Uganda Shilling Recovery (

Local currency gets positive outlook but uncertainty persists

As the battering of the local currency persists, a report issued by a top international bank on July 13, indicates that the Ugandan shilling is most likely than several other African currencies to return to its ‘fair value’ – the real currency’s value.

The report by Renaissance Capital says that compared to other countries, the REER (Real Effective Exchange Rate) of Uganda fares better than that of the other two other East African countries of Kenya and Uganda. Contrary to the general perception that Uganda has been most affected by the exchange rate instability, Renaissance Capital states that the Ugandan shilling was fairly valued and had depreciated slightly less than the Euro and the dollar by end of May; the time the REER analysis report was compiled.

Since the Ugandan shilling had depreciated by just 17% (according to Renaissance Capital) against the dollar, it concludes that the local currency had been undervalued. This is also based on the grounds that the Kenyan shilling was the most overvalued hence its vulnerability. The report suggests that Kenya’s deviation of its REER over a ten-year period is also a pointer to the vulnerability of its currency. Basing on this evidence, Renaissance Capital predicted that the Ugandan shilling would be the first Sub-Saharan African currency to revert to its fair value.

Following these pressures on the Ugandan shilling, the Central Bank Governor Emmanuel Tumusiime Mutebile and his team have been at pains in recent months to come up with a quick fix for the local currency. On the same day (July 13) the report by Renaissance Capital was released, the Monetary Policy Committee held an ad hoc meeting at the Central Bank, which resulted into the raising of the Central Bank Rate to 14.5%. Following this intervention, the shilling had edged up against the dollar and was trading at Shs 3,200 in subsequent days.

However, the shilling has continued to tumble and a number of economic forecasts in the country have predicted that the shilling could slide further unless drastic measures are undertaken. Bank of Uganda officials including Deputy Governor Louis Kasekende have persistently blamed the woes of the shilling on external shocks suffered by the Ugandan economy. Kasekende has argued that the poor performance of Uganda’s tourism and its falling commodity prices on the export market were partly to blame for the weak shilling. He also stated that the instability in South Sudan – Uganda’s largest export market – was also an important factor.

However, Stephen Kaboyo, an economist, is not yet optimistic. He says as long as the trade balance remains unfavourable and given other external economic trends, the upside pressure on shilling will not relent. “It gets more complicated with the expected interest hike in the US as early as September,” he said. “Uganda has been one of those markets that have been attractive to portfolio investors and this has helped to cushion temporarily the current account. Now that we are likely to see capital reversals, the shilling will remain in troubled zone.”

Kaboyo also predicted tougher times ahead as the electoral cycle unfolds. “Previous trends indicate that the shilling tends to slide around election time. In my view and taking all the above factors into account, correction of the shilling may not come that quickly,” he said.


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