Aid cuts weigh down shilling, fuel prices up

Under pressure. As the drop in dollar inflows continue, the shilling has been put under pressure due to insufficient supply.

The Shilling continues to weaken against the dollar putting pressure on the price of fuel.

By close of yesterday, the central bank quoted the local unit at Shs2,700 hitting a new time low since August when it was quoted at Shs2,900.

Experts say in the last four weeks, there has been an increase in the demand for dollars, however, supply has not improved; thus, exposing the unit to its weakest since the beginning of the year.

Mr Faisal Bukenya, the Barclays Bank head of market making, said supply had been deeply affected by aid cuts announced by donors in recent weeks.

He said: “Usually aid comes in dollars hence the cuts are exerting pressure on the shilling”.

Donor countries including Britain, Norway and Denmark, among others have in the last few weeks frozen aid to Uganda as a result of massive theft of the funds in the office of the Prime Minister.

Experts predict the shilling is likely to weaken further as the rate of dollar inflow continues to drop.

Mr Denis Mashanyu, a forex trader at Standard Chartered Bank said: “The growing current account deficit, easing of interest rate and portfolio shifts to other regions in Africa is likely to see the local unit depreciate further.”

According to Ms Christine Alupo, the BoU acting director for communications, the central bank last week intervened in the market with a $20 million injection to save the shilling from further collapse.

However, analysts say the intervention has not helped much as the unit continues to move south.

The weak shilling has also seen an increase in fuel prices with a litre of petrol closing yesterday at a market average of Shs3,750 up from an average of Shs3,600 last week.

Mr Bukenya noted the weakening shilling was bad for the economy that is recovering from a volatile economic environment experienced at the close of last year and the first half of this year.

For instance he said imports including fuel whose prices are quoted in dollars have been witnessing some volatility.

Mr Ivan Kyayonka, the Shell Uganda country manager, said depreciating shilling would in the long run impact on pump prices.

He said: “There is no way we shall sustain the price of fuel as the dollar goes up, the pump prices have to diffidently move northwards.”

dnakaweesi@ug.nationmedia.com