP. - Authorities report public debt at 51.0 percent of GDP for FY2024/25 due to excluding BoU advances (0.8 percent of GDP) and using cost, not nominal, valuation of outstanding treasury paper (difference of 0.5 percent of GDP). - Charter of Fiscal Responsibility requirement: public debt to fall below 50 percent of GDP by FY25/26. - Unverified domestic arrears: UGX 4.7 trln (2.1 percent of GDP). Composition: payment (45 percent), tax arrears (14 percent), compensation (25 percent). Authorities’ medium-term fiscal framework currently envisions clearance of UGX 1.4 trln. - External public debt profile: - Highly concessional loans (IMF, IDA, ADF) account for 49 percent of the external debt portfolio. - Commercial loans now around 10 percent of external public debt (primarily SBSA, African Export–Import Bank, Standard Chartered, Trade Development Bank). - Local-currency government securities held by offshore investors were 10 percent of external public debt. ### Detailed debt stocks (FY2024/25) — selected figures from Text Table 2 and Text Table 3 - Total public debt (FY24/25): 33,129 (millions of US$) — 100.0 percent (of total debt). - External debt (FY24/25): 17,212 (millions of US$) — 52.0 percent (of total debt). - Multilateral creditors (FY24/25): 10,138 (millions of US$) — 30.6 percent (of total debt). - IMF: 1,363 (millions of US$) — 4.1 percent (of total debt). - World Bank (IDA): 5,353 (millions of US$) — 16.2 percent (of total debt). - ADF: 1,700 (millions of US$) — 5.1 percent (of total debt). - Bilateral creditors (FY24/25): 3,568 (millions of US$) — 10.8 percent (of total debt). - Exim Bank of China: 2,341 (millions of US$) — 7.1 percent (of total debt). - Commercial creditors (FY24/25): 1,750 (millions of US$) — 5.3 percent (of total debt). - Local currency debt held by non-residents (FY24/25): 1,712 (millions of US$) — 5.2 percent (of total debt). - Domestic debt (FY24/25): 15,917 (millions of US$) — 48.0 percent (of total debt). - Nominal GDP entries: 61,831; 68,319; 75,334 (presented in Text Table 2 as nominal GDP values). ### Public domestic debt structure and investor holdings - T-bonds constituted around 85 percent of total domestic debt securities at the end of FY24/25. - Holdings of government securities (percent, as of June 30, 2025): - Pension and Provident Funds: T-bills 6.3, T-bonds 35.7, Both 31.5 (percent). - Commercial Banks: T-bills 80.2, T-bonds 19.9, Both 28.6 (percent). - Bank of Uganda: T-bills 0.0, T-bonds 18.0, Both 15.4 (percent). - Offshores: T-bills 2.0, T-bonds 11.3, Both 10.0 (percent). - Other Financial Institutions: T-bills 7.1, T-bonds 7.0, Both 7.0 (percent). - Retail Investors: T-bills 1.9, T-bonds 6.3, Both 5.7 (percent). - Insurance Companies and Deposit Protection Fund: T-bills 1.8, T-bonds 1.5, Both 1.6 (percent). - Others: T-bills 0.6, T-bonds 0.3, Both 0.3 (percent). - Total: 100.0 / 100.0 / 100.0 (percent). - Investor shifts and risks: - Banks’ holdings of government debt rose from 21 percent of their total assets in 2019 to 30 percent as of March 2025. - Offshore investor holdings increased to almost US$3 billion, equivalent to roughly half of the BoU’s total FX reserves. - Rebalancing toward nonbank financial institutions (particularly pension and provident funds) may concentrate duration and liquidity risk outside banks and alter sovereign–financial sector feedback channels. - Bank of Uganda advances: - Following securitization of a large share of BoU advances (3.8 percent of GDP), outstanding stock dropped to 0.8 percent of GDP at end-FY24/25 from 4.1 percent of GDP a year earlier. - Note: In October 2024, authorities replaced the outstanding stock of BoU advances with a government-issued debt instrument to be repaid over ten years in payments of UGX 1.142 trln (inclusive of interest and principal). The applicable interest rate is the prevailing Central Bank Rate. ### Debt service and borrowing costs - Total interest payments: 3.7 percent of GDP in FY24/25 (3.1 percent of GDP in FY23/24, 2.1 in FY19/20). - Rising interest payments largely due to increased stock of domestic debt and elevated domestic interest rates. - Interest rates on external debt have been stable since FY22/23. - Private external debt: declined to below 8 percent of GDP (from an average of 12 percent of GDP in FY14/15–FY21/22, peak 14.5 percent in FY20/21; dropped to less than 9 percent in FY22/23 and gradually declined since then). ### Macroeconomic baseline, projections, and risks - Baseline assumptions (macro framework consistent with Staff Report for the Post Financing Assessment): - Real GDP growth: - FY25/26: 6.1 percent. - Growth accelerates significantly in FY26/27 and FY27/28 as oil production is expected to start. - Growth