Bank Of Uganda (BOU) yesterday revealed that the eastern African country’s shilling had depreciated by 1.2 per cent in the past month alone.
It attributed the depreciation to an increase in demand for foreign exchange
from off-shore investors, energy and manufacturing sectors in addition to
commercial banks heightening their demand for the dollar in order to recover their short dollar positions.
“The leading factor causing the depreciation of the Ugandan currency against the dollar is high demand for the dollars by importers. Since December 2009, Uganda’s shilling depreciated by 1.2 per cent to an average mid-rate of shs 1.896 per per dollar,” said Bank of Uganda research officer, Kenneth Alpha Gesa.
According to the official, the trend of trade imbalance has been going on for
some time. Citing an example, he said that the overall exports in the month of November 2009 decreased by 1.7 per cent relative to October 2009 which was at 45.0 per cent higher than the annual records with total coffee exports for the month amounting to 272,779 bags, worth 25.8 million US dollars, and the total imports for the month of November 2009 amounting to 98.1 million US dollars.
The bank of Uganda official, said that that the main imports comprised of machinery, vehicles and accessories, chemicals among other products.
The first significant dip in recent times occurred in 2008 within the context of a widening trade deficit caused by a decline in export value in the third quarter as well as very strong outflow of portfolio investment in the fourth quarter. Experts argued that this was caused by global investment funds and financial institutions engaged in the Ugandan money and capital market that pulled out of developing countries to reduce the risk in their portfolios.
Interviewed for an assessment project by the International Labour Organization, A Rapid impact assessment of the global economic crisis on Uganda, last November, staff at the Bank Of Uganda (BOU) “acknowledged that there had been substantial overshooting fuelled by panic- purchases of foreign currency.” According to the report “BOU intervened at the margin by selling some $64 million of its total of $2.7 billion in foreign reserves, but restated its commitment to a flexible exchange rate and did not commit to defend any given target rate for the Ugandan shilling.”
The report also reveals that intermediate inputs importing companies reported that the large and unpredictable fluctuation in the exchange rate had led them to considerable losses. This is to an extent blamed on the acceleration of food prices in Uganda contrary to marked decreases in global food prices.
With a stagnation of nominal wages, as very few workers had received inflation adjustments to their salaries in 2009 or even 2008, on the one hand, and the decreasing prices of Ugandan food in the sub-region, despite the strong domestic food price inflation, on the other hand, the experts insist that “food exports obviously increased, despite domestic food price inflation”. “However, official exports,” the report said, “probably severely underestimates total food exports”.