What You Need to Know
Uganda is in talks with the International Monetary Fund (IMF) for a $675 million loan to manage its expanding budget deficit, which has risen due to increased spending and weak revenue collection. The government aims to reduce the deficit while pursuing a growth strategy targeting a $500 billion economy by 2040, focusing on agriculture, tourism, and technology.
Africa. Uganda expects its budget deficit to widen as it negotiates with the International Monetary Fund (IMF) regarding a new program worth $674.5 million.
According to a local source, the IMF aims to reduce the deficit to below its current level of approximately 7.6% of GDP, which has expanded in recent years due to increased spending and weak revenue collection.
The government states that the deficit reached 5.7% in the fiscal year 2025/2024, which ended in June 2025, and has increased since then.
With concessional financing constrained, President Yoweri Museveni’s administration has increasingly relied on domestic borrowing. Bank of Uganda Governor Michael Atingi-Ego noted that a rapid reduction in the deficit could conflict with government growth plans.
Growth Strategy
The governor added to a local source on the sidelines of the African Financial Summit in Casablanca: “Our budget deficit is slightly higher than what the IMF desires. We have emphasized that we are pursuing a tenfold growth strategy, so we want a slightly higher deficit. We have a good flow of funding from the World Bank.”
Uganda’s Vision 2040, launched in 2013, targets a $500 billion economy by 2040, focusing on agricultural manufacturing, tourism, mineral development, and science and technology.
Atingi-Ego stated, “We want about 475 million Special Drawing Rights. We would have chosen an unfunded program, but it is mostly symbolic as the private sector sometimes feels more comfortable with IMF involvement.”
In September, the Ministry of Finance announced that Kampala is negotiating a new extended credit facility after the expiration of a three-year agreement made in 2021, which disbursed approximately $870 million. A final agreement is expected after the 2026 elections.
Reducing the deficit requires lowering spending and more effective revenue mobilization (i.e., increasing taxes, broadening the tax base, and reducing leakage).
These steps carry political costs, as tax increases have met with public resistance, and increased tax pressure threatens to impact economic activity and raise prices.
The tax base in Uganda remains narrow, with the deficit linked to poor performance in trade, industry, and services sectors.
Additionally, financing is becoming stricter and more costly. Public debt is expected to reach $31.5 billion this year—approximately 51.2% of GDP—while external support for the budget and projects is limited.
Moderate Risk
The IMF classifies Uganda’s debt risk as moderate, indicating manageable debt levels but limited capacity to absorb shocks.
A significant portion of borrowing has financed oil infrastructure, along with road, airport, and railway projects deemed critical for growth by the government.
Following a post-financing assessment mission to Kampala this month led by Jasmin Rahman, the IMF reported that Uganda’s financial situation has “deteriorated significantly” due to rising current expenditures.
The IMF stated, “Strong economic growth continues alongside declining inflation, but the financial situation has worsened, with interest payments consuming nearly a third of local revenues.”
In addition to reducing the deficit, negotiations hinge on rebuilding foreign exchange reserves and establishing safeguards for future oil revenues.
Total reserves rose to $4.3 billion in June, supported by the central bank’s dollar purchases, but remain below the regional benchmark of at least four months of import coverage.
Reserves are essential for meeting external obligations and stabilizing the shilling (the local currency) and could improve once oil exports begin.
Uganda has faced significant economic challenges in recent years, with its budget deficit widening due to rising expenditures and insufficient revenue generation. The government has relied more on domestic borrowing as external financing has tightened, leading to concerns about debt sustainability. The IMF has classified Uganda’s debt risk as moderate, indicating manageable debt levels but limited capacity to absorb economic shocks.
The country’s Vision 2040 plan, launched in 2013, aims to transform Uganda into a middle-income economy by focusing on key sectors such as agriculture, tourism, and technology.