Pupils of KCCA Busega Community Primary School attend class. About Shs11.4 trillion has been allocated to human capital development for the nest financial year. PHOTO/MICHAEL KAKUMIRIZI
Did you know that for every Shs100 you pay in taxes, nearly Shs40 goes toward repaying government debt and interest? That leaves only about Shs60 for everything else — including public servants’ salaries and other essential government operations.
Once that is taken care of, the balance will be directed towards what the Finance Ministry technocrats refer to as productive sectors of the economy or infrastructure development that could improve the country's long-term economic prospects.
For years, the likes of Mr Julius Mukunda, a budget and policy analyst, Mr Patrick Tumwebaze, a public debt expert and Ms Hilda Tumuhuise, a public finance specialist have been warning about the potential dangers of overzealous borrowing which has finally caught up with the government.
As for economist Fred Muhumuza, the writing has been on the wall for close to 10 years now. For Ms Madina Guloba, a senior research fellow at Economic Policy Research Centre, it is about time the government begins to untangle itself from the debt chain before it becomes more complicated.
So in the Financial Year 2025/26, about a fortnight away, the government will have to deal with a “debt heavy” budget, although that is not the feeling of the economic managers and planners at the Finance Ministry.
In the coming financial year, resources available for discretionary spending amount to Shs40.9 trillion, while Shs31.4 trillion is earmarked for statutory expenditure such as debt repayment, pensions, or legal requirements.
“However, the executive director of Civil Society Budget Advocacy Group (CSBAG), Mr Julius Mukunda says given the current state of affairs, it is more concerned about the shrinking revenue in the budget for the government to deliver essential public services.
Some Shs26 trillion which is about 37 percent will be going toward debt servicing, limiting the government’s capacity to invest in social sectors and other areas including infrastructure development, and job creation, according to analysis of the 2025/26 budget analysis by the Civil Society Organisations under their umbrella, the Civil Society Budget Advocacy Group (CSBAG).
Despite the resource envelope – revenue, for FY2025/26 – next financial year increasing marginally by 0.3 percent, from Shs72.1trillion in FY2024/25 to Shs72.3 trillion, it is a result of modest increase in budget support, from Shs1.39 trillion to Shs2.08trillion, translating to nearly 50 percent and domestic borrowing, projected to increase from Shs8.97 trillion to Shs11.38trillion – about 26.9 percent.
Budget support tends to tag along with conditions, while government involvement in the domestic market renders private sector players unattractive to banks hence undermining private sector investment in the country.
Despite very little legroom for the government in the budget, it will primarily be financed through domestic sources, which will contribute Shs58.9 trillion, translating to about 81.5 percent of the total.
External financing, on the other hand, is projected at Shs13.5 trillion, about 18.5 percent. Of the total resource envelope, Shs37.2trillion which is 52 percent is domestic revenue, while Shs34.8trillion, about 48 percent will be mobilised through borrowing, adding further pressure to the already high public debt stock, which stood at Shs107 trillion as of December 2024.
Budget guzzlers
Top of the list is debt service, accounting for 37 percent of the budget. According to the Ministry of Finance Fiscal Risk Statement for the Financial Year (FY), as of mid-year of 2024/25, public debt stood at $29.1 billion or about Shs107 trillion. This means Uganda has surpassed the 50 percent threshold considered sustainable by the IMF for low-income nations like Uganda. For this debt to be paid at once, it will take the 46 million Ugandans, including a newborn baby today, to part with at least Shs2.5 million each to clear the public debt borrowed by the government on your behalf.
Finance Minister Matia Kasaija displays the budget briefcase at Kololo ceremonial grounds last year. PHOTO/FILE
The government intends to finance the FY2025/26 budget through a mix of domestic revenue mobilisation and borrowing. Total domestic revenues, comprising both tax and non-tax collections, are projected at Shs37.2 trillion.
However, debt servicing obligations will consume about Shs27 trillion. This leaves less than Shs10 trillion from domestic revenue for discretionary expenditures, which is significantly below the projected allocation of Shs11.3 trillion for the human capital development programme alone. The government also plans to borrow an additional Shs11.381 trillion from the domestic market.
According to Ms Jane Nalunga, a policy analyst, this will crowd out private sector credit, dampening investment and economic growth. Furthermore, Shs11.3 trillion and Shs2.08 trillion will be mobilised through external borrowing and budget support, bringing the total projected budget to slightly more than Shs72 trillion.
Funding deficit
The Agro-industrialisation programme remains a major anchor for driving Uganda’s economic growth. It was funded through domestic financing with an estimated Shs1 trillion. The programme’s budget, which was initially anticipated to decline to Shs1.3 trillion, has been raised to Shs1.8 trillion.
