Uganda's First Oil Revenues to Bolster National Budget, Ease Debt

Uganda is on the cusp of becoming an oil-producing nation, with commercial oil production expected to commence between July and October 2026, or possibly in 2027. This long-awaited milestone will see oil revenues integrated into the national budget for the first time in the 2026/2027 fiscal year.

Initial projections indicate that approximately Shs1.4 trillion from oil revenues will be used to finance the upcoming Shs84.3 trillion budget. This influx of funds is expected to provide much-needed relief, particularly in areas such as the Parish Development Model (PDM), education, and health, including teacher salaries. This will alleviate pressure on government finances, potentially reducing the need for further borrowing or expenditure cuts.

According to the Bank of Uganda, more than Shs1.8 trillion is projected from oil-related non-tax revenues in the next fiscal year. This inflow is expected to lead to a decline of over Shs2 trillion in domestic borrowing, which could also result in lower yields on government securities and a projected decrease in overall public debt in the coming years.

While the initial oil revenues are estimated to be modest, averaging around Shs6 trillion over the next five fiscal years, they are expected to grow significantly as production ramps up. Experts caution that early revenues will be constrained by cost recovery arrangements for oil companies. To maximize long-term benefits, these revenues are earmarked for priority programs, infrastructure, human capital development, and a sovereign wealth fund for intergenerational equity.

Civil society organizations emphasize the importance of channeling these revenues into the Petroleum Fund and Reserve, with a focus on financing national budget priorities after recoverable costs are addressed. The anticipated addition of oil revenue comes after two decades of anticipation and is seen as crucial for supporting sectors like energy that have historically relied on external funding.

Source: https://www.monitor.co.ug/uganda/business/prosper/how-the-first-oil-will-shape-govt-spending-5454892