The International Monetary Fund (IMF) has cautioned Uganda over its deteriorating fiscal position and warned that rising government expenditure and increasing debt servicing costs will expose the economy to greater risks despite maintaining one of the strongest growth rates in the region.
The warning is contained in the IMF Executive Board’s latest Article IV Consultation on Uganda, concluded on July 27, 2026, in which the Fund praised the country’s resilient economic performance but urged authorities to tighten fiscal discipline and accelerate reforms to safeguard long-term stability.
According to the IMF, Uganda’s economy expanded by 6.3 percent during the first three quarters of the 2025/26 financial year, extending the strong growth recorded in the previous year. Inflation has also remained well contained, with headline inflation standing at 3.7 percent and core inflation at 3.4 percent in June 2026, both below the Bank of Uganda’s medium-term target of five percent.
Despite these positive indicators, the Fund warned that the country’s public finances are coming under increasing pressure.
Uganda’s overall fiscal deficit widened from 4.7 percent of Gross Domestic Product (GDP) in the 2023/24 financial year to 6.0 percent in 2024/25, largely driven by increased recurrent government spending and higher interest payments on public debt. The IMF projects the deficit to rise further to 7.1 percent of GDP during the 2025/26 financial year if spending pressures persist.
“Stronger fiscal consolidation, anchored in enhanced domestic revenue mobilisation and improved expenditure discipline, is needed to reduce debt vulnerabilities, ease crowding-out pressures, and rebuild policy space,” the IMF Executive Directors said.
The Fund urged the government to speed up implementation of the Domestic Revenue Mobilisation Strategy by broadening the tax base, strengthening tax administration and reviewing tax expenditures that limit revenue collection.
It also called for stricter budget discipline through tighter control of supplementary expenditures, improved efficiency in public spending and stronger public financial management systems.
Even with the fiscal concerns, the IMF expressed confidence that Uganda’s economic outlook remains favourable, particularly with the anticipated start of commercial oil production, which is expected to provide an additional boost to economic growth while strengthening the country’s fiscal and external balances over the medium term.
However, the Fund cautioned that inflationary pressures could increase during the 2026/27 financial year as a result of exchange rate movements, elevated global energy prices and higher transport costs. It expects both headline and core inflation to return to the Bank of Uganda’s five percent target before the end of 2026.
The IMF also identified several risks that could weaken Uganda’s outlook, including a prolonged conflict in the Middle East, tighter global financial conditions, climate-related shocks, possible delays in oil production and the threat of another Ebola outbreak.
On the external sector, the IMF noted that Uganda’s foreign exchange reserves have strengthened due to sustained capital inflows. Gross international reserves stood at US$6.1 billion by the end of May 2026, providing import cover equivalent to about 2.7 months of goods and services.
The Fund said strong coffee and gold exports have continued to support Uganda’s external position, although the current account deficit remains elevated because of increased imports of capital goods, higher gold imports and a widening services account deficit.
The Executive Directors endorsed the Bank of Uganda’s tight monetary policy stance, saying it has helped contain inflation amid global uncertainty. They recommended that monetary policy remain data-driven while allowing exchange rate flexibility to cushion the economy against external shocks and supporting continued accumulation of foreign exchange reserves.
The IMF further encouraged Uganda to strengthen the operational independence of the Bank of Uganda through full implementation of recommendations contained in the 2021 Safeguards Assessment.
With commercial oil production drawing closer, the Fund stressed the need for a transparent and accountable framework for managing future oil revenues.
“The effective management of oil revenues will be critical to safeguarding fiscal sustainability and ensuring that the benefits of Uganda’s natural resources are shared across generations,” the IMF noted.
The Fund also commended Uganda’s banking sector for maintaining strong capital and liquidity buffers but urged continued monitoring of risks arising from the close links between public finances and the financial sector.
It further called for faster structural reforms aimed at improving the business environment, strengthening governance, enhancing anti-corruption efforts, improving the efficiency of the judiciary, reducing non-tariff trade barriers and deepening regional economic integration.
The IMF added that strengthening Uganda’s resilience to climate-related shocks will remain an important pillar of sustaining inclusive and long-term economic growth.
Uganda’s next IMF Article IV Consultation is expected to take place under the Fund’s standard 12-month review cycle.
