Uganda’s economic growth is projected to soar beyond 10% in the next financial year, driven by the anticipated commencement of crude oil production. According to the International Monetary Fund (IMF), the East African nation could achieve a GDP growth rate of 10.8% in the 2025/2026 fiscal year, a significant jump from the previous projection of 6.2%. This surge is expected to result from the much-anticipated start of oil production in the Lake Albert region in Western Uganda.
The IMF report, released on Wednesday, highlighted that Uganda’s economic growth is set to strengthen, supported by low inflation, favorable agricultural conditions, and robust activities in the industrial and services sectors. The report stated, “Growth is expected to strengthen, boosted by the start of oil production, which will make a lasting improvement to the fiscal and current account balances.”
Major Developments in Uganda’s Oil Sector
The Uganda National Oil Company has been making strategic moves to solidify its position in the global oil market ahead of the production kickoff. The Uganda Oil Project, a significant development in the country’s energy sector, involves the exploitation of 14 oil fields in the Lake Albert region. It also includes the construction of a 1,500-kilometer crude oil pipeline extending from Lake Albert to the port of Tanga in Tanzania and the establishment of an oil refinery.
The refinery is expected to reach its peak capacity of 21 million barrels per year by 2027. Oil production, scheduled to commence in late 2025, marks a major milestone for Uganda, which discovered oil reserves beneath Lake Albert 14 years ago but has yet to extract any crude.
The IMF noted that substantial funding would be required to achieve key milestones, including the final investment decision on the refinery and various components of the production chain, such as upstream development, the construction of the pipeline and refinery, and additional infrastructure, including roads and an airport.
While the outlook for Uganda’s oil production is optimistic, the IMF report also underscored several challenges. One significant hurdle is the continued fallout from the Anti-Homosexuality Act (AHA), which complicates already tight external financing conditions. Uganda faces increased scrutiny and potential restrictions from international investors due to the controversial legislation, which has affected the country’s ability to attract foreign capital.
The report further highlighted the risk of “stranded assets” due to the global shift towards renewable energy and stricter environmental regulations that could dampen long-term demand for fossil fuels. “There is a significant risk of stranded assets for Uganda’s oil project, as the global shift towards renewable energy and stricter environmental regulations could reduce the long-term demand for fossil fuels,” the IMF warned.
To mitigate these risks, the IMF recommends that Uganda implement policy measures to enhance the competitiveness of its non-oil sectors and avoid the potential pitfalls of “Dutch disease,” a situation where a country’s non-oil sectors become less competitive due to a reliance on oil exports. The report suggests that the government should focus on improving the business environment and infrastructure, which could help cushion the economy against potential volatility in the global oil market.
As Uganda prepares to embark on this transformative journey, the government’s ability to navigate these challenges while capitalizing on the opportunities presented by the oil sector will be crucial in determining the country’s economic future. With oil production on the horizon, Uganda stands at a critical juncture, poised for substantial growth but facing considerable risks that require careful management and strategic planning.
