Lower than expected rainfall in Uganda since May could lead to a drop in food production, hurting economic growth and putting upward pressure on inflation, Finance Minister Matia Kasaija said.
Uganda, which expects to start producing oil in the next four years, has an economic growth forecast of 5.5 percent for the fiscal year that started July 1.
But Kasaija told Reuters in an interview that economic growth could rise to 6 to 7 percent in the 2017/18 fiscal year, driven by higher private and public investments.
For fiscal 2016/17, he said: "The weather has not been particularly good this season so agricultural production may come down and of course it will naturally affect even our growth rate."
Speaking on Tuesday, Kasaija did not revised the forecast for 2016/17 growth from the 5.5 percent he had delivered in his budget speech last month.
Most parts of Uganda have been experiencing the dry spell.
The minister said lower harvests could drive up food prices, stoking inflation. Farming accounts for about a fifth of Uganda's annual economic output of 70 trillion shillings ($20.68 billion).
Inflation, which shot up after the currency weakened steeply last year, had stabilised at around 5 percent, allowing the central bank to start easing rates.
"Inflation we have controlled. Interest rates we are also controlling. The exchange rate has also stabilised. In fact, recently the shilling started gaining, so we are stable," the minister said.
Kasaija said construction was expected to start in 2016/17 on a new standard gauge railway to link up with a new line in Kenya that is being built to the Kenyan port of Mombasa. It will offer a faster service than the century-old narrow gauge line.
The government has already started compensating owners of land along the rail route and had secured financing for the project from China's Exim Bank. He did not provide a figure.
He rejected criticism by some analysts that the government was taking on too many loans from China at the expense of future generations.
"If you don't do your infrastructure how are you going to do business in your country?" he said. "We are borrowing to build a foundation so that when these children take over from us they have a firm base."
Overall public debt was sustainable at 32 percent of GDP, well below the set ceiling of 60 percent, giving the government room to borrow to build roads and dams for power generation, the minister said.
($1 = 3,385.0000 Ugandan shillings)
(Reporting by Duncan Miriri; Editing by Edmund Blair/Jeremy Gaunt)