However, the Agriculture Ministry will have reduced funding, with an estimated budget of Shs815.5 billion for FY2025/26, down from Shs1.1 trillion in the current FY2024/25.
During the rationalisation of government entities, many agencies were merged and transferred back to the Ministry, including the Cotton Development Organisation, the Dairy Development Authority, the National Agricultural Advisory Services, and the Uganda Coffee Development Authority.
Coffee Development under MAAIF including aspects of coffee value addition, standard and accreditation, post-harvest handling, coffee production and marketing among others has been allocated up to a tune of Shs81 billion. However, the decline in MAAIF’s budget is most likely to present challenges of sustainability of activities especially under the new department arising from the rationalised entities, according to CSOs analysis of the budget.
Budget cut for climate change
The government has mobilised an additional $52.3 million out of the targeted $500 million in FY2024/25 as of December 2024. There is a prospect of tripling this mobilisation in FY2025/26. However, these well-developed climate policies may remain aspirational without tangible realisation on the ground. A cut in the budget from Shs744.8 billion in FY 2024/25 to Shs364.9 billion in FY2025/26, representing a budget cut of Shs379.93 billion is not a good look according to sector players. This is coming from the back of an impressive 91 percent compliance score for climate-responsive budgeting in the National Budget Framework Paper (NBFP) for FY2025/26 from 55 percent in FY 2024/25.
Such a drastic cut is likely to undermine the incentives and mechanisms necessary for effective climate action, especially for the most vulnerable populations facing climate-related disasters.
According to the 2022 Notre Dame Global Adaptation Country Index, Uganda is ranked as the 12th most vulnerable country in the world to the impacts of climate change. Similarly, it ranks 163rd out of 192 countries in terms of readiness to address these impacts. This indicates that while Uganda faces severe climate risks, it has limited capacity to respond effectively.
Reduction in Local Government financing
The budget allocations to local government have stagnated at Shs5 trillion range for the past three financial years.
According to decentralisation expert, Mr Mark Otilile, it is concerning that the focal points of implementation where local individuals encounter service delivery, are facing yet another reduction of 6.7 percent. This reduction reflects a shift in budgetary priorities and may affect critical areas such as healthcare, education, infrastructure, and community development at the local level.
Underinvestment in tourism
In 2023, tourism’s contribution to Gross Domestic Product rose from 4.7 percent which is about Shs7.9 trillion in 2022 to 5.5 percent accounting for Shs10 trillion in 2023 and 6.6 percent – about Shs12.trillion in 2024. This growth trajectory underscores the sector’s potential, although it remains below the NDP III target of 8 percent. International tourism receipts showed good performance, growing by 48.5 percent in value about Shs2.5trillion in 2022 to Shs3.8 trillion in 2023.
Despite these gains, the FY 2025/26 budget allocation for the tourism development stands at Shs427billion, representing only 0.6 percent of the national budget. Whereas this is an increase from Shs289 billion, it is lower than the Shs464 billion proposed under the NDP IV, indicating a clear misalignment between strategic intent and fiscal commitment. This underinvestment, according to sector analysts, poses a significant challenge to the sector’s ability to realise its potential.
Lack of support for manufacturing
Although manufacturing is part of the growth strategy sectors, clearly the government is not putting money where its mouth is. The Manufacturing sector is significant in not just redirecting the country’s trade position but also in the provision of the much-needed jobs. In the upcoming budget the manufacturing programme with an allocation of Shs311billion billion is the second smallest of all the programmes.
“For the ATMs to be effective in delivering ten-fold growth, there's a need to reinforce them with manufacturing,” said Uganda Manufacturers Association (UMA) executive director, Mr Ezra Muhumuza in an interview.
Sector players, however, take note of UNBS increased allocation from Shs55.9 billion to Shs133.8 billion. Manufacturers, however, like Oliver Twist, need more, saying they cannot wait to have affordable and stable electricity.
They also want URA to expedite VAT returns and that vocational training actors should broaden skills development in line with the programme needs and Uganda Development Bank should increase support to the manufacturers with low cost credit at single digit rates.
Struggling Trade Ministry
With Shs100 billion allocated to commercial diplomacy one may think all is good in trade and investment promotion. The Trade ministry remains underfunded.
However, this is still inadequate to create the desired level of results. Considering the growing preference for protectionist ideas, trade and investment promotion is crucial for our economic fortunes as a country. Importantly, there is a need to realign some foreignservice objectives to comprehensively address the trade and investment needs of Uganda. Military operations in the Central African Republic, DRC and South Sudan among others should support trade promotion for export growth. The local investors should be supported, and efforts to broaden linkages between foreign capital providers and local investor needs require attention.
