Shilling depreciates as economic activity picks

Kampala, Uganda | THE INDEPENDENT | The Uganda shilling has started losing its strength against the US Dollar in a reverse trend that had seen the local currency remain strong during and after the lockdown period.

In a trend that surprised observers, the shilling held steady when diaspora remittances, offshore investments and tourism nearly went to a halt between April and July.

Before the government closed most major sections of the economy in March 2020, the US Dollar exchanged for 3,760 shillings before the exchange rate fell to 3,680 shillings at the end of August.

Experts and traders then explained that the effect of the low foreign exchange inflows were offset by the low demand for the dollar especially as travel out of the country as well as imports declined.

Over the last two weeks, the shilling has steadily lost steam against the major currencies with the dollar now up at 3,706.

The strength of the dollar is being attributed to the revived economic activities since more sectors of the economy were opened leading to higher demand for the greenback.

Absa Bank Uganda Foreign Exchange Trader, Corporate and Investment Banking, Richard Nsubuga notes that there is increased coffee export earnings but that industries are now demanding for more dollars for their increased activities as exhibited by the August Purchasing Managers Index.

Market players say there is so far no intervention from the central bank which seems confident that the current trend of the foreign exchange is a reflection of the revival of the economy.

Mr Nsubuga says they do not expect the shillings to suffer drastically in the next few weeks as corporations will demand for the local currency to clear their tax obligations.

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