projected to decline toward around 5 percent in the mid-2030s as oil production plateaus and falls, with non-oil GDP (services) projected to grow at around 6 percent over the long run. - Oil revenue projections: - Budget revenues from oil, net of oil-related expenditures, expected to start in FY26/27 and peak at 2.8 percent of GDP in FY32/33 before declining over the long term. - Inflation: - Headline inflation peaked at 10.7 percent in October 2022, decelerated to 2.4 percent in October 2023, and was 2.9 percent in February 2026. - Core inflation at 3.0 percent in April (year unspecified) and expected to return to the 5-percent target in FY28/29. - Key risks: - Downside risks from heightened global uncertainties, particularly the war in the Middle East, which if intensified or prolonged could disrupt trade, capital flows, and remittances, causing lower growth, higher inflation, elevated borrowing costs, current account deficits, and declining buffers. - Delays in oil production present a material risk: a one-year delay would lower the projected growth rate in FY26/27 by about 3 percentage points. - Growth supports and structural conditions: - Growth supported by domestic activity and oil-sector investment (including pipeline construction by Total Energies, CNOOC, and governments of Uganda and Tanzania). - Long-term growth could be supported by addressing infrastructure constraints (transport, urban infrastructure, power access, digital connectivity), improvements in agricultural productivity, and development of agro-processing, trade, and industries. - Demographic transition: declining fertility rates and a growing working-age population gradually increase the share of the working-age population and reduce the child dependency ratio. - Oil price assumption: expected to increase by about 2 percent per year on average over the medium term. - Correlation dynamics: correlation between CPI and GDP deflator expected to decline due to oil-related investment and net exports increasing their weight in the GDP deflator starting in FY26/27. ### Institutions and fiscal framework references - Legislation and institutions mentioned to support fiscal sustainability with oil revenues: Uganda Petroleum Fund and the Petroleum Revenue Investment Fund (PRIR). - Under the current framework, up to (text cuts off) — framework components intended to manage Dutch disease crowding out effects but unlikely to substantially reduce debt servicing costs under current arrangements. *Source: Ugandan authorities and IMF staff calculations as presented in the provided content.* ### 0.8 percent of the previous year’s non-oil GDP would be used to finance infrastructure spending ### 0.8 percent of the previous year’s non-oil GDP would be used to finance infrastructure spending ### Fiscal outlook and primary balance - Primary fiscal deficit increased in FY24/25 from 1.6 to 2.3 percent of GDP. - Primary balance is expected to improve and turn positive in FY31/32, driven by oil revenues, some expenditure restraint, and revenue mobilization measures. - Spending cuts are assumed to be more forceful over the long run, reducing non-wage primary spending to pre-pandemic levels. ### Revenue mobilization and tax policy - Tax revenue gains are projected to be modest given reluctance to streamline tax expenditures; stronger implementation of the Domestic Revenue Mobilization Strategy (DRMS) could deliver faster tax intake. - The authorities are reviewing lessons from the 2019–2024 DRMS (which aimed to raise tax revenues by 0.5 percent of GDP per annum but was not fully implemented); the revised DRMS-2 is close to being finalized and will include revenue administration modernization and rationalization of tax exemptions. - International partners (IMF, World Bank, FCDO) are supporting the Tax Policy Department (MoFPED) and Uganda Revenue Authority (URA). ### Interest payments and public debt service - Interest payments are projected to increase further, reaching around 6 percent of GDP over the medium term and rising further in the long run to some 7 percent of GDP. - Interest payments would equal close to 35 percent of domestic revenues against 18 percent in FY20/21. - Elevated domestic interest rates reflect high reliance on domestic financing, relatively long maturity of outstanding domestic debt, and a tight monetary policy stance by the Bank of Uganda due to exchange rate volatility concerns. ### External sector, exports, and reserves - Current account deficit has been improving, driven by strong coffee exports. - Current account expected to improve further over the medium term once oil exports come on-stream and the oil refinery becomes operational. - Export growth supported by better trade