How global dynamics have influenced 2025/26 budget

The convergence of reduced Western aid and increased Chinese investment has necessitated strategic fiscal adjustments.

Government has redirected domestic resources to compensate for shortfalls in foreign aid in the 2025/26 financial year, but the expected commencement of crude oil production is projected to stimulate economic growth, potentially enhancing Uganda's fiscal capacity and reducing dependency on foreign aid.

Geopolitical dynamics

The US announced multiple waves of tariffs on major trading partners and critical sectors in April, with a set of nearly universal tariffs.

While many of these tariff increases are on hold, a combination of measures and countermeasures has hiked global tariffs to levels not seen in centuries.

For this reason, the increase in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term. The volume of world merchandise trade is also expected to decline in 2025.

Opportunities for Africa

This disruption in US-China trade is likely to trigger significant trade diversions, raising concerns among third-party markets on increased competition from China.

Chinese exports are projected to rise in all regions outside North America as trade is redirected.

“This is a double-edged sword for Africa [and Uganda too] because, as our businesses may face steep Chinese competition, consumers may benefit from this through better prices,” says Asad Lukwago, a partner at KPMG.

Similarly, this could open the door for some least developed countries to increase their exports to US. Africa, and Uganda in particular, needs to step into this space.

Tax experts and budget analysts say the 2025/26 Budget has been influenced by the current geo-politics and a new world order by the Chinese government and the Donald Trump Administration.

Speaking at the 2025 post-budget dialogue in Kampala, Stephen Ineget, the KPMG country manager, asked government to pay attention to the accuracy of national statistical data and the looming global risks that are forcing countries to cut wasteful expenditure to focus on areas that will strengthen their economies.

“The objective of government is to ensure that there is money for every individual. We want to see whether Uganda has moved to the middle-income status. The last time we did, the statistics did not make sense. When we had the national population census, the figures were disputed,” he said.

Uganda, he said, unfortunately, does not appreciate the power of data accuracy and its relevance to investors and decision makers.

Much as the Auditor General carries out regular audits, he should pay attention to the integrity of data because it is key in monitoring national development programmes, which government is using to achieve a ten-fold growth strategy, Mr Ineget says.

To understand the budget, Ugandans should look at what is happening from a global perspective because of the interconnectedness with the world.

“What you stock inside your fridge can be affected by factors outside the country. All macroeconomic analysts who are doing projections for the global economy for 2025 and beyond agree that there are many factors affecting the projections of the global economy. All the factors were trumped the day US president was sworn in,” Mr Lukwago said.

When US President Donald Trump took office in January, global institutions such as the International Monetary Fund and the World Trade Organisation, were forced to adjust their global trade projections.

Why? Because Trump’s mission was to reverse America’s historical global trade imbalance with some countries, such as China, which have amassed wealth through cheap and efficient means of production.

Through this, such countries have attracted wealthy investors, shareholders, and employers, and surpassed world trade in the last 20 years.

“For the last 20 years, China has made a net surplus of $8 trillion while US has had a deficit of $18 trillion, half of which has been amassed within that period from China. US imports a lot from China but exports little. That is why the US empire has been going down for the last 20 years,” he said.

Thus, he noted, when Trump abandoned commitments with allies such as NATO and sided with Russian President Putin to vote against Ukraine and vetoed the Paris Climate agreement, he reasoned that America was paying an unfair price for climate change, while China is polluting with impunity.

Beyond this, he noted, there is fear among European countries that the dollar may cease being the dominant currency because the US sanctions against Russia saw assets worth $3b frozen.

This was a wake-up call to other countries to start repatriating their gold reserves from the US.

Right now, many countries are buying, accumulating, and hoarding gold in anticipation of a new international payments system that is not the dollar. 

Search for dollar alternatives

While all this is going on, the shifting dynamics of global trade and finance have intensified the search for a stable, universally accepted unit of account for international settlements.

“Geopolitical tensions, leading to results such as Russia’s exclusion from the Swift payment system, have accelerated efforts to find alternatives to the dollar,” Mr Lukwago said, noting that BRICS nations are exploring the creation of a common currency that would be pegged partly to gold and a basket of other currencies.

Africa, Uganda inclusive, should watch these developments so that the continent is not left behind by this new world order.

For example, while these countries are amassing gold reserves in preparation for this “new gold-backed global currency,” gold has been Uganda’s number one export for the past five years, with almost all going to the Middle East.
 
Mr Lukwago also noted that other signals of imminent changes include China, UK and Japan, dumping US security and treasury bills, which means that they do not see a long-term future for debt.

China has also started doing currency swaps with South Korea, Argentina, and the UAE, where if any of the countries wants to trade with China, they no longer need the dollar to transact but use their local currencies to buy goods from China.

If China wants to import from them, it uses the Yuan.

“These deals allow trade to happen in local currencies instead of the dollar,” Mr Lukwago said, noting that if the Yuan surpasses the dollar in strength, it means sanctions will no longer be effective, and the dollar may crumble with the American empire.

Increase access to EAC markets

Dr Fred Muhumuza, an economist, noted that the 2025/2026 budget ensures that the tax system continues taxing businesses without killing them, noting that most numbers in the current budget are part of a continuum of budgets that looked at volatility and turbulent moments such as Trump hunting down immigrants, and yet remittances from Ugandans living abroad are growing bigger than Foreign Direct Investment.

Thus, he says, for Ugandans to be part of the global value chain, government must fight corruption, increase access to the EAC markets, and continue with the restructuring of government so that URA meets its revenue targets.

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