Uganda's oil production has been delayed for the 20th consecutive year, with the latest forecast expecting oil to flow before the end of June 2027. The persistent delays have led economists to label this phenomenon as the "presource curse," where governments borrow from the future, only to face financial strain when the projected revenue fails to materialize. Researchers James Cust and David Mihalyi have studied the effects of giant oil and gas discoveries worldwide, finding that growth falls short of expectations, particularly in countries with weak institutions.
The International Monetary Fund (IMF) has revised its forecast for Uganda's oil revenue, now expecting 0.6% of GDP in 2026/27, down from 1.2% previously. The IMF also projects interest payments to account for 4.5% of GDP this year, rising to 5.1% in 2029/30. This means that even with oil production, revenue will cover less than half of the interest bill. Uganda's domestic revenue is already strained, with interest payments consuming almost a third of it. The country's debt burden stands at 55.1% of GDP for 2025/26, projected to increase to 59.2% by 2030/31.
Uganda's budget for the current year allocates Shs 12.4 trillion for interest payments, surpassing the Shs 9.7 trillion for wages and salaries, and more than double the Shs 5.23 trillion for health. The majority of the debt, 56%, is borrowed domestically at an expensive average rate of 15.5%, compared to 9.5% for all public debt. This has led to concerns over the crowding out of private credit, as warned by the IMF Board.
The global market for oil is also shifting, with Brent crude prices at $102.25 a barrel as of October 2. However, the US EIA expects Brent to average $96 this year and $84 next year, when Uganda's oil production is slated to begin. The high price of oil is driving the world towards electric vehicles, with the IEA expecting 29% of cars sold worldwide this year to be electric.
The delayed oil production and mounting debt burden have raised concerns over Uganda's economic viability. The country's parliament approves government borrowing, but it remains unclear what oil date was assumed when the loans were signed. Economists are urging the government to publish a clear list of all oil-linked loans and guarantees, and to run debt stress tests in public before the next budget is passed.
The construction of the oil pipeline is near completion, with the pipeline expected to be ready to receive crude by mid-December. However, economists warn that the government must not spend money it does not have. The oil revenue must not be added to the budget until the first barrel is sold, and debt stress tests must be run in public.
The delayed oil production and mounting debt burden have significant implications for Uganda's economy. The government must take steps to ensure that the oil revenue is used effectively and that the debt burden is manageable. The writer of the article, an economist and Political Economy Fellow at the University of Johannesburg, argues that the oil will probably come in the end, but the real question is what will be left of it.
Key points
- Uganda's delayed oil production is expected to start in June 2027, raising concerns over debt repayment and economic viability.
- The IMF has revised its forecast for Uganda's oil revenue, now expecting 0.6% of GDP in 2026/27.
- Economists are urging the government to publish a clear list of all oil-linked loans and guarantees, and to run debt stress tests in public before the next budget is passed.
