KAMPALA, September 30, 2025–Uganda’s economic growth continues to be strong, with real gross domestic product (GDP) accelerating from 6.1% to 6.8% in the nine months from July 2024 to March 2025. A new World Bank report shows that this good performance was driven by agriculture, manufacturing, construction, plus household and government consumption. In contrast, the services sector weakened.
The 25th edition of the Uganda Economic Update, published today, shows that inflation–at 3.5% in FY2024/2025 compared to 3.2% the year before–remains below the central bank’s target of 5%, supported by a favorable food supply environment, the easing of global energy prices, exchange rate stability, and prudent management of monetary policy.
The report projects a positive medium-term outlook, with growth accelerating to 10.4% in FY2026/2027 as oil production begins before stabilizing around 6%. However, there are risks to the outlook. Oil production timing remains uncertain including completion of large infrastructure, such as the crude oil export pipeline, needed to bring the product to market and generate revenues. Furthermore, the global energy transition away from hydrocarbons to clean energy sources could lower oil prices and increase the risk of stranded assets. Other risks include softening of global oil prices from lower demand or increased supply, global supply chain disruptions due to conflict in the Middle East, global economic policy uncertainty, climate shocks, and slower-than-expected implementation of reforms that include the domestic revenue mobilization strategy.
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“Increased spending this current election cycle, and with public debt-to-GDP reaching almost 53%, raises uncertainties and requires authorities to minimize unplanned expenditures and increase effectiveness in generating domestic revenues rather than cutting development spending,” said Francisca Ayodeji (Ayo) Akala, World Bank Country Manager for Uganda. “Moreover, considering recent cuts in Overseas Development Assistance, raising domestic revenues has become even more critical, as only then can the government ensure sustained and adequate public spending on key social services, particularly health and education.”
This edition of the Uganda Economic Update focuses on how best the government can mobilize better and more domestic revenue within the country and use public funds more efficiently so that it can reduce borrowing while ensuring sustained public investment in the key social sectors and critical infrastructure.
“Uganda’s tax system, despite its comprehensive design, continues to struggle with low revenue yield, significantly lagging the Sub-Saharan Africa average and the government’s own medium-term targets,” said Silver Namunane, World Bank Tax Economist and co-author of the Uganda Economic Update. “With a tax revenue-to-GDP ratio of only 14% in FY2024/2025, Uganda remains below the critical 15% threshold deemed essential for accelerated growth and sustainable development. The policy reforms suggested in this report are intended to broaden the tax base, reduce tax expenditures, and improve progressivity and equity of the tax system. If implemented, tax revenues could improve by 0.5% of GDP and inch closer to the Vision 2040 targets.”
Specific recommendations from the report:
Domestic revenue mobilization: Review personal income tax rates and brackets to adjust for inflation and avoid bracket creep. Particularly, increase the exemption threshold to UGX4.02 million from UGX2.82 million per annum, keep current rates for most taxpayers, and introduce a new rate of 35% for incomes above UGX5.82 million. In this way, low-income earners gain some relief, while higher-income earners face a modest increase – this not only strengthens revenue by nearly UGX149 billion or 0.1% of GDP but also significantly improves equity. Other elements include strengthening the framework for taxing high-net-worth individuals; re-evaluating the exemption policy to prevent corporate income tax from becoming obsolete; rethinking the qualifying thresholds and what should be considered as priority sectors to qualify for investment incentives; improving the targeting of incentives to achieve better outcomes; and addressing the concerns of the private sector in the tax policy-making process to improve tax morale.
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Efficiency in spending and public service delivery: Make the fiscal consolidation agenda more effective by pursuing a balanced adjustment in spending between human capital development and growth enhancing activities; pursue policies that reduce wasteful expenditures (including cuts to the large public administration budget and strengthening anti-corruption systems); undertake policies to reduce inefficiencies such as staff absenteeism in the social sectors; improve efficiency in the execution of public projects; introduce a moratorium, or strict guidelines, for the creation of new administrative structures; undertake a comprehensive reform of own source revenue policy framework to ensure that local governments generate levels of revenue comparable to other similar countries.
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