Rising Fuel Costs, Election Spending Pressures and Slower Lending Conditions Are Increasing Financial Strain Across Uganda’s Agricultural and Property Sectors

UGANDA – Uganda’s agriculture and real estate sectors are facing mounting financial pressure as post-election uncertainty, rising fuel prices linked to the Middle East crisis, and tighter lending conditions weigh on business confidence and access to credit.

Commercial banks and other lenders are becoming increasingly cautious as higher operating costs, slower loan repayments, and global geopolitical disruptions create new risks for borrowers across the economy.

According to the latest credit survey by the Bank of Uganda (BoU), financial institutions tightened lending standards in key sectors during the quarter ending March 2026, with agriculture among the hardest-hit industries.

The central bank said banks reported stricter credit conditions in agriculture, construction, mortgages, real estate, personal lending, and business services as lenders responded to growing repayment risks and rising production costs.

The pressure comes as the ongoing Middle East conflict continues to disrupt shipping through the Strait of Hormuz, one of the world’s most strategic oil transit routes. Since March 2026, increased insurance costs, shipping delays, and fuel supply disruptions have pushed petroleum prices sharply higher across East Africa.

In Uganda, fuel prices in Kampala have climbed to between Ush5,000 and Ush6,000 (US$1.30–US$1.59) per litre, while some rural filling stations are charging as much as Ush10,000 (US$2.60) per litre amid periodic shortages of petrol, diesel, and kerosene.

For Uganda’s agriculture sector, the fuel shock is translating directly into higher production and logistics costs. Farmers are facing increased expenses for land preparation, irrigation, transportation of inputs, harvesting operations, and distribution of produce to local and export markets.

Agricultural supply chains are particularly vulnerable because fuel costs affect nearly every stage of production and distribution. Higher transport costs are raising prices for fertilisers, seeds, agrochemicals, animal feed, and machinery, while also increasing the cost of moving crops and livestock products from rural areas to processing facilities and urban markets.

Economists warn that prolonged fuel inflation could weaken profitability across multiple agricultural value chains, especially among smallholder farmers already operating under tight margins.

The banking sector is also becoming more cautious about exposure to agriculture due to uncertainty over borrowers’ repayment capacity.

“In the quarter ending March 2026, most banks reported keeping credit standards for all sectors unchanged, with a bias towards tightening in most sectors,” the Bank of Uganda stated in its survey.

The report attributed the tighter lending environment partly to “escalating geopolitical tensions in the Middle East, which have disrupted supply chains and driven up energy prices, thereby increasing business operating costs.”

The survey covered 31 regulated financial institutions, including commercial banks, credit institutions, and micro deposit-taking institutions.

Beyond fuel-related pressures, Uganda’s post-election environment is also contributing to slower economic activity and weaker business sentiment.

The country’s election cycle peaked earlier this year following presidential and parliamentary elections, while village council elections are expected during the 2026/27 financial year.

Historically, election periods in Uganda have often resulted in delayed government payments, rising fiscal deficits, and slower public-sector spending after polling periods end. These factors frequently reduce liquidity in the wider economy and weaken loan repayment performance.

The closure of several United States Agency for International Development (USAID)-funded projects has added further pressure on Uganda’s economy, particularly in urban commercial property markets.

The reduction in foreign-funded programmes has contributed to office vacancies, lower demand for commercial space, job losses in civil society organisations, and reduced procurement opportunities for businesses linked to donor-funded operations.

Hotels, restaurants, transport operators, and service providers have also experienced weaker demand, further slowing business activity.

The combination of weaker economic growth, rising fuel prices, and tighter lending conditions is now spilling over into agriculture-related enterprises, including agro-processing businesses, commodity traders, and agricultural logistics companies.

Despite the current challenges, some financial sector leaders remain optimistic that Uganda’s emerging oil and gas industry could eventually create new lending opportunities and improve long-term economic activity.

Bank of Uganda Executive Director for Bank Supervision David Kalyango said the country is moving closer to commercial oil production, which could create financing opportunities across multiple sectors.

“We have moved from tracking oil and gas commercial production from years to months,” Kalyango said.

He noted that banks are increasingly seeking viable projects to finance instead of waiting for traditional large corporate borrowers.

Industry analysts say oil-related infrastructure development could stimulate demand for construction, logistics, food supply, accommodation, transportation, and industrial services, potentially creating indirect opportunities for agricultural producers and agribusiness suppliers.

However, many lenders remain cautious about expanding credit aggressively before the expected oil revenues begin flowing into the economy.

Uganda’s private sector credit growth has already shown signs of slowing. Data from the Bank of Uganda showed that private sector credit declined slightly from Ush28.608 trillion (US$7.6 billion) in January to Ush28.585 trillion (US$7.55 billion) in February before recovering modestly in March.

Business confidence also softened after a temporary post-election improvement.

Agriculture remains one of Uganda’s most important economic sectors, employing a large share of the population and contributing significantly to export earnings through coffee, tea, maize, fish, horticulture, and other commodities.

But rising financing costs could slow investment in farm expansion, irrigation, mechanisation, agro-processing, storage infrastructure, and export-oriented agricultural projects.

Shilling-denominated business loans in Uganda are currently attracting interest rates of between 18% and 21%, while U.S. dollar loans are charged at approximately 9% to 11% annually.

For many agricultural producers and agribusiness operators, those borrowing costs remain prohibitively high, particularly in an environment where fuel prices and input costs continue to rise.

Financial experts say the situation highlights the importance of improving intra-African trade, strengthening regional supply chains, and expanding domestic energy infrastructure to reduce East Africa’s exposure to global fuel shocks.

The current disruptions are also accelerating discussions around regional industrialisation, energy security, and value-added agricultural production under the African Continental Free Trade Area (AfCFTA).

While Uganda’s economy continues to face short-term uncertainty, analysts believe long-term opportunities remain in agriculture, agro-processing, logistics, and energy-linked industrial development if financing conditions stabilise and infrastructure investments accelerate.

For now, however, rising fuel prices, tighter credit standards, and slower economic activity are creating a difficult operating environment for both Uganda’s agricultural producers and the wider business community.