Economists Weigh In: Uganda's Budget Sparks Hope and Concern

Uganda’s newly unveiled budget is drawing mixed reactions from economic experts, who are simultaneously commending the government’s forward-looking strategy while voicing significant concerns about its feasibility.

The government’s strategy hinges on the belief that Uganda’s prosperity will come from expanding its economic base rather than simply redistributing existing wealth. Despite years of steady growth, many Ugandans remain engaged in low-productivity sectors, with exports still dominated by raw commodities. Economists emphasize that the true challenge lies in restructuring the economy to move workers from basic agriculture and informal enterprises into higher-value manufacturing and services.

Analysts like Mark Mutumba recognize the government’s efforts in economic diplomacy to secure new markets. However, he stresses that market access is only part of the equation. “The challenge is not merely finding customers abroad. It is producing goods competitive enough to survive there,” Mutumba stated, highlighting that Uganda’s development hurdles are more about production capacity than market access.

With Uganda anticipating its first oil production in the 2026/27 financial year, expectations for economic growth are high, projected at 10.2 percent. This anticipated boom has led the Finance Ministry to forecast FY26 growth at 6.8 percent. The budget signals an awareness of the dual paths available to resource-rich nations: one leading to diversification and development, the other to dependency. The emphasis on manufacturing, technology, and export diversification suggests policymakers aim for the former.

However, Dr. Brian Serunjogi from the Economic Policy Research Centre (EPRC) questions whether Uganda’s institutions are robust enough for the scale of transformation envisioned. “We need to strengthen government institutions to first of all, reduce corruption. That is how money that is mobilised to finance the budget is going to be used to reach the tenfold growth,” he explained. He argues that achieving a tenfold economic increase requires a significant overhaul of public institutions, with oil revenues potentially providing the means, but strong institutions being critical for their productive use.

The nation’s public debt has now surpassed 51 percent of GDP, exceeding a previously set threshold. Debt servicing is slated to consume nearly 40 percent of the upcoming national budget, making it the largest single expenditure. This reality means a substantial portion of national funds will be allocated to debt repayment before essential services or infrastructure projects receive funding.

Dr. Fred Muhumuza, a development economist, warns that this escalating debt service is diverting crucial resources from public services. “As we speak, debt service is over 35 percent… Meaning the revenue Uganda Revenue Authority is raising is going into debt payment,” he noted, pointing to potential consequences like shortages of essential medicines and medical supplies.

Concerns about the economy’s vulnerability are further amplified by structural issues. Delays in procurement, inefficient project execution, and low absorption of funds are acknowledged weaknesses. Individual investors, like Charles Eibu, argue that increasing taxes on the existing formal sector could stifle growth, advocating instead for broadening the tax base to ensure more equitable revenue collection.

Ultimately, while the strategy is clear, the successful execution of Uganda’s economic transformation hinges on overcoming deep-seated challenges in institutional capacity, corruption, and fiscal management.

Source: https://www.monitor.co.ug/uganda/news/national/economists-offer-mixed-reactions-to-new-budget-5493684