Uganda’s public debt is set to climb to 55.5 per cent of GDP this financial year, up from 52.3 percent in FY 2024/25, as the government borrows more to plug a budget deficit projected to widen to 7.1 percent. That comes even as the economy posts some of its strongest growth in years. That is the core finding of the IMF’s latest Article IV consultation with Uganda, concluded on July 27, with the staff report published the following day. Every 12 months, an IMF team visits Uganda to evaluate its economy under Article IV agreements. The team collects financial data, meets with local leaders, and reports its findings to the IMF Executive Board for discussion. These mandatory checks are designed to spot risks early so the government can design financial strategies to support long- term stability. Overall, the Ugandan economy has performed well, with a weak fiscal position serving as the primary downside. GDP grew to $61.8 billion in FY 2024/25, with per capita income of $1,300, projected to rise to $1,486 this financial year. KEY FINDINGS Strong growth momentum continues, supported by robust domestic demand, low inflation, and a pickup in private sector credit. Economic growth reached 6.3 per cent in FY 2025/26 (measured between the first and third quarters). Still, the Fund says increasing revenue collection and restraining public spending will be essential to rebuilding fiscal buffers. On governance and business, the report calls for strengthening public institutions, anti-corruption frameworks, and the judiciary, alongside improving the business environment and reducing trade barriers to translate Uganda’s strong growth into more jobs and shared prosperity. On future oil revenue, the Fund says it will help rebuild the country’s reserves, and recommends that revenue be used to support growth and social development, while safeguarding intergenerational equity. BOARD CONCERNS AND RECOMMENDATIONS The Executive Board raised concerns over Uganda’s weakening fiscal position. A high debt burden is crowding out the private sector, the board noted, as the government collects lower tax revenues while borrowing domestically at high interest rates. Directors stressed the need for stronger budgetary discipline, tighter controls on supplementary spending, improved spending efficiency, and enhanced public financial management. On trade and governance, Directors highlighted the need to strengthen the anti- corruption framework, reduce non-tariff barriers, and deepen regional trade integration. Foreign reserves emerged as a particular point of concern. At $6.1 billion, Uganda holds just 2.7 months of import cover. That is thin by regional standards; Kenya’s reserves stood at $13.8 billion – 5.9 months of import cover – as of July 23, 2026, according to the Central Bank of Kenya’s weekly bulletin. Weak foreign exchange reserves can put downward pressure on the currency, which increases the risk of imported inflation and damages Uganda’s sovereign credit rating by signalling a reduced capacity to service foreign debt. This thin buffer also limits the country’s ability to meet international obligations, such as membership dues to the IMF, World Bank, and African Union, ultimately pointing toward a possible currency crisis. When contacted, an IMF spokesperson addressed the reserve standard expected of countries like Uganda: “For countries such as Uganda that face financing constraints and are exposed to commodity price volatility, maintaining adequate foreign exchange reserves is particularly important. We recommend reserve coverage of at least 3.5 months of expected imports.” “The Bank of Uganda has been making progress toward this goal, and we expect reserves to improve significantly over the medium term as oil production begins. Strong reserve holdings will help the country weather external shocks and meet its foreign-currency debt obligation.” The government is currently facing a fiscal dilemma of rising spending alongside weaker revenue collection. To fill the gap, it has leaned on domestic borrowing, a shift that has made credit increasingly expensive for the private sector. Dr Emmanuel Erem, a Research Fellow at the Economic Policy Research Centre (EPRC), believes that Uganda’s fiscal challenge requires action on both sides of the budget. “Government must raise revenue without overtaxing compliant businesses while reducing low- priority expenditure and expensive domestic borrowing,” he notes. Dr Erem suggests that, to achieve this, the government should rationalize tax exemptions and incentives, strengthen tax compliance rather than repeatedly increasing tax rates, and gradually bring informal businesses into the tax system through simplified registration. He recommends that, to reduce expenditure, the government should limit supplementary budgets and offset non-emergency supplementary expenditure with savings elsewhere. In addition, the government should freeze new non-critical projects and expand electronic procurement to reduce inflated project costs. Dr Erem notes: “Fiscal policy has little room to manoeuvre in the short term, but it is not powerless. The immediate objective should therefore be to eliminate the primary deficit and stop adding expensive domestic debt.” When contacted to clarify the measures being taken to address these fiscal and spending challenges, Ramathan Ggoobi, the Permanent Secretary at the Ministry of Finance, Planning and Economic Development and Secretary to the Treasury, did not respond. Taken together, the IMF’s consultation points to a mix of economic, governance, and judicial reforms needed to sustain private- sector-led growth. Without them, thin reserves, rising recurrent spending, and budgetary indiscipline risk eroding the gains of an otherwise strong economy. kidambamark3@gmail.comThe post IMF warns Uganda on debt, budget discipline appeared first on The Observer Media Ltd.