Ugandans received some fantastic news this week from the Bank of Uganda – the shilling had strengthened against the US dollar. According to the Bank of Uganda’s monetary policy report for October 2024, the shilling appreciated by 1.9% in the three months to September 2024, indicating stability in Uganda’s domestic financial market. This appreciation not only boosts investor confidence but also shields the general public from high commodity prices caused by exchange rate fluctuations.
As of May 3, 2024, the Uganda shilling opened at a buying rate of USh3, 790.63 and a selling rate of USh3, 800.63 per US dollar. By midday, the shilling had strengthened further, trading at USh3, 784.79 buying and USh3, 794.79 selling.
This boost is a testament to the country’s economic resilience, particularly in the monetary sector.
While delivering the monetary statement on October 7, the Deputy Governor of Bank of Uganda, Dr. Micheal Atingi Ego, said that the Ugandan shilling had gained significant strength, due to two key factors: increased capital flowing into the country and a decrease in global inflation rates.
“The performance of the shilling was driven by inflows from coffee receipts, Non-Government Organizations (NGOs), offshore players, and remittances, which subdued corporate demand from oil and manufacturing firms”, he said.
As an experienced economist and former Executive Director of the Macro-economic and Financial Management Institute of Eastern and Southern Africa (MEFMI), Dr. Atingi-Ego brings a wealth of knowledge to his role. His expertise has been instrumental in shaping Uganda’s economic policies and promoting macroeconomic stability.
Other Factors behind the Shilling’s Strength include;
Prudent Monetary Policy: The Bank of Uganda’s effective monetary policy has maintained a stable macroeconomic environment, fostering investor confidence.
Diversified Economy: Uganda’s robust agricultural sector, growing services industry, and significant natural resource wealth have provided a solid foundation for the shilling’s strength.
Regional Performance
The Ugandan shilling also outperformed its East African counterparts, with the Kenyan shilling appreciating by 0.1% and the Tanzanian and Rwandan currencies depreciating by 0.60% and 1.0%, respectively.
Financial Account Balance and Foreign Exchange Reserves
Uganda’s financial account balance also saw a significant improvement, jumping from a surplus of $500.2 million in May 2024 to $730.2 million in August 2024. This boost is largely thanks to increased foreign direct investment (FDI) inflows, which have helped offset negative factors such as offshore exits, high public debt service payments, and constrained project aid/budget support inflows.
Key Highlights:
Financial Account Balance: Surplus increased by $230 million from May to August 2024
Foreign Direct Investment (FDI): Higher inflows contributed to the improved financial account balance
Portfolio Transactions: Net outflow reduced by $146.4 million compared to the previous quarter
Other Investment Account: Net outflows of $28.7 million due to lower budget support disbursements
Foreign Exchange Reserves: Stock increased to $3.397 billion, equivalent to 3 months of imports
The Bank of Uganda’s efforts to maintain economic stability have contributed to this positive trend. The central bank’s decision to reduce the Central Bank Rate (CBR) by 25 basis points to 10.0% in August 2024 also helped. Additionally, Uganda’s international reserves also rose to $3,733.9 million, covering imports for several months.
This development is a testament to Uganda’s economic resilience, particularly given the current global economic landscape. With economic growth projected to reach 6% in the 2023/24 financial year, driven by agriculture, construction, and services recovery, and inflation moderating to 2.6% due to good harvests and lower global commodity prices, the future looks bright for Uganda.
The stronger appreciation of the shilling is expected to have a positive impact on Uganda’s economy, making imports cheaper and potentially boosting economic growth. This news is a welcome relief.
Overall, Uganda’s economy is showing resilience, with a growing financial account balance and increasing foreign exchange reserves.
