Uganda should resist using its foreign exchange reserves to defend the shilling against speculative pressure, the Finance Ministry's Permanent Secretary and Secretary to the Treasury Ramathan Ggoobi has said. Ggoobi defended the Bank of Uganda's approach to stabilising the currency and containing inflation without depleting reserves to counter movements driven by international market conditions.
Ggoobi attributed the recent weakening of the shilling to multiple external factors. Global oil prices had risen to about $100 per barrel due to the Middle East conflict, driving up domestic fuel prices, transport costs and the price of imported goods as freight and insurance charges increased. The Bank of Uganda said inflation stood at 4.6%, within the central bank's target range. A 25-basis-point increase in the United States policy rate had also encouraged portfolio investors to move money towards US securities, increasing demand for dollars. The Ebola threat had hit tourism receipts, while falling international prices for export commodities including coffee and cocoa had reduced foreign exchange inflows.
Despite pressure on the shilling, Ggoobi said Uganda's economic fundamentals remained solid. The International Monetary Fund projected Uganda could achieve economic growth of 9.9% in 2027, making it the fastest-growing economy in the region, though external shocks could limit performance. The government had also taken fiscal action to support monetary policy, cutting expenditure by nearly Shs3 trillion in the second quarter to reduce money circulating in the economy. Ggoobi explained the need for coordinated fiscal and monetary policy responses.
The government is pursuing its Tenfold Growth Strategy, which aims to expand the economy through export promotion, import substitution, value addition and infrastructure development. Priority investments include the Standard Gauge Railway to cut freight costs, the proposed Ayago hydropower dam, electricity transmission infrastructure to support production centres, irrigation systems to stabilise agricultural output, industrial park infrastructure and the Parish Development Model. These measures are designed to strengthen domestic production, reduce economic vulnerabilities and help contain inflation.
For savers and businesses in Uganda, this strategy means the government and central bank are prioritising long-term economic strength and reduced vulnerability to external shocks over short-term currency defence, with a focus on boosting domestic production to reduce import dependence.