The Independent Uganda: You get the Truth we Pay the Price
Kampala, Uganda | THE INDEPENDENT | A financial expert has praised Uganda’s currency stability, thanks to attractive interest rates on government securities and easy access of foreign currency.
Eva Othieno Wanjiku, the Africa Strategist for Standard Chartered Bank, said they expected the Ugandan currency to lose more value in June last year as companies paid dividends to their shareholders abroad. It didn’t happen and instead, they saw a lot more money come into the economy supporting the local currency against the US Dollar and other major currencies.
This she said is because investors came in to buy government securities as the government also moved to borrow more from the domestic market. The government borrows through treasury bills and bonds issued by Bank of Uganda.
The interest on these securities is between 8 percent and 15 percent, higher than most in the region. She said investors were also confident that in Uganda, they can easily change money to major currencies.
Easy access to foreign currency gives investors’ confidence that they can enter into the country any time and exchange into any currency they want to ship their money without much hindrances.
Also, the Uganda current account deficit – a situation where the country spends more on imports than what it earns on exports, has worsened but has not necessarily translated into weak shilling. Wanjiku says this do with money flowing with investors buying government debt.
The Shilling traded above 3,700 Shillings against the US Dollar in December 2019. It traded again above 3,700 Shillings against the US Dollar on January 6 and 7, 2020. The rest of the days, it has been below, oscillating between 3670 and 3695 Shillings. On Monday February 24, 2020 the Shilling traded at 3,668 Shillings against the Dollar.
A strong currency means imports can be cheaper but it also means less earnings for the Ugandan exporters.
Stephen Kaboyo, the Director of Alpha Capital partners, said the better performance of the Shilling in the last few months can be attributed to several factors including low demand for Dollars for the last couple of months, import activity has been on the low, and that recent the effects of the Coronavirus are filtering through.”
On Coronavirus, traders have said they halted their orders until they are sure the disease won’t affect their deliveries. This means fewer traders are demanding for dollars to go and pay for goods.
Kaboyo agrees with Wanjiku that there is renewed interest from investors who have taken a view that yields on government securities will increase because of government’s appetite to borrow in light of revenue shortfalls.
Going into elections, the shilling is expected to lose more value as investors holding their money until after polls. Also, interest on government securities will increase from the current levels.
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