Uganda grappled with a significant revenue shortfall in October, posting a deficit of 311.8 billion shillings ($85.68 million), as domestic tax collections fell short amid technical glitches and sluggish consumer demand, according to a Finance Ministry report.
The monthly figures, released this week, showed total revenues and grants reaching 2.573 trillion shillings, just 89.2 percent of the targeted 2.885 trillion shillings. The gap stemmed largely from underwhelming domestic revenues and delayed grant inflows, highlighting ongoing fiscal pressures in East Africa’s economy.
Domestic collections totaled 2.530 trillion shillings, hitting only 94.4 percent of projections and resulting in a 151.1 billion shilling shortfall. Direct taxes bore much of the brunt, underperforming by 38.13 billion shillings. Officials pointed to disruptions in payroll systems as local governments shifted to a new Human Capital Management (HCM) platform, which hampered Pay As You Earn (PAYE) remittances. Lower-than-expected interest rates on Treasury Bills further compounded the issue.
Indirect taxes also lagged, missing targets by 13.4 billion shillings. Excise duties on beer, soft drinks, and phone airtime were particularly weak, reflecting softer consumer spending amid lingering economic headwinds. “These shortfalls underscore vulnerabilities in key sectors,” a ministry analyst noted, speaking on condition of anonymity.
On a brighter note, international trade taxes exceeded expectations, generating 1.038 trillion shillings against a 1.028 trillion shilling goal, yielding a 9.44 billion shilling surplus. Stronger inflows from petroleum duties, import levies, and infrastructure fees drove this overperformance, buoyed by robust global commodity prices.
Cumulatively, from July to October—the first four months of Uganda’s fiscal year—domestic revenues stood at 10.164 trillion shillings, short of the 10.618 trillion shilling projection by 453.94 billion shillings. This pattern of undercollection has persisted, with a separate report indicating total revenues of 10.32 trillion shillings against expenditures of 13.16 trillion shillings over the period, exacerbating the fiscal strain.
Government spending, meanwhile, surged to 3.272 trillion shillings in October, overshooting the planned 3.136 trillion shillings by 4.3 percent. Finance Ministry Permanent Secretary Ramathan Ggoobi attributed the excess to elevated outlays on goods, services, and grants to local governments. “This performance was mainly driven by higher-than-planned spending… particularly to Local Governments,” Ggoobi said in a statement.
The overrun contributed to an overall fiscal deficit of 1.48 trillion shillings for the month, surpassing the programmed 1.35 trillion shillings, as per preliminary data from the ministry’s Performance of the Economy report. This marks a continuation of Uganda living beyond its means, with expenditures outpacing revenues in each of the last four months.
Broader economic context offers a mixed picture. Uganda’s economy expanded by 6.3 percent in the 2024/25 fiscal year, with projections for 7 percent growth this year, fueled by agricultural exports like coffee and gold. The trade deficit narrowed to 4.2 percent of GDP last year, down from 6.6 percent, according to S&P Global Ratings, which recently upgraded the country’s outlook to positive citing resilient growth.
Yet challenges loom. Inflation has eased below the central bank’s target, and the shilling has strengthened, but a widening merchandise trade gap—reaching $511 million in September—signals import pressures. The World Bank has urged tax reforms to boost Uganda’s low tax-to-GDP ratio of 12.7 percent, amid rising debt servicing costs and financing gaps.
Analysts warn that persistent shortfalls could force deeper borrowing. Public debt is eyed at $31.5 billion in 2025, or 51.2 percent of GDP, as Kampala negotiates with the IMF for a $675 million package, potentially allowing a wider deficit. Ggoobi, in recent remarks at IMF-World Bank meetings, emphasized sustainable growth, noting low inflation and expanding output.
For ordinary Ugandans, the deficit translates to tighter budgets and potential delays in public services. As the government eyes a 2025/26 budget of 66 trillion shillings—down from prior years—focus shifts to efficiency and revenue mobilization. “Timely tax remittances are non-negotiable,” Ggoobi declared earlier this year, underscoring the push for compliance.
With oil sector investments on the horizon, Uganda aims to accelerate growth, but bridging the revenue gap remains key to stability in this resilient yet vulnerable economy.
