Uganda has announced plans to cut external budget support by 84.2% in the next fiscal year, a bold break from years of reliance on donor financing. While Kampala aims to boost domestic revenue and prepare for anticipated oil production, experts warn that such a shift could strain public services and affect the most vulnerable. The move also sends a potentially significant signal to neighbouring East African countries about self-reliance and fiscal strategy.
Key Figures at a Glance
- Reduction in external support: Down 84.2%, from 2.1 trillion UGX to 330.9 billion UGX.
- Domestic revenue target: Expected to rise by 9% to 40.1 trillion UGX.
- Domestic debt issuance: Planned reduction by 21.1%.
- Oil production: Expected to start later this year, offering potential revenue growth.
A Bold Policy Shift
In a post on social media platform X, Uganda’s Ministry of Finance said external budget support, typically in the form of loans and grants, was projected to fall to 330.9 billion shillings in the next financial year, down from 2.1 trillion a year earlier. The ministry did not offer a detailed explanation for the reduction but stated that the government was keen on “implementing strategies to boost domestic revenue mobilisation.”
This decision comes as Uganda also plans to cut its reliance on domestic debt issuance, part of efforts to contain mounting public debt and strengthen fiscal resilience.
Mobilising Domestic Revenues: Opportunity or Illusion?
The government’s focus on boosting domestic revenue is admirable in theory, but it raises several challenges.
For decades, foreign loans and grants have played a significant role in funding Uganda’s public services and development projects. Dramatically scaling back without clear alternatives may leave gaps in critical sectors like healthcare and education.
To offset the shortfall, Uganda must broaden its tax base and improve tax administration. While successive budgets have emphasised revenue mobilisation (including using digital tools to reduce leakages), large segments of the economy remain informal, complicating tax collection efforts.
Reducing domestic borrowing may help ease debt pressure, but it also limits funds available for investment in infrastructure and public services if domestic revenues fall short of expectations.
Who Might Pay the Price?
With less external funding, the burden of maintaining services may increasingly fall on domestic budgets, and ultimately on citizens. Cuts or delays in aid-funded health programmes could weaken critical services, especially in rural areas. Recent reports suggest donor funding declines have already strained HIV/AIDs, maternal health, and essential drug supply programmes.
Public schools may face tighter budgets as resources are diverted to priority government expenditures, potentially affecting learning outcomes. Furthermore, projects that have historically received donor backing, such as water, sanitation, rural roads, and support for vulnerable populations, could be delayed or scaled back.
What Signal Does This Send in East Africa?
Uganda’s move could be interpreted in various ways across the East African Community. Countries like Rwanda and Kenya have taken steps in recent years to increase reliance on domestic revenue and reduce aid dependency. Uganda’s announcement could reinforce a broader regional shift toward fiscal self-sufficiency.
At the same time, sudden cuts in aid reliance without clear transition plans could risk straining relationships with international partners and limit access to concessional financing for future projects.
Moreover, as Uganda prepares to start crude oil production, expectations for new revenue streams are high, but oil income can be volatile and slow to materialise.
Autonomy or Strain?
Uganda’s plan to sharply reduce external budget support marks a striking policy shift. While the ambition to strengthen domestic revenue is commendable, the transition carries risks, particularly for social sectors and the most vulnerable. The ultimate success of this strategy will depend on effective revenue mobilisation, prudent public spending, and thoughtful engagement with international partners. For the region, the move may signal both an aspiration for fiscal sovereignty and a test case in balancing self-reliance with sustainable economic growth.
