Strengthening Uganda’s Management of Uncertain Oil Revenues
Key messages
The Uganda government expects oil production to start in 2026, but how much government revenue this production will generate is uncertain. Projections by Rystad Energy and the Natural Resource Governance Institute average around USD 1.9 billion a year up to 2050 if the global energy transition is slow, but only $1 billion a year in a moderate transition scenario.
While the government has established a revenue management framework with several strengths, the Ministry of Finance, Planning and Economic Development (MoFPED) could finetune this framework before first oil through reforms to the Public Finance Management Act 2015 and via regulations.
MoFPED could require that oil revenues are spent on diversifying the economy; legislate a stronger limit on recurrent spending; and clarify its approach to revenues deposited in the Petroleum Revenue Investment Reserve, including by prioritizing paying off high-interest debt and considering a stabilization buffer to use for significant shocks.
In coordination with the Ministry of Energy and Mineral Development (MEMD) and Uganda National Oil Company (UNOC), MoFPED could clarify the procedure for financing UNOC investments from the Petroleum Fund, and UNOC’s ability to retain revenues, and ensure parliament has oversight of the company’s investment plans across a range of scenarios.
MoFPED and MEMD could also clarify the mechanism for subnational revenue sharing, including which local governments and cultural or traditional institutions will receive a share and how that share will be determined.
Uganda is nearing a major economic milestone, with first oil from the Lake Albert project expected in 2026. Oil production could significantly boost public finances over the coming decades. However, as in all oil-producing countries, revenue projections are highly uncertain—particularly given the global energy transition, which makes long-term forecasts even more complex.
Modeling by Rystad Energy and NRGI illustrates the scale of this uncertainty. Under a slow energy transition, Uganda’s government could earn an average of USD 1.9 billion per year from 2026 to 2050—equivalent to roughly 9 percent of projected government revenue. Under a moderate transition scenario, this figure drops to USD 1 billion per year, or about 5 percent.
Uganda’s government oil revenues across energy transition scenarios
This wide range of outcomes highlights the importance of prudent fiscal planning. Uganda has already suffered the consequences of over-optimism. After oil was discovered in 2006, pressure to increase spending led to borrowing that proved difficult to manage as production was delayed. As oil production nears—and even after it begins—the government must avoid repeating these mistakes.
The government could strengthen its revenue management framework more generally ahead of first oil. The Public Finance Management Act (PFMA) 2015 governs the collection, deposit and use of petroleum revenues. This report outlines recommendations for refining the framework to ensure oil revenues benefit Uganda’s citizens. MoFPED will need to make amendments to the PFMA in some of these areas, while regulations may suffice in others. The key areas for reform are:
Deposits into the Petroleum Fund
Rules for spending petroleum revenues
Use of the Petroleum Revenue Investment Reserve
Financing arrangements for UNOC
Management of Petroleum Fund balances
Subnational sharing of royalty revenue
Compliance with the revenue management framework
Authors
Paul Bagabo
Uganda Country Manager
Thomas Scurfield
Senior Economic Analyst