Uganda Economy Shows Strong Momentum Despite Shilling Depreciation

KAMPALA – Uganda’s economy continues to show signs of steady recovery and strengthening activity, supported by rising demand, increased business confidence, and strong export performance, according to the latest Performance of the Economy Report for March 2026 released by the Ministry of Finance, Planning and Economic Development.

The report highlights an upward trend in the Composite Index of Economic Activity (CIEA), which rose by 0.6 percent between January and February 2026 to reach 185.6. The improvement was driven by growth in exports, stable inflation, rising private sector credit, and stronger aggregate demand.

Business activity remains strong

The Purchasing Managers’ Index (PMI), a key indicator of private sector performance, stood at 54.3 in March 2026, slightly up from 54.2 in February. Readings above 50 indicate expansion, with the latest figures pointing to continued improvement in business conditions.

According to the report, firms recorded higher output and increased new orders, prompting expansion in hiring and greater procurement of raw materials.

Investor sentiment also remained positive, with the Business Tendency Index (BTI) rising to 57.83—well above the neutral threshold of 50. The index reflects continued optimism among businesses, particularly in agriculture and financial services.

Inflation eases despite fuel pressures

Annual headline inflation eased slightly to 2.8 percent in March 2026, down from 2.9 percent the previous month. This moderation was driven by slower growth in core inflation and food crop prices, despite ongoing pressure from rising global fuel costs.

Shilling weakens amid global pressures

The Ugandan Shilling recorded depreciation against the US dollar, trading at an average of Shs 3,730.53 per dollar in March, compared to Shs 3,568.23 in February—a 4.5 percent decline.

The Finance Ministry attributed the depreciation to a stronger US dollar globally, increased demand for foreign currency by importers and corporates, and disruptions in global supply chains linked to geopolitical tensions in the Middle East.

Trade deficit widens despite export growth

The report shows Uganda posted a trade deficit of USD 61.91 million in February 2026, widening from USD 44.54 million in the same period the previous year.

The deficit was driven by a sharp rise in imports that outpaced export growth. However, export earnings grew significantly by 63.7 percent year-on-year, reaching USD 1,374.18 million compared to USD 839.28 million in February 2025.

The strong export performance was largely supported by increased revenues from gold and coffee exports, which remain Uganda’s leading foreign exchange earners.

Outlook remains positive

Despite currency pressures and a widening trade gap, the overall economic outlook remains positive, supported by strong business activity indicators and resilient export growth.

The Ministry noted that continued stability in inflation and sustained investor confidence suggest the economy is on a stable growth trajectory heading into the next quarter.