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The Ugandan economy is set to grow in 2024 after a slight setback this year

The Ugandan economy is expected to pick up in 2024, following a slowdown in 2023. According to a recent report, the country’s real GDP growth is forecasted to reach 5.8% in 2024, after falling to 4.6% in 2023.

This report highlights the sectors that are expected to drive this growth and the potential risks to this outlook. The Ugandan economy is projected to have successive positive growth from 2024 onward. Based on the projections of Statista, 2025 should be Uganda’s best year in terms of real GDP growth. The economy is expected to grow to 7.5%.

Uganda's real GDP Growth (Actual and Projected)

Source: Statista

The slowdown of the Ugandan economy could be attributed to, first, the global economic slowdown, and second, a slowdown in net exports.

The global economy has been facing headwinds like rising inflation, higher interest rates, and the war in Ukraine and Israel. This has impacted Uganda's exports and investment. Rising global interest rates make it more expensive for Ugandan businesses and the government to borrow, leading to reduced investment and economic growth. Moreover, as economic activity slows in countries where Ugandans work abroad, the amount of money they send back home (remittances) declines, reducing household incomes and consumption in Uganda.

As global economic activity slows, demand for Ugandan exports like coffee, gold, and fish declines, leading to lower export earnings and economic growth. The prices of Uganda's exports have fallen faster than the prices of its imports, leading to a deterioration in its terms of trade. This means that Uganda has to export more goods to buy the same amount of imports, reducing its purchasing power and economic activity. Coffee is Uganda's most important export, and coffee prices have fallen significantly in recent months due to the global slowdown. This has led to lower earnings for Ugandan coffee farmers and reduced economic activity in coffee-growing regions.

However, the Ugandan economy is expected to rebound next year for a few reasons. First, inflation is expected to continue its decline in 2024, which is also expected to support consumer confidence and spending. The problem, however, with boosting consumer spending to stimulate growth is that it leads to inflation again, and economic instability.

Second, the construction work in the Lake Albert Oil Project is expected to gain momentum in 2024, which will boost investment and economic activity. Third, investments in agricultural technology and improved access to inputs are expected to enhance agricultural productivity, leading to increased export volumes of agricultural products like coffee, bananas, and flowers. And lastly, Uganda is actively pursuing diversification of its export basket beyond traditional commodities like coffee. This includes initiatives in areas like processed foods, textiles, and minerals, potentially mitigating dependence on volatile commodity prices.

The Bank of Uganda cut its policy rate by 50 basis points to 9.5% in August 2023, and further loosening is expected this year, taking the policy rate to 8.5% by year-end. This is expected to provide some tailwinds to credit demand over the coming months.


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