The Uganda shilling has appreciated by at least 5.2 per cent against the dollar since March, thanks partly to money coming into non-governmental organizations and low demand for dollars by importers.
According to the quoting this month by forex bureaus, the shilling has gained as much as Shs 203 since March when it traded at Shs 3,900 against the dollar as investors panicked over the impact of the coronavirus (COVID-19) and pulled their money out of the country.
At the end of this week, the local currency traded at Shs 3,690/3,700 buying and selling, maintaining its relative strength against the dollar, according to analysts at Absa bank.
Catherine Kijjaggulwe, the head of trading at Absa Uganda said this was because of “low corporate and importer demand on the back of consistent inflows from NGOs and commodity exporters.”
A strong shilling is good in that importers need fewer shillings to buy dollars to go and buy products abroad. This helps the country to avoid imported inflation that would have come from expensive imports as a result of a weak shilling. There is a limited activity for importers currently due to shutdowns as a result of the coronavirus.
However, a strong shilling can also be bad especially for exporters. This is because they earn in dollars and when they convert to Uganda shillings, they can get less money. Kijjaggulwe said more dollars have come into the country, courtesy of “flows from commodity exports like agriculture products that have been healthy.”
At the start of July, the Bank of Uganda sold a 15-year bond. This attracted investors from abroad who are attracted to Uganda by the high rates of government securities.
Stephen Kaboyo, the managing director of Alpha Capital Partners, a financial advisory firm, said the local currency’s strength will likely stay in the next weeks because the demand for dollars is likely to remain low.
Kijjaggulwe agrees with this position. She said next week, companies will be paying salaries and these are usually paid in Uganda shillings. This means the demand for dollars will likely not pick up. She expects the shilling to trade between Shs 3680 and 3730.
Uganda’s key sources of foreign exchange - tourism and diaspora remittances - are expected to remain slow in the coming months because of the coronavirus restrictions.