Overview:
Government operations in July resulted in net borrowing of Shs2.91 trillion, compared with the programmed Shs2.73 trillion, according to the Ministry of Finance’s July 2026 Performance of the Economy Report.
KAMPALA. Uganda’s fiscal deficit widened beyond the government’s July target after tax collections fell short by Shs243 billion while expenditure exceeded the monthly programme, putting renewed pressure on the government’s borrowing requirements.
Government operations in July resulted in net borrowing of Shs2.91 trillion, compared with the programmed Shs2.73 trillion, according to the Ministry of Finance’s July 2026 Performance of the Economy Report.
The higher deficit was driven by a combination of weak revenue performance and higher-than-planned spending.
Total revenue collections stood at Shs2.69 trillion, achieving only 91.6 per cent of the Shs2.93 trillion target and leaving a shortfall of Shs246.84 billion.
Domestic revenue accounted for the bulk of the shortfall, with collections of Shs2.66 trillion against a target of Shs2.90 trillion.
The biggest tax miss came from taxes on goods and services, which fell Shs115.36 billion below target.
The Ministry attributed the underperformance mainly to lower-than-programmed collections from Value Added Tax and excise duty.
VAT collections were affected by the composition of domestic economic activity and transactions subject to the tax, while excise duty collections were hit by lower sales volumes of some excisable products and the prevalence of illicit products, particularly in the alcoholic beverages market.
The figures could signal continued challenges in broadening the formal tax base and controlling tax leakages, particularly in sectors where illicit products compete with compliant businesses.
Taxes on international trade also underperformed, recording a Shs60.05 billion shortfall against the July target.
The Ministry attributed the gap mainly to lower collections from customs-related taxes, including import VAT, petroleum-related taxes and other import-based taxes.
Income taxes missed their target by another Shs28.15 billion, with lower-than-programmed collections from corporate income tax, rental income tax, withholding tax and other income-related taxes.
Non-tax revenue also performed poorly, generating Shs128.05 billion against a target of Shs171.09 billion.
The Shs43.04 billion shortfall was partly linked to lower collections from driver’s licences and passport fees.
At the same time, government spending remained above plan.
Total recurrent expenditure amounted to Shs5.35 trillion in July, exceeding the programmed Shs5.20 trillion by Shs148.61 billion.
The higher expenditure was mainly attributed to grants from central government to local governments and tertiary institutions.
Government grants amounted to Shs1.40 trillion, equivalent to 127.5 per cent of the programmed amount.
Of this, Shs617.8 billion was transferred to local governments, comprising Shs352.7 billion for recurrent expenditure and Shs265 billion for development expenditure.
The higher grants came as other expenditure categories remained below their respective targets.
Spending on wages amounted to Shs591.47 billion against a planned Shs607.76 billion, partly because some wage payments were made at the beginning of August.
Expenditure on goods and services was also Shs86.56 billion below the programmed level, partly reflecting delays in procurement processes by government agencies at the start of the financial year.
The July figures underline the challenge facing government as it seeks to increase domestic revenue collection while financing its spending priorities.
For businesses, the weak performance of VAT, excise duty and corporate taxes is significant because these revenue streams are closely linked to the level of economic activity, consumption and corporate profitability.
The Ministry’s attribution of part of the excise-duty shortfall to illicit alcoholic beverages also highlights the competitive pressure facing compliant manufacturers and traders who pay taxes.
The higher-than-planned deficit means government must rely more heavily on borrowing to bridge the gap between revenue and expenditure, potentially increasing pressure on financing costs and the availability of credit for the private sector.
The government has set revenue mobilisation as a major priority under the current financial year, with efforts aimed at expanding the tax base, improving compliance and reducing leakages.
However, the July performance shows that meeting revenue targets will remain challenging if major tax categories continue to underperform while government spending remains elevated.