Uganda’s reserves recover to $4.3b but still fall short of BoU target

Uganda’s foreign exchange reserves—crucial for shielding the economy against external shocks, stabilising the shilling, and enabling international trade—are steadily rebounding to pre-Covid-19 levels after a sharp decline in 2020.

Despite the progress, the reserves still fall short of regional benchmarks and the Bank of Uganda’s (BoU) own target of at least four months of import cover (excluding oil-related imports). This shortfall raises concerns about the government’s ability to effectively manage currency volatility and meet its external debt obligations.

According to Dr. Adam Mugume, BoU’s Director of Research, the reserves stood at approximately $4.3 billion as of June 2025, equivalent to 3.6 months of import cover. This marks a notable improvement from $3.2 billion in June 2024, which covered only 2.9 months—despite the government spending around $1.8 billion on debt service and imports during the same period.

Dr. Mugume attributed the recovery largely to the Central Bank’s purchase of $2.2 billion from the foreign exchange market. This intervention, alongside gradual recovery efforts since 2020, has helped lift reserves from $3.56 billion in December 2022 to $3.73 billion by the end of 2023.

However, recent data also showed a temporary dip to $3.3 billion, or just 3.0 months of import cover, before the latest rebound.

Uganda’s struggle reflects a broader continental challenge. Since 2020, many African countries have faced difficulties in rebuilding their reserves, which were severely depleted by the Covid-19 pandemic. In 2023, the International Monetary Fund (IMF) pointed to multiple global disruptions—namely Covid-19, the war in Ukraine, and surging global inflation—as key factors that weakened reserve levels across Africa.

These shocks triggered reduced export earnings, lower capital inflows, rising import costs, and capital flight, prompting many governments to dip into reserves or seek external financial support.

While the IMF acknowledges that foreign exchange interventions can play a vital role in stabilizing markets, it cautions against their use in propping up misaligned exchange rates. Such measures, the Fund warns, should be tailored to each country’s specific vulnerabilities—especially in sub-Saharan Africa, where economies are more exposed to real economic shocks than purely financial ones.

Looking ahead, Uganda remains exposed to uncertain global conditions and the prospect of tighter international financial markets, adding pressure to maintain reserve adequacy and safeguard macroeconomic stability.