Uganda should not deplete its foreign exchange reserves to defend the shilling against speculative pressure, Finance Ministry Permanent Secretary and Secretary to the Treasury Ramathan Ggoobi has said, defending the Bank of Uganda’s monetary policy measures amid rising import costs and external economic shocks.
Ggoobi said the central bank was taking the right approach by stabilising the currency and containing inflation without exhausting the country’s reserves to counter movements driven by international market conditions.
Ggoobi attributed the recent depreciation of the shilling partly to rising global oil prices, changes in United States monetary policy and reduced foreign exchange inflows from tourism and commodity exports.
He said the war in the Middle East had pushed global oil prices to about $100 per barrel, increasing domestic fuel prices, transport costs and the cost of imported goods as freight and insurance charges rose.
Ggoobi also blamed the depreciation on a 25-basis-point increase in the United States policy rate, which he said had encouraged portfolio investors to shift their funds towards US securities, increasing demand for dollars.
He added that the Ebola threat had affected tourism receipts, while changes in international prices of export commodities, including coffee and cocoa, had contributed to reduced foreign exchange inflows.
Despite the pressure on the shilling, Ggoobi said Uganda’s economic fundamentals remained strong, with the economy continuing to grow steadily.
He cited International Monetary Fund projections that Uganda could record economic growth of 9.9% in 2027, making it the fastest-growing economy in the region, although external shocks could constrain performance.
Ggoobi said the Bank of Uganda had acted decisively to contain inflation, which stood at 4.6%, within the central bank’s target range.
He added that the government had complemented the central bank’s contractionary monetary policy by reducing expenditure by nearly Shs3 trillion in the second quarter to limit the amount of money circulating in the economy.
“We have to coordinate the fiscal policy and monetary policy. Government has responded to the contractionary monetary policy by releasing less money in quarter two than what Government wanted by cutting expenditure by almost 3 trillion shillings,” Ggoobi said.
The government is also pursuing its Tenfold Growth Strategy, which seeks to expand the economy through export promotion, import substitution, value addition and infrastructure development.
Ggoobi said priority investments included the Standard Gauge Railway to reduce freight costs, the proposed Ayago hydropower dam and electricity transmission infrastructure to support production centres.
The government is also investing in irrigation to stabilise agricultural production, industrial park infrastructure and the Parish Development Model to bring more Ugandans into productive economic activity.
The measures, he said, were intended to strengthen domestic production, reduce economic vulnerabilities and help contain inflation.