Ugandan shillings
Over the past few years, the numbers of Uganda’s economic ride speak for themselves; a strong 7.8 per cent growth in 2019, an expected decline in 2020 due to the pandemic, followed by a rebound with 5.7 per cent in 2021, 6.1 per cent in 2022, and 5.0 per cent in 2023.
“We expect 2024 and the years that follow to generate economic growth faster than the 10-year average,” said Jeff Gable, the Absa Uganda head of research at the recently concluded Absa Africa Financial Markets Index and Economic Outlook Forum 2025. “The economy is expected to keep growing at about 5.0-6.0 per cent annually, which means, if things keep up, it could double in size every 13 to 14 years,” he added.
Agriculture remains the primary driver of this growth, serving as both the backbone and engine of Uganda’s economy. However, some sectors have lagged— mining, education, and surprisingly, telecommunications, a sector that typically experiences rapid growth, have been among the slowest, according to Absa’s economic research.
“One way to think about Uganda’s growth is in terms of construction—as someone who’s been visiting for 20 years, I get to see the transformation firsthand. For locals, it might feel like just a continuous flow of new buildings, but trust me, when you step back and see the long-term picture, it’s wild. These physical changes are a reflection of real economic progress,” Gable explained from excerpts of his research.
Business sentiment
The gross domestic product (GDP) tells us a lot when we look at the most recent data from the third quarter of last year from the Bank of Uganda (BoU). Business sentiment surveys, like the Purchasing Managers’Index (PMI), show positive outlooks, with numbers hovering around 55 - 60, indicating that businesses are feeling confident about the future. The central bank data also shows that more businesses are getting credit, which is a good sign, according to economists.
“Whether it’s from demand or supply, the businesses taking out loans tend to be the ones looking to invest in their futures. This suggests that Uganda’s economy isn’t just coasting; it’s actively building for the long haul,” Gable said. The idea is that if businesses are borrowing money to invest in their future, they’re likely the ones who’ll be bigger and better down the road. Uganda’s credit extension is growing, but not at a break-neck speed. It’s more like a steady jog, hovering around 7.0 per cent on average for the last two years, from 6.0 per cent in 2023, central bank data shows.
Inflationary pressures
Think of inflation like a balloon gradually expanding—it’s the reason you’re paying more at the grocery store or feeling the pinch when you fill up your tank. “What are the things that are driving inflation the most? We never notice those things that aren’t moving. We notice those things that are moving most of all. So if we go back three years ago, it was fuel that made everyone wince.
The rising fuel prices were a pain, not just because of how much it cost to fill up, but because it was a steady pain. Then about a year and a half ago, food prices spiked, particularly because of a drought that left families across Uganda feeling the pinch,” Gable explained. More recently, fuel prices have stabilised (thankfully), and food prices have remained high—not ideal, but they’ve levelled off at least slightly below 4.0 per cent, data from the national statistics body shows.
Inflation is now creeping into what economists call the “other categories”—essentials like education and healthcare. These are slow-burning issues that aren’t as easy to address, and for many families, they’re even more pressing because they directly affect daily life. Education and healthcare are seeing double-digit price hikes, which is a big deal. For families, that means more strain on budgets, and for Uganda’s future, it’s a challenge to keep investing in the next generation of educated workers who can drive growth.
Interest rates, public finance
BoU is already cutting interest rates, which is good news if you’re in business or planning to borrow. But economists do expect rate cuts this year and not just tiny cuts of 0.25 per cent. The expectation is that the central bank will continue to lower rates, but by more significant amounts to keep the economy moving in the right direction. BoU data shows that the annual headline and annual core inflation in January 2025 rose to 3.6 per cent and 4.2 per cent from 3.3 per cent and 3.9 per cent in December 2024, mainly by an increase in services, particularly in passenger transport services.
And these are the figures that inform the policy rates, which were on Thursday maintained at 9.75 per cent for the second time in expectation of rising inflation in the near term due to “uncertainties from global developments which could cause inflation to rise faster and disrupt economic activities,” per Dr Micheal Atingi-Ego, the central bank deputy governor. The policy rate in Uganda is currently hovering just under 10 per cent, but by the end of this year, it’s expected to drop to somewhere around 7.0–8.0 per cent.
“As global uncertainties (and the volatility they bring) start to settle, Uganda’s interest rates will likely continue to fall, which could further encourage investment and business growth. Even before the oil sector kicks in, the economy should continue growing at a steady pace of about 6 per cent per year,” Gable said. The elephant in the room undoubtedly is public finance. When you pay your taxes, whether as an individual or a business, the government gets a portion of that money to fund public services. But in Uganda, a worrying trend is emerging: about Shs25 of every Shs100 collected will go to paying off interest on the country’s debt.
“As for Uganda, there’s a gap between the tax revenue collected and how much the government spends, which varies by country. Some countries, like Uganda, are currently in a relatively low-risk position when it comes to debt distress, but it’s important to stay vigilant,” Gable explained. “Debt doesn’t typically become a problem overnight; it’s a result of years of decisions. So, constant attention to tax mobilisation and efficient revenue generation is key to ensuring Uganda doesn’t end up in a more precarious situation.”
The Uganda shilling
Over the last decade, the Uganda shilling has been one of the most stable and best-performing African currencies, data from Absa Africa shows. Only the Kenyan shilling has performed slightly better over the past year. Uganda’s stability, however, makes it easier for businesses and households to plan and operate smoothly. While forecasters have varying opinions—some anticipate that the upcoming oil boom will attract significant investment and strengthen the currency, while others remain cautious due to global economic challenges—Absa Africa’s outlook suggests a brighter future for the shilling. This could present opportunities for hedging, particularly for those engaged in imports and exports.
“On the broader economic front, growth is projected to stay in the high fives to low sixes, and inflation is expected to rise slightly from its current level of around 3.0 per cent,” Gabel noted. On the fiscal side, there’s a clear message of vigilance. While Uganda is not in immediate danger of a debt crisis, the risks are always present, especially with the anticipated oil revenues.
“These economic corridors offer substantial potential for growth, and Uganda’s focus should be on maximising these opportunities for trade and investment within the region and continentwide under the AfCFTA [African Continental Free Trade Area],” Gable said, adding that by deepening its engagement in these areas, Uganda can avoid over-reliance on hydrocarbons and set itself up for broader, long-term economic growth that benefits various sectors.
Global uncertainty
Uganda’s concern, however, lies in the global economic situation, as Dr Atingi-Ego pointed out, which “necessitates a cautious approach to monetary policy. It will affect global inflation, and Uganda of course is not an island. We will end up importing some of that inflation.”
The ongoing conflict in Europe, a growing rivalry between China and the West, and countries vying for power in a high-takes geopolitical game are all contributing to global instability. The leadership change in the US is adding to the disruption, with the second Trump administration already making waves. Just a week into his term, discussions around tariffs, taxes, immigration policies, and a new approach to global trade are already causing turbulence in markets and investments.
“First up: the US dollar is on a rampage, growing stronger than ever against almost every currency—except the Ugandan shilling, which seems to be hanging in there like that one unshaken tree in the middle of a storm,” Gable said of what the changes mean for Africa. For businesses and markets, this is a major shift in currency dynamics.
The US is dialling back on global cooperation— taking its ball and going home from the World Health Organisation, exiting the Paris climate agreement, and pulling the rug out from under global alliances. “It’s a very ‘America First' approach, and while that may work well for the US, it creates ripples for everyone else,” said Gable, referencing massive cuts to organisations like USAID, hitherto a pillar for development projects across Africa.
