The Bull, The Bear, and The Oil Barrel: Inside Uganda’s 10.4% Growth Paradox
Deep dives into African market dynamics, policy shifts, and the real economy.
We present below the Impala Market breakdown of the FY 2026/27 Budget: The Good, The Bad and The Structural Reality. This is informed by the National Budget Framework Paper for the FY2026/27 - FY2030/31.
The Ministry of Finance is projecting a 10.4% GDP growth, fueled by the long-awaited commercialization of the oil sector.
The government has dubbed this the “Tenfold Growth Strategy”, a plan to grow the economy to $500 Billion by 2040.
1. The Macro: The Oil Dream vs. The Fiscal Shrink
The anticipation of First Oil is the primary driver behind the double-digit growth forecast.
Inflation is projected to remain stable at 3.1%, well within the policy target.
However, despite the growth optimism, the actual Resource Envelope (the money the government has to spend) has shrunk.
FY 25/26 Budget: UGX 72.4 Trillion
FY 26/27 Budget: UGX 69.4 Trillion
Why the shrink? External budget support (loans and grants from development partners) has been slashed by 84% forcing Uganda to rely on domestic revenue mobilization (taxes) which is targeted to rise by 9% to UGX 40.1 Trillion.
2. The Elephant in the Room: Treasury Operations
To understand government’s priorities, look at their budget allocations.
In FY 2026/27, the single largest allocation goes to Treasury Operations, essentially, debt servicing and redemptions.
Treasury Operations Allocation: UGX 28.3 Trillion
Human Capital (Health + Education): ~UGX 9.9 Trillion
The Insight: The government is spending nearly 3x more on managing debt than it is on the health and education of its workforce combined. This effectively crowds out development spending, leaving the state with very little fiscal space to stimulate the economy directly.
3. The “Street” Reality: Business Survival & The Labor Trap
The Parliamentary Budget Committee report (Page 135) drops two statistics that every investor and policymaker needs to internalize.
The 25% Survival Rate
The report notes that Uganda has one of the lowest business survival rates globally. Only one out of four firms remains operational after the first five years.
The government’s strategy relies on “Full Monetization” of the economy, bringing the informal sector into the tax net. But if 75% of businesses die in infancy, the tax base cannot widen fast enough to support the budget. The ecosystem is currently too toxic for small businesses to graduate into medium enterprises.
The Vulnerability Index
While the official unemployment rate has dropped to 8.8%, this number masks a structural crisis.
78% of the labor force is engaged in “vulnerable employment” (low pay, no job security, subsistence work).
The World Bank’s July 2025 review notes that Uganda is “failing to harness 61% of its human capital” for economic development.
4. The Investor Angle: Bond Market Implications
For fixed-income investors, the FY 26/27 framework creates a specific set of opportunities and risks characterized by “High Supply, High Yields.”
Supply Tsunami (Domestic Reliance): With external budget support cut by 84%, the government has no choice but to turn to the domestic market to bridge the deficit. Expect an aggressive issuance calendar for Treasury Bills and Bonds. The UGX 28.3T allocation for Treasury Operations indicates massive refinancing needs (rolling over old debt).
Yields Will Remain Sticky: The sheer volume of government borrowing demand will likely keep yields elevated. The government must price its paper attractively to court local banks and offshore investors.
The Arbitrage: With inflation projected at a low 3.1% and bond yields historically hovering in the 13-16% range, Uganda offers one of the highest Real Yields (approx. 10%+) in frontier markets.
The “Crowding Out” Trade: This dynamic creates a “Lazy Banking” incentive. Why would a commercial bank lend to a private sector where 75% of businesses fail (high risk) when they can lend to the government at ~15% (zero risk)? This cements the bond market as the primary profit center for banks, but suffocates private sector credit growth.
The Impala Verdict
Uganda is entering a defining transition period. The 10.4% growth is real, but it is currently ring-fenced around the extractive sector.
The risk is a “two-speed economy”:
Speed A: A booming oil & gas sector and a government efficiently collecting taxes to pay off debt.
Speed B: A private sector struggling with a high mortality rate and a labor force that is largely under-utilized and vulnerable.
The Outlook: The government is betting that Oil Revenue will arrive just in time to plug the debt hole before the social costs of austerity become unmanageable.
Watch this space: The success of the NDP IV (National Development Plan) will depend not on the 10% growth figure, but on whether that UGX 28.3T debt service bill starts to come down, freeing up cash for the people who actually drive the economy.
See the Full Report of the Committee on Budget on the National Budget Framework Paper for the FY2026/27 - FY2030/31 here.
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