The Uganda Shilling opened the week at its weakest standing since the beginning of the year with experts predicting a further depreciation.
At the opening of business yesterday, the local unit was trading in the range of 2614/2624 against the US dollar, up from the 2605/2615 it traded on Monday.
The depreciation for the last one month has seen the Shilling lose ground by more than 3 per cent from 2530/2540 it traded around the same time in May to the current 2614/2624.
Although some have attributed Shilling’s decline to the recent United States aid suspension to Uganda, Bank of Uganda (BoU) director research Adam Mugume has said: “The weakness is associated with the anxiety associated with the recently presented 2014/15 Budget.”
He adds that other reason behind the depreciation is that inflows are depressing normally at this time of the year; this will not warrant BoU to intervene.
Winners and losers
Dr Thomas Bwire, an economist with BoU, says for a country which is largely import based, a scenario like this leaves the cost of doing business very high especially for importers who are now spending more shillings to buy the dollars.
“The depreciation is also not good news for foreign investors who are working in Uganda. When converting their returns into dollars, they will be making losses,” Dr Bwire shares.
Mr Gideon Badagawa, the executive director Private Sector Foundation Uganda, said the export sector would be gaining from this situation but it is not growing as expected.
“Government has introduced taxes on agriculture which is the country’s competitive advantage to grow exports, thus farmers will invest less, leading to fewer jobs and less production so everyone is losing,” he said.
Standard Chartered Bank head of financial markets James Mutuku is optimistic that as companies file their corporate tax payments, this will give the local unit support. “While continued interbank demand should balance that out, the expected range for this week is 2575-2625,” he said.