The Uganda shilling is depreciating fast on the forex exchange market. It has gone above 3,600 Uganda shilling exchange rate (both buying and selling). This is according to the Bank of Uganda exchange rate.
As of today 15th October 2021, the shilling is selling at 3613.04 and buying at shilling 3603.04 against the dollar. The last time that the shilling averaged 3,600 shilling for both buying and selling against the dollar was at the end of April this year according to Bank of Uganda data. The shilling went as low as 3511.17 for buying and shilling 3521.17 selling against the dollar in early June.
The shilling averaged around 3550/60 for selling and 3540/50 for buying for the entire of July August and September. The shilling then started depreciating against the dollar at the start of October. In the past two weeks, the shilling has depreciated about 50 shilling against the dollar.
Ignatius Kirunga, the Money Markets Manager at Stanbic Bank Uganda says the Uganda shilling has been shedding off points against the dollar in recent weeks, as the demand weighed in on the local currency. He attributes the market development to, partially, the easing of the lockdowns which could have contributed to increased demand for dollars as importers seek to stock for the end of year sales.
“We have many offshore investors who majorly invest in the government securities; when a handful of them liquidate their holdings motivated by a pick-up of rates in the US yields, this naturally adds to the demand making the shilling depreciate more,” Kirunga said.
Steven Kaboyo, the Managing Director Alpha Partners and former Director Financial Markets Bank of Uganda say the shilling has been weakening but rise in oil prices but due to imports for festival season.
“In the last couple of weeks, the shilling has been on a weakening streak, pressured by several factors. Key among them is the global rise of oil prices to a three-year record level, this has spurred dollar demand especially from local oil importers,” he said in an email response to questions.
“The second factor is the cyclical demand for dollars. At this time of the year, importers place orders for end of year merchandise and this demand translates into a weaker shilling,” he added.
The Ministry of Finance has not released a September report on the performance of the economy which gives a snippet of the balance of trade that could have directly impacted the performance of the shilling. Equally, the Bank of Uganda hasn’t updated its datasets of trade inflow and outflow for September.
But as of August, Uganda had a trade deficit of $206 million after importing goods worth $498 million and exporting goods worth $292 US dollars compared to $173 for July when imports were worth $473 million and exports worth $300 million.
The shilling had been performing relatively better than regional currencies according to the August state of the economy report by the Ministry of Finance.
“While as the Ugandan shilling appreciated, Kenya’s local currency depreciated by 1.0% against the US Dollar during the month under review. Likewise, both the Burundian and Rwandese francs depreciated by 0.3% against the US Dollar. The Tanzanian shilling, however, remained unchanged against the US Dollar as shown in figure 24,” the report says.
A sharp slowdown in gold export could be another factor that has contributed to a shortage of dollars. Not even an ounce of gold has been exported since July according to Bank of Uganda data as gold dealers pushed for halting of a new tax on gold exports.
The government slapped a 10 percent tax on unprocessed gold exports and 5 percent on processed gold exports. Gold dealers responded by withholding their gold as they lobbied for the halting of the new tax. Uganda has in the past two years, before a new tax in July, been importing gold exporting it worth 100 million dollars per month.
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Uganda should be exporting many goods abroad inorder for the Ugandan shilling to gain value.