The Spending Effect of Oil-Financed Public Expenditure in Uganda: Sectoral and Distributional Implications from a Social Accounting Matrix Approach

This article examines the spending effect of oil-financed public expenditure in Uganda as the country prepares for commercial oil production in 2026, using a Social Accounting Matrix (SAM) multiplier model based on Uganda's 2016/17 SAM. The analysis compares budget-only spending (0.8% of non-oil GDP) with investment-focused spending through the Petroleum Revenue Investment Reserve (PRIR), and incorporates supply-side constraints to reflect real-world limitations. The results show that both spending types stimulate overall economic growth, though with differing outcomes. Recurrent spending mainly boosts non-tradable sectors like public administration, education, accommodation, and financial services, while having less impact on agriculture and manufacturing, a pattern consistent with the spending-effect channel of Dutch disease. Conversely, investment-focused spending through the PRIR results in stronger, more widespread growth across construction, manufacturing, agriculture, transport, and energy, with effects approximately twice as large as those of recurrent spending. However, supply-side constraints in agriculture and infrastructure reduce these benefits by 12-22 per cent, depending on the sector. The findings suggest that Uganda's future development will depend more on how oil revenues are utilised than on their absolute amount. Prioritising productive investment, enhancing absorptive capacity, and strengthening institutions are essential for mitigating Dutch disease risks and supporting lasting structural change.