The start of commercial crude oil production in Uganda is expected to result in economic growth surpassing 10% in the next fiscal year, said the International Monetary Fund (IMF) in a new assessment.
The African nation’s economy is projected to grow by 10.8% in the 2025–26 fiscal year, up from the previous 6.2% estimate, with expected growth of 6% in the preceding period and 5.3% in the following period.
The fund argued that Uganda's current account deficit and limited capital inflows have pressured its international reserves. Despite strong coffee and gold exports, the current deficit remains high due to increased imports related to oil projects.
As of the end of 2024, gross international reserves cover less than three months of imports, excluding oil-project-related imports, due to challenging global financial conditions and reduced external project and budget support.
Prudent management of future oil revenues will involve implementing a rules-based framework, which allows for a portion of the revenues to support growth and social development while saving the rest for the benefit of future generations.
The government recently created the Petroleum Fund (PF) to collect oil-related fiscal revenues, allocated to the budget or the Petroleum Revenue Investment Reserve (PRIR), Uganda’s sovereign wealth fund.
The annual transfer from the PF to the budget is capped at 0.8% of the previous year’s non-oil gross domestic product (GDP) to help shield the budget from oil revenue variations. This aims to keep the debt-to-GDP ratio below 50% while allowing for a buffer.
However, the success of this plan depends on finalising the framework and making improvements.
After nearly two decades of waiting, the East African nation is set to start producing and exporting crude oil next year from its western fields.
The IMF executive board “encouraged strong efforts to create durable fiscal space, emphasising the need to address significant spending demands in human capital, infrastructure and climate resilience”.
The country discovered commercial reserves in 2006, but various issues such as disagreements with oil companies regarding development plans and a lack of necessary infrastructure, have delayed production.
Uganda is projected to eventually reach a peak oil output of around 240,000 barrels per day from its estimated reserves of 6.5 billion barrels.
They also “recommended [Uganda’s] continued revenue-based fiscal consolidation, improved expenditure discipline and a prudent fiscal management framework to ensure the effective use of oil revenues once production begins".
Throughout this year, Uganda has been ramping up its attempts to secure investment for its East African Crude Oil Pipeline (EACOP), which has faced scepticism from Western banks but interest from Chinese financial institutions.
The Ugandan EACOP is a major step in exporting oil from fields including Albertine, and the government expects a decision from China in September.
Offshore Technology’s parent company, GlobalData, has forecast that should EACOP come online in 2025, peak production would be reached in 2028.
