BoU, NPA warn against oil spending spree as Uganda prepares for production

KAMPALA — Top government officials have cautioned against an oil-fuelled spending surge, warning that Uganda must prioritise fiscal discipline, savings and diversification as it prepares to join the ranks of oil-producing nations.

Speaking during a high-level economic discussion last week, Bank of Uganda Deputy Governor Prof Augustus Nuwagaba said while oil and mineral wealth present major opportunities, they must not derail macroeconomic stability or crowd out other productive sectors.

“Oil revenue will increase aggregate demand and create opportunities in transport, logistics and services. But the economy must not become oil-dependent. We must save and manage revenues carefully in the sovereign wealth fund,” Prof Nuwagaba said.

Uganda is edging closer to commercial oil production, even as gold has emerged as the country’s largest export commodity. According to Prof Nuwagaba, gold exports currently stand at about $6.4 billion annually, ahead of coffee at $2.4 billion.

He revealed that the central bank is actively purchasing gold from pre-qualified dealers as part of efforts to boost foreign exchange reserves and stabilise the shilling.

“The Bank of Uganda is ready to purchase gold. This supports foreign currency inflows and strengthens our external position,” he said, while cautioning that information around gold trade must be handled carefully due to its sensitivity in global markets.

Despite optimism around oil revenues, Prof Nuwagaba warned against repeating mistakes made by some resource-rich African countries that failed to manage oil windfalls prudently.

“This is the mistake in Nigeria, in Angola, in Equatorial Guinea — with the exception of Norway,” he said, referencing the Scandinavian country’s sovereign wealth model.

He stressed that Uganda must guard against what economists call the “resource movement effect”, where labour and capital shift away from traditional sectors such as agriculture in anticipation of oil wealth.

“When oil comes, those who have been involved in agriculture may think they should stop agriculture. That would be a mistake,” he said.

Instead, he argued, oil should act as an enabler of broader economic transformation rather than a substitute for existing sectors.

The Deputy Governor disclosed that the central bank has incorporated oil and climate change variables into its macroeconomic modelling to assess the likely impact on trade balances, inflation and fiscal stability once production begins.

Uganda’s fiscal position remains tight, with the deficit hovering at about seven percent of GDP. Prof Nuwagaba said government should use future oil revenues to reduce the current account deficit and strengthen the sovereign wealth fund rather than expand recurrent expenditure.

“Let us first solve the current account deficit and reduce the fiscal deficit before we think of expanding spending,” he said.

National Planning Authority Executive Director Dr Joseph Muvawala echoed the call for caution, noting that Uganda’s mineral sector — including iron ore, gold, tin and other development minerals — could potentially outperform oil in the long term if strategically managed.

“The key is to plan strategically and align business with government priorities,” Dr Muvawala said.

He pointed to Uganda’s National Development Plan (NDP) 2040, which prioritises agro-industrialisation, tourism, mineral development, and science and technology as pillars of structural transformation.

“The challenge is moving from planning to execution,” he said, urging private sector players to align investments with national priorities to benefit from incentives and policy support.

Dr Muvawala also underscored the importance of value addition in agriculture, saying productivity gains at farm level — through improved seed quality, irrigation and traceability systems — could yield faster returns than heavy investment in branding and downstream processing.

Francis Kamulegeya, a business leader and former PwC executive who was involved in shaping early oil sector policies, said Uganda’s two-decade preparation period has positioned it better than many new oil producers.

“We ensured we have the right players and the right regulatory environment. Uganda is one of the most prepared new oil producers,” he said.

He argued that oil and gas will have catalytic effects across the economy, generating direct, indirect and induced benefits, but agreed that disciplined management will determine long-term gains.

As Uganda approaches first oil, officials say the real test will not be production itself, but whether the country can convert resource wealth into sustainable growth without undermining macroeconomic stability.

With gold exports surging, oil revenues on the horizon and mineral potential expanding, policymakers insist that discipline — not exuberance — will define Uganda’s economic future.