Overview:
Bank of Uganda data shows the local currency briefly strengthened further to about Shs3,646 per dollar earlier this week before surrendering some gains as demand for foreign currency resurfaced.
KAMPALA: Uganda’s shilling has staged a strong recovery against the US dollar, easing fears of a prolonged currency slide and raising optimism that expected inflows from oil exports, coffee sales and foreign investment could strengthen the local unit over the next financial year.
The rebound comes after weeks of pressure that saw the shilling weaken to nearly Shs3,800 against the dollar, driven by rising global oil prices, heightened demand for foreign currency and uncertainty triggered by tensions in the Middle East.
On Wednesday, the shilling traded at about Shs3,676/3,686 to the dollar, recovering significantly from levels seen earlier this month when market participants feared it could breach the Shs3,800 mark.
Bank of Uganda data shows the local currency briefly strengthened further to about Shs3,646 per dollar earlier this week before surrendering some gains as demand for foreign currency resurfaced.
The recovery has renewed confidence among policymakers, with Bank of Uganda projecting a more stable exchange rate environment as Uganda moves closer to commercial oil production.
Governor Michael Atingi-Ego said the country’s foreign exchange position is expected to improve considerably in the medium term as several sectors generate additional dollar inflows.
“The shilling could appreciate on the back of a significant and anticipated boost to foreign exchange inflows. Commercial oil production is expected to materialise in July 2026, with key infrastructure nearing completion,” he said.
According to the central bank, Uganda’s oil infrastructure, including production facilities and export systems, is now more than 95 percent complete.
The anticipated commencement of oil exports is expected to provide a new source of foreign exchange earnings, reducing pressure on the local currency and strengthening the country’s external position.
Beyond oil, the Bank of Uganda expects increased foreign direct investment, particularly in the mining sector, to support the shilling.
Tourism is also projected to contribute to higher foreign exchange earnings as Uganda intensifies preparations to co-host the 2027 Africa Cup of Nations (AFCON), an event expected to attract visitors, investors and international businesses.
“Foreign direct investment into the mining sector and growing tourism services linked to AFCON preparations are expected to provide additional foreign exchange inflows,” Dr Atingi-Ego said.
Coffee exports remain another major source of support for the currency.
Uganda is Africa’s largest coffee exporter and one of the world’s leading coffee-producing countries. Central bank figures indicate that coffee export earnings reached $2.4 billion in the 12 months to mid-2026 despite a recent softening in international prices following improved harvests in major producing countries such as Brazil and Vietnam.
The strong performance of the coffee sector has helped cushion the economy from external shocks and provided a steady stream of foreign exchange at a time when global markets have remained volatile.
The recent recovery marks a turnaround from earlier this year when the shilling came under pressure due to a stronger US dollar and rising energy costs.
According to the Ministry of Finance, the local currency depreciated by nearly three percent in April compared to the previous quarter as importers increased demand for dollars to finance fuel imports and higher shipping costs.
The situation worsened following the outbreak of conflict in the Middle East, which raised concerns about disruptions to global oil supplies and sent energy prices higher.
Higher fuel prices translated into increased demand for foreign currency by oil marketing companies, manufacturers and importers, putting additional pressure on the shilling.
However, easing geopolitical tensions and improved foreign exchange inflows have helped reverse part of those losses.
Global oil prices have since retreated after diplomatic efforts reduced tensions involving Iran and eased concerns over disruptions to shipping routes through the Strait of Hormuz, one of the world’s most important oil transit corridors.
Lower oil prices are expected to reduce Uganda’s import bill over time and ease demand for dollars, although analysts say the impact may not be felt immediately.
Despite the improved outlook, market analysts caution that the currency remains vulnerable to developments in global financial markets.
Mr Richard Nsubuga, Acting Head of Trading at Absa Bank Uganda, said recent movements in the exchange rate reflected persistent corporate demand for dollars and fluctuations in foreign currency inflows.
“The Uganda shilling continued to trade under pressure, primarily driven by sustained corporate demand amid weaker dollar inflows. Additionally, offshore investor appetite for foreign currency remained elevated amid global dollar strength,” he said.
Even so, economists say the combination of oil exports, strong coffee earnings, tourism growth and rising investment inflows could provide Uganda with one of its strongest foreign exchange positions in years.
For businesses and consumers, a stable shilling would help contain imported inflation, lower the cost of doing business and reduce uncertainty in the economy.
With commercial oil production now in sight and key export sectors performing strongly, policymakers are betting that Uganda’s currency may be entering a more stable phase after months of volatility.