World Bank projects inflation to rise to 4.5% next year

The World Bank says that there have been heightened inflationary pressures as a result of a rise in commodity prices. Photo / File 

What you need to know:

  • Inflation has been contained below the 5 percent Bank of Uganda target since mid-last year. It currently stands at 3.2 percent

World Bank yesterday said inflation is expected to increase to 4.5 percent next year, growing by at least 1.3 percent from 3.2 percent. 

While presenting the 23rd Uganda Economic Update in Kampala yesterday, Ms Rachel K. Sebbude, the World Bank senior economist, said inflation is further expected to rise to 5 percent in 2026 due to an increase in commodity prices, which has seen mounting inflationary pressures, worsened by more expansionary fiscal policies and prolonged monetary tightening, which could constrain household incomes.

Uganda has contained inflation under the 5 percent Bank of Uganda target due to a tight monetary policy, from a high of 6.2 percent in May last year. 

However, the tight monetary policy has impacted private sector credit, thus threatening projected growth expected to accelerate to 7 percent in the medium term, due primarily to investment in the oil and gas sector.

The World Bank also indicated that Uganda’s foreign direct investment is expected to grow at 10.9 percent in 2025 and 9.9 percent in 2026, while the fiscal deficit will stand at 5 percent before relaxing to 4.3 percent in the two years under review. 

The country is also expected to register growth in its debt-to-gross domestic product ratio, with Ms Sebbude noting that the public debt ratio will rise to 50.5 percent in 2025, before expanding further to 51.9 percent in 2026.

Debt remains a serious challenge to Uganda, burdening the country’s ability to fund priority sectors, among which include education, agriculture, and healthcare.  

Uganda currently spends at least 30 percent of domestic revenues on debt, and the World Bank warned that the growing debt burden and heightened uncertainties is likely to squeeze private sector credit, with negative effects on investments. 

However, the World Bank painted a brighter picture of the economy, saying real gross domestic product is projected to grow to 6.2 in 25 and 6.6 in 2026, but the bank said the forecast had been revised downward since December 2023 due to heightened upward pressure on service and product prices.

“However, continued investment in oil, and robust coffee and gold exports are expected to boost economic activity in the coming year,” the bank said.