Uganda's FY2026/2027 Budget: Strengths, Weaknesses, and Concerns

The recently unveiled National Budget for Financial Year 2026/2027 highlights both commendable strategies and significant concerns for Uganda’s economic trajectory. On the positive side, the projected GDP growth of 10.2 percent, while perhaps ambitious, signals a strong aspiration for economic expansion. This optimism is bolstered by current positive economic performance, with the economy already growing at 6.4 percent.

The government’s plan to diversify financing sources by exploring Public-Private Partnerships, venture capital, and stock exchange listings for public enterprises is a notable step. If realized, this strategy could alleviate pressure on traditional government securities, potentially leading to lower interest rates across the economy and a deeper, more robust capital market.

However, the budget is overshadowed by a significant increase in debt servicing costs. The allocation has surged to Shs33.4 trillion, representing nearly 40 percent of the total budget, with interest payments alone accounting for a substantial portion. This trend raises serious questions about the nation’s debt sustainability, as nearly 27 percent of government revenue is now dedicated to paying interest.

A critical ‘own goal’ identified is the new five percent withholding tax on interest payments to foreign financial institutions. This measure is likely to either deter crucial capital inflows or increase the cost of doing business, potentially raising borrowing costs for Ugandan companies and impacting the stability of the Shilling.

Furthermore, budget allocations for the vital tourism sector and mineral development appear insufficient, particularly given their central role in the government’s “ATMS” tenfold growth strategy. Despite tourism’s growing contribution to foreign exchange earnings, a more focused and intentional approach, backed by adequate funding, is needed to unlock its full potential. Similarly, Uganda’s vast mineral wealth, which potentially surpasses its oil and gas sector, requires greater investment in exploration and data generation.

Finally, the persistent reliance on supplementary budgets, often used for predictable expenditures, undermines the credibility of the initial budget planning and contributes to increased domestic borrowing. Addressing these fiscal challenges will be paramount for achieving sustainable economic growth.

Source: Daily Monitor (Uganda)