Overview:
According to the Bank of Uganda, the Uganda Shilling has strengthened by 7 percent, from Shs3,932.22 per dollar in February to Shs3,658.3 in December 13.
The Ugandan Shilling has had a remarkable journey in the year 2024.
According to the Bank of Uganda, the Uganda Shilling has strengthened by 7 percent, from Shs3,932.22 per dollar in February to Shs3,658.3 in December 13.
In June 2024, the Ugandan Shilling traded at an average mid-rate of Shs 3,747.19/USD, appreciating by 1.2% from Shs 3,791.40/USD in May 2024. The Ugandan Shilling was the best performing among the East African Community’s (EAC) five major currencies in May 2024, according to the Ministry of Finance Performance report.
Appreciation of the shilling favours production, export competitiveness and contributes to low imported inflation.
According to Dr Adam Mugume, the Bank of Uganda research executive director, the positive performance of the Shilling is primarily due to the central bank’s tight monetary policy stance and improved inflows from commodity exports, especially gold, coffee and cocoa.
“Over the past year, the shilling has remained notably stable, with its exchange rate staying largely within two standard deviations. The shilling’s value has not shown any significant deviation or extreme volatility, reflecting a period of relative exchange rate stability in the face of global and domestic economic challenges,” he says.
Dr Mugume says this growth will continue into 2025 due to strong foreign direct investments in extractives, and robust economic growth.
This, he says, will favour inflows of remittance, which are key in buttressing the shilling’s strength.
Dr Mugume also says that whereas there are claims of illegal dollar inflows, Bank of Uganda data indicates that dollars that come into Uganda come in exchange for something – either goods or services.
“There can’t be illegal dollar inflows from any country,” he says.
Mr Ramathan Ggoobi, the Finance Ministry permanent secretary and secretary to the Treasury, says the shilling has on average strengthened, compared to the same period last year.
“The shilling has remained stable against the dollar despite depreciation pressures at the beginning of 2024,” he says, noting this has been due to prudent and pro-active monetary policy, higher inflows from non-governmental organisations, increased inflows from remittances and offshore investors.
The International Monetary Fund says in its World Economic Outlook 2024 that following an initial period of easing, monetary policy has tightened significantly, with central banks in many emerging markets starting earlier than major central banks in advanced economies.
“The change in global monetary conditions is easing the pressure on emerging market economies, with their currencies strengthening against the dollar and financial conditions improving. This will help reduce imported inflation pressures, allowing countries to pursue their own disinflation path more easily,” says Prof Pierre-Olivier Gourinchas, the IMF economic counsellor.
On the other hand, Tobias Adrian, the IMF financial counsellor and director of monetary and capital markets, says reforms implemented since the global economic crisis have helped to support international financial stability, but “strengthened supervision and regulation, better crisis management preparedness and resolution processes, enhanced data collection, and a macro-prudential approach to financial sector oversight, have raised the financial sector’s resilience to a multitude of shocks experienced in recent years.