FY 2025/26 Budget: A Mixed Bag of Positive Aspects and Missed Opportunities

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," marks the start of the implementation of the Fourth National Development Plan (NDPIV). The budget is expansive, sized at Shs 72.376 trillion, with both positive aspects and missed opportunities. The increase in the Health budget to Shs 5.87 trillion is a significant step towards a healthier population, while the allocation of Shs 1.4 trillion to Domestic Arrears will inject much-needed liquidity into companies that have provided goods and services to the government. However, the budget is primarily self-financed, with only 51.8% of the budget being self-financed, and the balance being funded through borrowing, external borrowing, and budget support, which raises concerns about the sustainability of national debt.

Key Takeaways:

• The FY 2025/26 budget has both positive and negative aspects, with a focus on Full Monetisation of Uganda's Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access.
• The Health budget has been increased to Shs 5.87 trillion, up from Shs 2.946 trillion in the current fiscal year, which is crucial for a healthy population.
• A total of Shs 1.4 trillion has been allocated to Domestic Arrears, which will help inject liquidity into companies that have provided goods and services to the government.
• The budget has a significant taxation component, including a three-year income tax holiday for start-up businesses established by citizens and the removal of stamp duty on mortgages and agreements.
• The domestic borrowing amount has been increased to Shs 11.38 trillion, which is a conservative estimate considering the government's fiscal consolidation agenda.
• The domestic debt interest payments in this budget are roughly 25% of total revenues, which is a worrying sign regarding the sustainability of national debt.
• The debt servicing costs will be Shs 27 trillion, roughly 37% of the total budget, which raises questions about the long-term viability of the government's debt management strategy.
• Only Shs 43 trillion is available for spending, with Shs 29 trillion being accounted for by domestic Debt Refinancing, Interest Payments, External Debt Amortization, and other statutory obligations.
• Recurrent expenditure will take up 67% of the total expenditure, while developmental expenditure, which contributes to long-term economic growth, will only account for 33%.
• The disconnect between recurrent and developmental expenditure highlights the need for policy makers to reassess their priorities.

Statistics:

• The FY 2025/26 budget is sized at Shs 72.376 trillion.
• The Health budget has been increased to Shs 5.87 trillion, up from Shs 2.946 trillion in the current fiscal year.
• Shs 1.4 trillion has been allocated to Domestic Arrears.
• The domestic borrowing amount has been increased to Shs 11.38 trillion.
• Domestic debt interest payments are roughly 25% of total revenues.
• The debt servicing costs will be Shs 27 trillion, roughly 37% of the total budget.
• Only Shs 43 trillion is available for spending.
• Recurrent expenditure will take up 67% of the total expenditure.
• Developmental expenditure will only account for 33% of the total expenditure.
• The domestic borrowing amount has been increased, from 8.9 trillion to 11.38 trillion.
• Domestic debt interest payments as percentage of total revenues is 25%.

Sources:

• Honorable Matia Kasiaja, Minister of Finance, Planning and Economic Development, FY 2025/26 budget speech.
• Fourth National Development Plan (NDPIV).
• Uganda Development Bank.
• United States Agency for International Development (USAID).