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PSFU NEWS
PRIVATE SECTOR MEETS BANK OF UGANDA TO DISCUSS EXCHANGE RATE
Private Sector Foundation Uganda organized a high level policy dialogue meeting at Protea Hotel in
Kampala to discuss the state of the current business environment in Uganda with a major focus on
exchange rate depreciation. The discussions formed part of the monthly Chairman’s meeting with
members of the private sector.
The Deputy Governor Bank of Uganda Dr. Louis Kasekende was the Guest Speaker. He explained the
causes and consequences of a depreciating Uganda shilling to the business community and the
economy.
Members were informed that, the Uganda Shilling has depreciated against the USD by over 40%
between January and September 2015. He noted however that, this had been a general problem across
all EAC currencies and internationally. For instance the Kenya Shilling had depreciated by 15% and
Tanzanian Shilling by 24%. He noted that the UGX VS USD had been quite volatile thereby affecting the
private sector investment plans.
The Current Account /GDP is currently at an average of 11% from an average 6% in 2013, hence
justifying the increase in the Budget Deficit and orchestrating increased internal borrowing.
Because of the increased Investments in Infrastructure by the GOU, the budget deficit has widened from
2% to 7% between2012 and 2015. These investments have actually increased Public Capital Expenditure
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thus affecting the Economy’s External Debt Stock . Further, Net Foreign Direct Investment Inflows are
lower by USD 144m in 2014/15 compared to 2013/14.In an attempt to mop up excess liquidity the Central
Bank Reserves have reduced from USD 3.3 billon to USD 2.7 billon over the past year
The global reduction of crude oil prices has also contributed to the Uganda shilling depreciation since
there is reduction in the foreign currency coming from crude oil sales
Inflation:
The Annual Headline Inflation for the year ending September 2015 increased to 7.2 % compared to the
4.8% that was recorded for the year ended August 2015. The increase was largely attributed to the
Annual Food Crops Inflation that rose to 10.2% for the year ending September 2015 compared to 1.8%
registered during the year ended August 2015.
Possible Actions:
a) Boost Exports; this is key in managing the current account and restoring stability in the Forex
market. An export drive that promotes and supports production, value addition and market
development for key export sectors in Agriculture and Tourism could provide the medium to long
term solution
b) The immediate resolve could however come from tightening expenditure with sufficient focus on
local production. This will save foreign exchange in the immediate to short term.
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That justifies the higher margin of depreciation compared to the rest of the EAC partner states.
c) The Governor proposed to the Private Sector to explore the option of entering into future
contracts (e.g. SWAPS, Forwards). These would help in planning since through these the
exchange rate is fixed with the specific financial institutions. This however maybe taken with
caution since the exchange rate may shoot up to the projected fixed rate.
d) Trade with countries using their local currencies other than the dollar. This could work well with
China and other source countries.
e) The Governor also advised the business community to reserve foreign exchange as they plan to
transact business in future. Government should focus on investments in the Agricultural sector.
Members of the Private Sector suggested having regular similar engagements not only with the Governor
Bank of Uganda but also with the Ministry of Finance, Office of the Prime Minister
For more information please contact:
The Public Relations Manager
Tel: 256 312 263850
Email: [email protected]