Since 2020, the world economy has absorbed shock after shock: a pandemic, the 2022 food and energy spike, an aggressive global tightening cycle and now the 2026 Middle East war. The IMF, in its October 2026 Regional Economic Outlook for sub-Saharan Africa, calls the region resilient but warns that risks remain ‘decidedly tilted to the downside’. For non-resource-intensive economies such as Uganda, it expects growth to slow from 6.4 to 6.0 percent and current account deficits to widen from 3.4 to 5.8 percent of GDP.
Governments have not met this shock with interest rates alone. The IMF’s Global Policy Tracker, covering 175 countries, shows that fiscal measures were the most common tool. Peers in the region mixed their instruments: Rwanda combined price adjustment with monetary tightening and targeted support, Zambia cut fuel taxes to cushion pump prices, and Ethiopia set temporary fuel subsidies by product and customer.
Uganda feels such shocks first in its balance of payments. Bank of Uganda, in its October Monetary Policy Statement, reports that the current account deficit widened by $1.4b to $4.6b in the year to August, as freight costs rose, coffee earnings weakened and portfolio money left. The Shilling has taken the strain. It recently closed at about 4,500 to the dollar, roughly Shs835, or 23 percent, weaker than at end-June.
History warns that this level may stick. The Shilling moves like a staircase: its annual average jumped from Shs2,181 in 2010 to Shs2,530 in 2011, and from Shs2,599 in 2014 to Shs3,246 in 2015. Each time, it settled on the new step and never returned.
A weaker Shilling turns an oil shock into a broad price shock. Pump prices have risen to about Shs7,000 a litre, from below Shs6,000 before the war. Headline inflation rose from 2.8 percent in March to 4.6 percent in September, and core inflation, the clearest gauge of second-round effects, has crept up to 3.7 percent. The Bank projects headline inflation of 7.0-7.5 percent over the next year, a projection made before the Shilling reached Shs4,500.
The Bank has responded firmly, raising the cash reserve requirement to 13.5 percent and the Central Bank Rate by 225 basis points to 12 percent. This is commendable. But a rate rise cannot lower freight costs or the price of a barrel. The IMF assumes oil averages $96 this year and $87 in 2027, provided the Strait of Hormuz gradually reopens. Brent is already above $100; if the stalemate persists, it could stay there. The IMF itself cautions that monetary policy can look through such a shock only if it is temporary and its second-round effects are contained.
Tightening alone carries a cost, and the Bank has already priced part of it by cutting its FY2026/27 growth projection to 6.0-6.5 percent, from 7.0-7.5 percent.
On nominal GDP of Shs250.4 trillion FY 2025/26 and inflation of about 7.25 percent forecast FY2026/27, a percentage point of lost real growth removes about Shs2.7 trillion of output. With taxes at about 14 percent of GDP, the Treasury stands to forgo Shs0.19-0.38 trillion in revenue, depending on whether half a point or a full point of growth is lost as forecast by BoU in its latest monetary policy statement.
The exchange rate adds a second bill. The Uganda Bankers Association October Uganda Economic Bulletin estimates that every Shs100 depreciation adds about Shs1.6 trillion to the external debt stock and Shs0.14 trillion a year to its servicing. At Shs4,500, that is roughly Shs13 trillion more debt and Shs1.2 trillion more in annual payments. Together, lost revenue and higher debt service put the budget under Shs1.4-1.6 trillion of pressure this financial year.
This is not a case for blanket subsidies. The IMF notes that generalised fuel-price smoothing can cost about 4 percent of GDP, while protecting the poorest 40 percent costs at most 0.5 percent. A Ugandan fiscal bridge should, therefore, be narrow: relief aimed at diesel for freight, public transport and farming, and at vulnerable farmers facing dearer inputs. It should carry an end date and an automatic exit, for instance once oil stays below $90 for two months, and be budgeted, capped and funded by reprioritising spending rather than new borrowing. But doing nothing is not free, and a modest bridge that shortens the shock could cost less than the growth and revenue it protects.
I, therefore, implore the Finance ministry and Central Bank to run joint simulations now, comparing tightening alone with tightening plus targeted, temporary fiscal relief, and to publish the results. If the evidence points where our peers’ experience points, policy should anchor towards a coordinated fiscal intervention.
Until first oil flows in 2027, the staircase is the risk to manage. Monetary resolve, paired with smart and temporary fiscal relief, is how Uganda keeps a passing shock from becoming a lasting one.