UGANDA’S foreign exchange reserves have witnessed a notable decline of nearly 12 percent between June 2023 and January 2024, as revealed by the central bank. This reduction has been primarily attributed to the country’s obligations in external debt payments and the adverse effects of the depreciating Ugandan shilling on the ability of the central bank to procure foreign currency.
According to the State of the Economy report released by the central bank on Tuesday, the reserves plummeted from $4.07bn in June to about $3.58bn by the end of January. This decline has resulted in the reserves providing a cover of 3.4 months for imports, excluding those related to oil projects.
The Bank of Uganda’s target for foreign exchange cover stands at 4 months of imports, excluding oil projects, as highlighted in an International Monetary Fund staff report published in March.
Uganda’s mounting public debt, a significant portion of which is external, has posed challenges by consuming a growing portion of revenues. This situation has led to constraints on various government expenditures, including crucial sectors such as education and health. According to figures from the finance ministry, the total public debt reached $24.7bn by the end of 2023, with 60 percent of it being external.
Despite the concerning trend, the Bank of Uganda remains cautiously optimistic about the possibility of a rebound in foreign reserves. The bank anticipates potential increases in reserves owing to expected inflows from budget support loans. However, it also warns of a fragile outlook for the country’s balance of payments.
In its statement, the Bank of Uganda cautioned, ‘Delayed disbursement of expected budget support loans, higher-than-projected government expenditure on imports, and tight global and domestic financial market conditions may disrupt the reserve build-up programme.’
As Uganda navigates through these economic challenges, global markets also experienced fluctuations, with the Dow and S&P 500 registering marginal dips, while the Nasdaq ended slightly higher.