Overview:
The approach comes amid pressure on the Shilling, which has weakened against the US dollar as demand for foreign currency rises and external developments affect Uganda’s export earnings and import bill.
Government has cut planned expenditure by nearly Shs3 trillion in the second quarter to support the Bank of Uganda’s efforts to contain inflation and stabilise the Shilling without depleting the country’s foreign-exchange reserves.
Dr Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, said the government was coordinating fiscal policy with monetary measures to address economic pressures arising from rising global oil prices, shifts in international capital flows and reduced foreign-exchange inflows.
Speaking on UBC’s Behind the Headlines programme on Wednesday night, Dr Ggoobi commended the Bank of Uganda (BoU) for its monetary policy measures, saying they were intended to stabilise the currency and contain inflation while preserving the country’s reserves.
“We have to coordinate the fiscal policy and monetary policy. Government has responded to the contractionary monetary policy by releasing less money in quarter two than what government wanted by cutting expenditure by almost Shs3 trillion,” he said.
The approach comes amid pressure on the Shilling, which has weakened against the US dollar as demand for foreign currency rises and external developments affect Uganda’s export earnings and import bill.
Dr Ggoobi said the country’s economic fundamentals remained sound, attributing much of the currency depreciation to external factors, including the conflict in the Middle East and changes in US interest rates.
He said global oil prices had risen to about $100 per barrel, pushing up fuel prices and transport costs. Higher freight and insurance charges had also increased the cost of imported goods.
The Treasury chief further said a recent 0.25 percentage-point increase in the US policy rate had encouraged portfolio investors to move funds into US financial assets, increasing demand for the dollar and putting pressure on currencies such as the Shilling.
Tourism receipts had also been affected by Ebola concerns, particularly during the last quarter, while movements in international commodity prices had affected earnings from exports, including coffee and cocoa, he added.
These developments have created pressure on the foreign-exchange market, with reduced dollar inflows from some sources coinciding with demand for dollars to pay for imports.
Dr Ggoobi said BoU had moved decisively to contain inflation, which he put at 4.6 percent, while keeping it within the central bank’s target range.
The challenge for policymakers is to stabilise the currency and contain inflation while avoiding excessive use of foreign-exchange reserves to defend the Shilling. The reserves provide a buffer for meeting external payment obligations and help cushion the economy against shocks.
Dr Ggoobi said the government was also pursuing longer-term measures under the Tenfold Growth Strategy to strengthen domestic production, increase export earnings and reduce dependence on imports.
The priorities include promoting exports, import substitution and value addition, alongside infrastructure investments such as the Standard Gauge Railway, the proposed Ayago hydropower dam, electricity transmission networks, irrigation and industrial parks.
Government is also implementing the Parish Development Model to bring more households into productive economic activity.
Dr Ggoobi said the interventions were intended to strengthen the economy’s capacity to generate foreign exchange and withstand external shocks.
He cited International Monetary Fund projections that Uganda’s economy could grow by 9.9 percent in 2027, although he acknowledged that external factors could affect the outlook.