Overview:
The currency has fluctuated to shs3,815 against the US dollar over the last month.
The Uganda shilling remained resilient amid a turbulent global economy in 2023.
According to Bank of Uganda, the Uganda shilling experienced a depreciation of less than 1% in 2023, compared to 2022 when the depreciation was slightly higher.
The currency has fluctuated to shs3,815 against the US dollar over the last month.
The depreciation of the Shilling affects manufacturers significantly, as it makes their imported inputs more expensive. Many of these manufactured goods face competition from imports, making exchange rates a critical factor in their competitiveness.
A real depreciation of the Shilling can render Uganda’s traded goods more affordable in foreign markets compared to competitors’ products, boosting demand both domestically and internationally.
Observers anticipate increased pressures on the local currency, foreseeing further depreciation. The current exchange rates are already reaching levels forecasted earlier in 2023 by market analysts at 3,800.
Steven Kaboyo fears that Bank of Uganda’s reduced reserves, as the country struggles to finance debt, will lead to further turbulence of the shilling.
In addition, the high demand of the dollar in the US and European markets may affect the performance of the shilling locally.
“The job markets’ growth and continued inflation control in these regions also suggest that higher interest rates may persist. This, in turn, could deter investors from pouring money into African markets in the near term,” Mr Phillip Ssali, the head of corporate sales of Global Markets at Stanbic Bank Uganda, says.
“However, there is a glimmer of hope for the Ugandan Shilling. Seasonal factors, such as the influx of diaspora funds and year-end corporate tax payments in Ugandan Shillings may lead to a gradual easing of the exchange rate. This could see the currency move from the recent highs near Shs3,800 back to the Shs3,750 levels by the end of the year,” Mr Ssali adds.
The performance of the tourism sector, a significant source of the country’s foreign exchange, may also determine the performance of the shilling. The tourism sector in Uganda faced a setback due to an attack on two foreign tourists in the country’s largest national park on October 17. This led to fatalities that prompted numerous cancellations of tourist bookings, according to tourism industry players.
The Shilling was on a steady rise against the dollar last year until August when the World Bank announced it was freezing new loans to Uganda over her human rights record. “Following the pronouncement by the World Bank regarding new financing as a result of the Anti-Homosexuality Act, that they wouldn’t be funding any new loans in Uganda, that had an impact on the exchange rate. We saw the exchange rate depreciating from about 3650 to nearly 3750 in a period of two days,” said Michael Atingi-Ego, Deputy Governor Bank of Uganda.
This, according to the Bank, has since been overcome, though the rate of appreciation also reduced, and it remains relatively stable despite the recent bouts of depreciation pressures in the quarter to November 2023.
Other currencies in the EAC continued to depreciate against the US dollar during the period under review at rates much higher than the Uganda Shilling and have never recovered from losses sustained since the COVID-19 pandemic hit the economies. “For instance, the Rwandan Franc and Kenyan Shilling depreciated against the US dollar by 4.6 percent and 5.4 percent respectively in the quarter to November 2023, staying on the depreciation trend observed for a couple of years,” the statement says.
The two countries’ currencies are said to have suffered losses because of the heavy fuel subsidies that were aimed at keeping the prices low during the days of global hyperinflation