logistics, rural infrastructure, credit availability, and rollout of AfCFTA reforms. - Reserve coverage expected to reach almost 3½ months of imports in the medium term. - GIR has been boosted by FX swap arrangements with local banks and may receive an additional boost from a pilot domestic gold purchase program from local artisanal miners. ### Net FDI and project financing - Net FDI inflows have been strong due to oil-related investments (Tilenga, Kingfisher, pipeline to Tanzania) but are expected to gradually decline to around 3 percent of GDP over the medium term. - IDA financing assumed to be largely delivered through project support; average disbursement over the next five fiscal years is set to increase from around US$570 mn to $800 mn, then gradually decrease as a percent of GDP thereafter. - No budget support operations are assumed; remainder of IDA financing goes through Program for Results (P4Rs). ### Financing mix and domestic financing pressures - Net domestic financing reached 5.4 percent of GDP in FY24/25 and is expected to remain high over the medium term (5.7 percent of GDP on average). - Domestic financing is projected to continue dominating budget financing, though the role of external debt will increase over the long term. - Composition of domestic borrowing projected to remain similar with T-bonds accounting for two-thirds of total. - BoU expected to provide advances only up to the statutory limit of 10 percent of recurrent revenue at times of temporary shortfalls. - An increase of one percentage point of GDP in domestic financing is estimated to add about 100 basis points to the interest rate on a 1-year government bond. - Potential adverse impact on private sector lending and risks from a deepening sovereign-bank nexus require close monitoring. ### Debt-carrying capacity, thresholds, and public debt outlook - Uganda’s composite indicator (CI) score is 2.855, based on October 2025 WEO and World Bank 2024 CPIA (3.508); classification: “Medium” debt-carrying capacity. - External debt indicative thresholds: PV of external debt-to-exports ratio 180; PV of external debt-to-GDP ratio 40; debt service-to-exports ratio 15; debt service-to-revenue ratio 18 percent. - Total public debt benchmark: PV of total public debt is 55 percent of GDP. - Under the baseline, external solvency and liquidity indicators remain below thresholds over the projection horizon, with the exception of a mild, short-lived breach of the debt service-to-revenue ratio in FY25/26-FY26/27. - PV of PPG external debt-to-GDP ratio peaks at 21.0 (against threshold of 40 percent) in FY25/26; PV of debt-to-exports ratio peaks at 77.2 percent. - Debt service-to-export ratio projected at 11.2 percent in FY25/26; debt service-to-revenue ratio reaches 21.4 in FY25/26 and 19.9 in FY26/27 (breaching the 18 percent indicative threshold briefly). - PV of public debt-to-GDP ratio starts at 49.2 percent in FY25/26 and gradually increases but does not breach the 55 percent benchmark under the baseline. ### Stress tests, scenarios, and vulnerabilities - Stress tests and alternative scenarios point to a moderate risk of debt distress, requiring judgement to interpret mechanical signals as some breaches are mild and short-lived. - A shock to exports increases PV of external debt-to-exports and debt service-to-exports ratios above thresholds over the medium term. - A one-time depreciation shock breaches the external debt service-to-revenue threshold. - Under a growth shock, PV of total public debt-to-GDP ratio exceeds the 55 percent benchmark in FY27/28 and continues to increase. - Share of private external debt to GDP peaks in FY24/25 at 7.3 percent of GDP (21 percent of total external debt) and declines to 6.2 percent of GDP (22 percent of external debt) in FY31/32; contingent liability shocks could cause spillovers from private sector debt affecting sustainability. ### Policy measures and reform priorities - Implement a forceful domestic revenue mobilization strategy (DRMS-2) including revenue administration modernization and rationalization of tax exemptions to boost tax intake. - Strengthen public investment management and spending efficiency to support growth and debt sustainability. - Gradually rebalance banks’ portfolios to reduce sovereign-bank nexus vulnerabilities and mitigate crowding out of private credit. - Monitor and manage domestic financing reliance to limit upward pressure on domestic interest rates and debt service costs. - Continue investment-supporting project disbursements (municipal infrastructure, roads, water management, digital acceleration) while avoiding large recurrent financing shortfalls. *Source: IMF staff projections and analysis from the provided content.