Uganda Shilling depreciation is temporary, says PS Ggoobi

The Permanent Secretary in the Ministry of Finance, Planning and Economic Development, Mr Ramathan Ggoobi, has said the foreign exchange risk in recent days characterised by the depreciation of Uganda shilling against the United States dollar (USD) is a temporary shock and will soon go away.

The Uganda Shilling has for some time been averaging around UGX 3,930 against the dollar, raising concern among businessmen and experts.

But according to Mr Ggoobi, this has been occasioned by the issuance of a lucrative Euro Bond (maturing in June 2024) and Infrastructure Bond in Kenya as well as a Euro Bond in Ghana.

A Eurobond is a fixed-income debt instrument (security) denominated in a different currency than the local one of the country where the bond’s been issued. Eurobonds are usually long-term debt instruments. Eurobonds are typically denominated in US Dollars (USD). The main benefit to local investors in purchasing a Eurobond is that it provides exposure to foreign investments staying in the home country. It also gives a sense of diversification, spreading out the risks.

On the other hand, an infrastructure bond is a type of bond issued both by private corporations and by state-owned enterprises to finance the construction of an infrastructure facility These bonds may be nominated both in local and in more stable foreign currencies, such as U.S. dollars or euros

He noted that these developments have attracted the Portfolio investors depriving the Uganda market.

“The economy’s fundamentals are still good apart from the recent slit shock on the foreign exchange market, where the price of the dollar has been rising in recent weeks. This is mainly coming from outside,” he said during a television talkshow on Thursday.

“I want to assure Ugandans this is a temporary shock. We are even likely not to get to June. It is temporary because ours is a free market, and we have a floating exchange rate,” he added.

Mr Ggoobi said Uganda has avoided a Euro Bond and the public debt is sustainable, adding that Euro Bonds are very dangerous.

This comes after Kenyan shilling made gains early in February, hitting its strongest in more than three months after the government paid off a Eurobond maturing in June buoyed investor appetite.

The shilling strengthened over 3% against the U.S. dollar to reach 150.00/151.00, a level it last traded at on October 26.

Kenya sold a new $1.5 billion Eurobond maturing in 2031 which it will use to buy back via a tender offer a large chunk of the $2 billion international bond due in June.

Other factors supporting the currency include foreign inflows into a 70 billion shilling infrastructure bond on sale and the central bank talking up the shilling as it raised interest rates again last week.

He said Uganda is implementing the fiscal consolidation agenda and hence managing domestic borrowing.

” We shall borrow as long as the cost is reasonable, if the cost is high, we shall not borrow and we shall have to live within our means,” he said.