FY 2025/26 Budget: A Mixed Bag of Opportunities and Challenges

The FY 2025/26 budget, themed Full Monetisation of Uganda's Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access, is a crucial start to the implementation of the Fourth National Development Plan (NDPIV). While the budget is expansive at Shs 72.376 trillion, it has both positive and missed opportunities. One notable aspect is the significant increase in the Health budget to Shs 5.87 trillion, which is a crucial investment in the country's population. Additionally, the allocation of Shs 1.4 trillion to Domestic Arrears and Shs 1 trillion to Uganda Development Bank will provide much-needed liquidity to companies and enable businesses to engage in commercial agriculture and other key sectors.

Key Takeaways:

• The FY 2025/26 budget is themed Full Monetisation of Uganda's Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access.
• The budget has increased the Health budget to Shs 5.87 trillion, up from Shs 2.946 trillion in the current fiscal year.
• The allocation of Shs 1.4 trillion to Domestic Arrears will provide much-needed liquidity to companies.
• The Uganda Development Bank will receive Shs 1 trillion to lend to businesses engaged in commercial agriculture, agricultural value addition, manufacturing, tourism, and hospitality, and education.
• The three-year income tax holiday for start-up businesses established by citizens will ease the initial investment costs of setting up businesses.
• The removal of stamp duty on mortgages and agreements will lower the cost of borrowing and contribute to an increase in private sector credit.
• The budget has missed opportunities, including significant domestic borrowing, with only 51.8 percent of the budget self-financed.
• The increase in Domestic Borrowing will crowd out the private sector, further exacerbated by sluggish private sector credit growth.
• Domestic debt interest payments will account for 25 percent of total revenues, while overall debt servicing will cost Shs 27 trillion, roughly 37 percent of the total budget.

Statistics:

• The FY 2025/26 budget is Shs 72.376 trillion.
• The Health budget has been increased to Shs 5.87 trillion.
• Shs 1.4 trillion has been allocated to Domestic Arrears.
• Uganda Development Bank will receive Shs 1 trillion to lend to businesses.
• Shs 1.4 trillion has been allocated to Domestic Arrears, up from Shs 200 billion in the current fiscal year.
• The three-year income tax holiday for start-up businesses will cost Shs 0.75 trillion.
• The removal of stamp duty on mortgages and agreements will lower the cost of borrowing by Shs 0.5 trillion.
• Only 51.8 percent of the budget will be self-financed.
• Domestic Borrowing has been increased to Shs 11.38 trillion, up from the 8.9 trillion target in the current fiscal year.
• Domestic debt interest payments will account for 25 percent of total revenues.
• Overall debt servicing will cost Shs 27 trillion, roughly 37 percent of the total budget.
• The split between recurrent expenditure and developmental expenditure is 67 percent and 33 percent respectively.
• Recurrent expenditure will account for Shs 29.04 trillion, while developmental expenditure will account for Shs 14.56 trillion.

Sources:

• Ministry of Finance, Planning and Economic Development, FY 2025/26 budget speech
• World Bank, Uganda Development Bank
• International Monetary Fund, Debt repayment and borrowing
• Uganda Development Bank, Domestic Arrears and loans to businesses
• USAID, Funding cuts to Uganda's health sector