Uganda flag Uganda: Economic and Political Overview

The economic context of Uganda

Economic Indicators

Uganda is the third-largest economy in East Africa, after Kenya and Tanzania. The country has achieved astonishing economic performances in the last decades and, although slower, growth remains sustained. Between 1992 and 2010, the country experienced average economic growth of 8%, GDP per capita tripled and the poverty rate was cut in half. The Ugandan economy has shown resilience overcoming recent successive challenges, leading to a growth in GDP to 5.3% during FY23, compared to 4.7% in the preceding year (World Bank). Private consumption witnessed growth, but public investment was reduced due to limited fiscal space, and private investment retreated in response to a stringent monetary policy stance throughout the fiscal year. Uganda's economic growth is projected to surpass 6% annually in the medium term as the Bank of Uganda (BOU) implements monetary policy relaxation. Further growth will be driven by the resurgence of tourism, alongside government initiatives to diversify exports and promote agro-industrialization, as well as investments in supporting crude oil exports. However, significant downward risks persist due to disruptions in global financial conditions and increasingly erratic weather patterns.

Benefiting from the government's endeavors towards fiscal consolidation, the fiscal deficit decreased in FY2023. The total deficit, encompassing grants, reduced from 7.4% of GDP in FY2022 to 5.6% in FY2023. This consolidation was primarily propelled by decreased development spending. Fiscal revenue remained broadly unchanged at 14% of GDP, below the target specified in the Domestic Revenue Mobilization Strategy (DRMS). Through fiscal consolidation efforts, the deficit is projected to decrease to approximately 3.4% of GDP in FY2024. In FY2023, the current account deficit stood at 7.9% of GDP, remaining largely stable compared to FY2022. Despite the recovery in goods exports, tourism, and remittances, the deficit was offset by a significant increase in imports (data World Bank). The country’s debt-to-GDP ratio was estimated at 48.3% in 2023 by the IMF, with a minor decline expected over the forecast horizon (to 46.3% by 2025). Following its peak at 10.7% in October 2022, inflation steadily decreased, falling below the Bank of Uganda's (BOU) target of 5% by June 2023. This decline was attributed to lower international commodity prices, fiscal consolidation efforts, and tight monetary policy. Annual headline and core inflation rates stood at 3.5% and 3.3%, respectively. With the consistent trend of low inflation and reduced inflation expectations, the BOU reduced its policy rate to 9.5% in August 2023, down from the 10% level maintained for 10 consecutive months.

Uganda has surpassed the Millennium Development Goal (MDG) of halving poverty by 2015, but the poverty rate has recently increased, also due to the effects of the pandemic. According to the World Bank, enhanced growth has the potential to decrease poverty (assessed at the USD 2.15/day international poverty threshold) from 41.7% in 2023 to 40.7% by 2025. However, the rate of poverty alleviation will hinge on the evolution of food access and affordability, as well as the occurrence of weather-related and environmental shocks, given households' constrained adaptive capabilities. Data from the World Bank shows that unemployment was estimated at 2.9% in 2022; nevertheless, the share of people active in the informal market is still high.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 47.5751.8256.3162.0667.46
GDP (Constant Prices, Annual % Change) 6.34.85.66.56.7
GDP per Capita (USD) 1,0821,1391,2021,2861,351
General Government Gross Debt (in % of GDP) 49.949.949.748.646.8
Inflation Rate (%) 7.25.43.84.95.0
Current Account (billions USD) -4.17-3.97-4.09-4.69-3.87
Current Account (in % of GDP) -8.8-7.7-7.3-7.6-5.7

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Uganda has considerable natural resources, including fertile soils, regular rainfall, significant reserves of recoverable oil, and small deposits of copper, gold, cobalt, limestone, and other minerals. Agriculture is one of the most important sectors of the economy, employing 66% of the workforce and accounting for 24% of the GDP. As per the Food and Agriculture Organization of the United Nations, Uganda possesses fertile agricultural land with the capacity to sustainably feed 200 million people. Despite 80% of Uganda's land being arable, only 35% is presently under cultivation. Uganda boasts a diverse range of agricultural products, including coffee, tea, sugar, livestock, fish, edible oils, cotton, tobacco, plantains, corn, beans, cassava, sweet potatoes, millet, sorghum, and groundnuts. However, the full commercial potential of the sector is hindered by farmers' limited access to fertilizer and high-quality seeds, as well as a lack of irrigation infrastructure, leaving production susceptible to adverse weather conditions and pest outbreaks.

The country’s industrial sector is small and is dependent on imported inputs such as refined oil and heavy equipment. A number of supply-side constraints, including insufficient infrastructure, lack of modern technology, and corruption, hamper productivity. The sector contributes to 26.8% of GDP but employs only 7% of the workforce. The most important sectors are the processing of agricultural products, the manufacture of light consumer goods and textiles, and the production of beverages, electricity, and cement. Most industries are small, local firms with limited manufacturing added value, while the larger industries in the country are predominantly foreign-owned. The manufacturing sector as a whole accounts for 16% of GDP (World Bank).

The services sector in Uganda represents 41.7% of GDP and employs 26% of the active population; however, it is detached from primary sectors like agriculture and manufacturing, thus lacking the ability to spur economic growth. The ICT sector is one of Uganda’s fastest-growing sectors, recording double-digit growth over the last few years, largely driven by the telecommunications sector. Concerning the tourism sector, available data indicates that, for the first time since the COVID-19 pandemic began, international tourist arrivals surpassed the one million mark in 2023, compared to 814,508 in 2022 and 473,085 in 2021. This surge in arrivals has led to a record-breaking revenue for the tourism sector, reaching UGX 105 billion in the 12 months leading up to June 2023.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 62.9 9.5 27.6
Value Added (in % of GDP) 24.1 26.8 41.6
Value Added (Annual % Change) 4.4 5.1 4.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
58,6/100
World Rank:
106
Regional Rank:
14

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: May 2024

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