* ### CONCLUSIONS ### CONCLUSIONS ### Debt outlook and risk assessment - Uganda’s risk of external and overall public debt distress is moderate, with limited space to absorb shocks. - External debt burden indicators and total public debt remain below their respective thresholds and benchmark throughout the projection horizon, but stress tests indicate breaches of thresholds, some lasting. - Vulnerabilities related to reliance on domestic debt have intensified and are not projected to abate over the medium term, reinforcing the need for larger fiscal consolidation. ### Downside risks to debt outlook - External risks: - Tight external financial conditions. - Possible spillovers to trade from global developments. - Further cuts to external assistance as well as tourism. - Increased frequency of natural disasters due to climate change. - Domestic risks: - Slower-than-expected implementation of reforms, including revenue mobilization efforts. - Delays in oil production. - Potentially limited capacity of commercial banks to increase their purchase of government securities given the increasing weight of those securities in their balance sheets. ### Policy measures to mitigate debt risks - Implement the DRMS: - Urgent need for tax policy reforms, including a rationalization of exemptions, and strengthening of tax administration to improve compliance. - Implement sustained fiscal consolidation through durable revenue and expenditure reforms: - A combination of forceful tax revenue mobilization and reduction in current spending to its pre-pandemic levels could stop increases in the public debt-to-GDP ratio and allow the interest payments-to-domestic revenue ratio to decrease over the medium term. - Strengthen overall public financial management (PFM): - Enhance budget discipline, limit scope for accommodating frequent in-year spending requests, and improve cash flow controls. - Improve spending efficiency through stronger public investment management and electronic government procurement (eGP): - Better use of medium-term fiscal envelope forecasts for project prioritization and capital expenditure budgeting. - Revising the Land Policy to reduce implementation delays. - Ensure sufficient maintenance funding to extend the lifetime of public infrastructure. - Reduce overcommitment in multi-year projects, curtail emergency procurement procedures, and prioritize open competitive bidding over direct contracting. - Reduce spending leakages through strengthened and integrated information systems across key sectors. - Reprioritize expenditure to support the Tenfold Growth Strategy: - Gradual reprioritization towards priority spending on human and physical capital, and public goods in priority sectors, together with DRM, PFM and debt reduction efforts, to support higher growth and job creation. - Strengthen debt management: - Ensure government financing needs and payment obligations are met at the lowest possible cost over the medium to long run, consistent with prudent risk-taking. - Improve communication and coordination across government agencies on new borrowing plans. - Broaden scope of potential creditors, including through use of mobile money platforms for retail investors. - Improve debt transparency: - Publish a statement of fiscal risks in the budget framework paper listing contingent liabilities and reporting risks to the budget. - Extend coverage to potential debt collateralization in the public sector and improve communication to better understand and manage risks. - Closely monitor contingent liabilities: - Step up efforts to estimate, disclose, manage, contain, and shorten the lag in publication of information on contingent liabilities, especially in the financial sector, state-owned enterprises (including through potential inclusion in government finance statistics), and PPPs. - Implement Performance and Policy Actions (PPAs) per IDA’s Sustainable Development Finance Policy (SDFP) in areas of debt sustainability, debt management and fiscal sustainability to incentivize the government to reduce debt vulnerabilities. - Enhance governance frameworks: - Safeguard quality and effectiveness of public investment and other government spending. - Continue sound asset-liability management and avoid premature reliance on uncertain future oil-related flows. ### Financial sector resilience note - A recent stress test showed that all banks remain well-capitalized under an adverse interest rate shock and the recently introduced, more stringent capital requirements will reinforce banks’ capital positions. *Source: CONCLUSIONS section of the IMF staff report for Uganda (1ugaea2026002 - CONCLUSIONS).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1ugaea2026002.pdf_