KAMPALA | The Bank of Uganda (BOU) projects that the Shilling will continue to appreciate against the US Dollar, driven by strong coffee prices and capital inflows from the burgeoning oil and gas sector.
Adam Mugume, director of research at the BOU, revealed these projections during the Stanbic Economic Insights Symposium held in Kampala.
He noted that the Shilling’s recent stability can be attributed to robust demand for Ugandan coffee and significant investments in the oil and gas industry, which have bolstered capital inflows and helped stabilize the currency.
“The Shilling is expected to strengthen slightly against the Dollar due to high coffee prices and ongoing oil and gas investments, which are crucial in maintaining capital inflows,” Mugume stated.
Over the past ten months, the Ugandan Shilling has maintained relative stability against the Dollar, especially when compared to regional currencies.
In contrast, neighboring Kenya has experienced sharp volatility, driven by a negative economic outlook and reduced debt financing capacity.
Regional Comparisons Highlight Uganda’s Stability
While Uganda has managed to keep its currency stable, Kenya’s economy has faced significant challenges.
According to Christopher Legilisho, senior economist at Stanbic Bank Kenya, the country’s debt service costs have soared from 30% to 60% of ordinary revenue over the past five years.
This increase, coupled with tight monetary policies, has led to a contraction in private sector credit, which has historically driven Kenya’s economic growth.
“The private sector has been the backbone of Kenya’s economy, but with the elevated debt levels and restrictive monetary policy, we’ve seen a shrinking in private sector credit growth,” Legilisho explained.
Inflation and Consumer Spending
Despite the positive outlook for the Shilling, the BOU warns that Uganda is not yet out of the woods regarding inflation.
Persistently high inflation rates have made credit more expensive, weakening consumer spending power.
This, in turn, has forced Ugandans to dig deeper into their disposable incomes to cope with rising prices for goods and services.
“Inflation remains a concern, making credit more costly and reducing consumers’ ability to manage the increasing cost of living,” Mugume added.
As Uganda continues to navigate these economic challenges, the strength of the Shilling and the country’s ability to manage inflation will be critical factors in sustaining economic stability and growth.
