Bank of Uganda has revealed plans to purchase gold locally from the artisanal miners in order complement existing measures to accumulate international reserves, a move the Central Bank argues will lead to the reduction in imports of raw gold in turn leading to a decrease in both trade deficit and current account deficit
The Central Bank made the revelation in the State of Economy Report of June 2024 that was made public by Bank of Uganda o Wednesday where it highlighted that Uganda’s imports are expected to remain high in the medium term in line with increased public investment in infrastructure.
“With the BOU plan to purchase gold locally from the artisanal miners to complement existing measures to accumulate international reserves, imports of raw gold are expected to reduce, contributing to the reduction in total imports, in turn leading to a decrease in both trade deficit and current account deficit,” read in part the report.
According to Bank of Uganda, consultation are already underway with relevant key stakeholders, of initiating Domestic Gold Purchase Program with the objectives of building the country’s foreign reserves and minimizing the risks on reserves investments, and went on to defend the purchase arguing that the gold purchase program aims at mitigating the declining foreign currency reserves and address the associated risks in the international financial markets.
“This initiative is also expected to support the government’s ongoing value addition to the minerals and Import Substitution Strategy by reducing the imports of raw gold into the country. By purchasing gold directly from the artisanal miners, the BOU will also be supporting the livelihoods of artisanal and small-scale miners, and this has positive spill-over effects on other sectors of the economy in line with the Bank’s mission of supporting the governments socio-economic transformation,” as noted in the report.
The State of the Economy report which presents economic developments up to the three months to May 2024, where data is available, also indicated that gold exports more than quadrupled to US$2,803.14 leading to a net gold export of US$139 million (Shs512,319,250,000) after the tax disputes on gold exports that had led to the halting of gold trade were resolved.
The development comes at the time the 2023 annual report of Bank of Uganda indicated that the Central Bank’s foreign reserves are to a tune of US$4.07Bn (Shs15.001Trn), a decline from US$4.08Bn (Shs15.037Trn), in 2022, meaning the current gold reserves give Uganda an import cover of 4.15months in case of any economic shocks.
A gold reserve is the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store of value, or to support the value of the national currency.
Central banks across the world now hold more than 35,000 metric tons of the metal, about a fifth of all the gold ever mined and one of gold’s primary roles for central banks is to diversify their reserves, and although at times of need, banks may be forced to print more money, this may increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency, gold, by contrast, is a finite physical commodity whose supply can’t easily be added to, thus making a natural hedge against inflation.
Currently, the United States possesses the most gold, with over 8,100 tons, which equates to almost 78 percent of its total foreign reserves, and this is more than double Germany’s holdings of more than 3,300 tons, which makes it second on the list and equates to about 74 percent of its reserves.
Of recent, emerging economies such as Russia, China, Turkey and India have stepped up efforts to boost their gold reserves, by buying substantial quantities of gold over the last decade, but these still lag behind their Western counterparts, with gold representing just 22 percent of Russia’s reserves, while China’s holdings of just under 2,000 tons represent a mere 3 percent.
