Bank of Uganda reserves hit $3 billion record high

BoU now has capacity to inject more dollars on the market to stabilise the local unit.

Uganda’s foreign exchange reserves recorded the highest mark ever in the first half of the current financial year fuelled by an increase in export revenue that improved the country’s trade balance resulting into a balance of payment surplus, a Central Bank official has said.

Bank of Uganda deputy Governor, Dr Louis Kasekende, said on Wednesday that Uganda’s foreign exchange reserves –foreign assets held and controlled by the central bank – increased to $3 billion (about Shs7.82 trillion), the highest mark in Uganda’s history.

With the current reserves, Dr Kasekende said it will provide BoU with the capacity to intervene in the foreign exchange market; thus, smoothening movements in the exchange rate in case of short-term shocks.

“This is a good buffer that will provide the Central Bank with the capacity to manage the exchange rate and ride through the shocks, such as a reduction in private flows for any reason,” he said.

Dr Kasekende said Uganda’s exports grew in quarter one of the current financial year while growth in imports was slower, improving the country’s balance of payment to about $1.2 billion (about Shs3.1 trillion) in the first half of the 2012/13 financial year - July to December - from $1.5 billion (about Shs3.9 trillion) in the last half of the last financial year.

Impact
Dr Kasekende said the growth in export revenue in part reflects the deprecation of the currency witnessed in the last one year, where the local unit is said to have depreciated by about 6 per cent in real terms against the United States dollar.

“Depreciation enhances the competitiveness of the economy and encourages Ugandans to economise on the use of imported goods and services,” he said.
Uganda exported goods worth $2.35 billion (about Shs6.7 trillion) in 2012 compared to $2.1 trillion (about Shs5.47 trillion) in 2011, according to data from the Uganda Bureau of Statistics.

Mr Stephen Kaboyo, Alpha Capital Partners managing director, said with such good reserves, BoU now has capacity to inject more dollars in the market to stabilise the local unit in case of a sharp fall in the value of the Shilling. This would also reduce the overall costs at which forex resources are available to all market participants.

Uganda had been facing a deteriorating trade balance trend, recording almost a 20 per cent deficit of the Gross Domestic Product since the global financial crisis.

Since Uganda heavily relies on imports, a stable Shilling will translate into a steady business environment.

The ordinary Ugandan will also be able to enjoy affordable goods and services due to lower importation costs.

From 1991 until 2012, Uganda foreign exchange reserves averaged Shs2.6 trillion, until October last year when it grew to Shs7.5 trillion and to Shs7.6 trillion in November, according to figures from BoU.

Dr Kasekende said that if we maintain this performance, then we might see a trade balance which is narrower for the whole of the 2012/13 financial year.