Uganda Economic Update: Cultivating Prosperity Through Agro-Industrialization (26th Edition)

Uganda's economic growth remains strong, with real gross domestic product (GDP) rising to 6.3% in FY2024/2025, up from 6.1% the previous year, according to the World Bank's new Uganda Economic Update: Cultivating Prosperity Through Agro-Industrialization. This solid performance was driven by a recovery in household consumption, accelerated government spending, and continued investment growth.

Dynamic domestic demand and robust agricultural and tourism performance generated broad-based growth across agriculture, industry, and services. As a result, poverty is projected to have declined in FY2024/2025. However, fiscal pressures have increased, with a widening deficit and higher debt-servicing costs, underscoring the need to return to fiscal consolidation as signaled in Uganda's FY2025/2026 budget. There is a need to focus on enhancing domestic revenue mobilization, and rebalancing spending toward education, health, and infrastructure while safeguarding debt sustainability and ensuring macroeconomic stability.

The Uganda Economic Update, now in its 26^th edition, is a twice-yearly analysis of the country's recent economic performance and near-term macroeconomic outlook. This latest report projects a positive growth outlook over the medium term. Fiscal and external deficits are projected to improve gradually, supported by moderating spending growth after the general elections, the accrual of oil revenues expected to start in 2027, continued export dynamism, and sustained foreign direct investment inflows. Inflation will remain low, anchored by prudent monetary policy and stable commodity prices.

In line with these projections, poverty is expected to further decline in 2026 and 2027. Risks to the outlook stem from fiscal slippages, delays in oil sector development, further reduction in overseas development assistance and heightened global uncertainty which could impact commodity prices and global financial conditions. In addition, climate shocks and lower than expected rainfall could increase poverty in the absence of mitigating measures, as most of the poor depend on rain-fed agriculture.

To spur economic transformation, Uganda needs to do more on agro-industrialization, a central pillar of the country's development strategy. Despite strong potential, Uganda's agro- industrialization efforts continue to lag behind regional peers due to persistent structural challenges.

Four main constraints holding the sector back are:

1. Weak foundations in primary production, with low adoption of modern inputs such as fertilizer, improved seeds, and mechanization, alongside widespread soil degradation and limited irrigation.

2. Weak governance and institutional capacity manifested in poor coordination, regulatory gaps, and limited enforcement undermining the effectiveness of service delivery and sector policies.

3. Limited access to finance and infrastructure, as agriculture receives limited bank lending, faces high interest rates, and suffers from inadequate insurance and poor physical and digital connectivity.

4. High vulnerability to climate shocks marked by increasing frequency of floods, droughts, and pests threatening productivity and food security.

The economic update makes three key recommendations:

1. Strengthen foundations and infrastructure, including developing and disseminating climate-smart agriculture technologies and innovations to increase productivity sustainably; investing in irrigation to build agro-climatic resilience; establishing co-located infrastructure (rural roads, energy, water); developing skills; and enabling digital solutions for delivery of agricultural services.

2. Improve the policy and enabling environment by reforming policies, strengthening institutions, supporting farmer cooperatives, enabling competition among private sector players, and strengthening public institutions to deliver high-quality public goods. Policy reforms should aim to improve private sector participation in seed development (especially multiplication), strengthen public sector role in seed certification, de-risk the sector and increase access to finance, and harmonize with regional policies to remove trade barriers.

3. Mobilize private capital and market linkages by scaling up innovative financing, leveraging digital platforms, and enhancing trade competitiveness. Private capital mobilization should aim to develop instruments for whole-of-value-chain financing and expand access to finance through innovative instruments such as lease-to-own guarantees, insurance, and blended finance.