Debt service, high import bills eat into forex reserves

Kampala. Using foreign exchange to pay public debt coupled with payments for government imports especially infrastructural projects have slashed the volume of Uganda’s foreign exchange reserve.
Foreign exchange reserves are assets held on reserve by the central bank in foreign currencies. They are used to pay liabilities and influence monetary policy action of the central bank.
The Bank of Uganda (BoU) monetary report of December 2018 indicates that Uganda’s foreign reserves stood at $3.2 billion - an equivalent of (4.4 months of import cover) at end November 2018, down from $3.355 billion that was equivalent of 4.8 months of import cover) as at end July 2018.
This was attributed to increased outflows through higher debt service and increased payments for government imports of services (infrastructural projects).

Public debt
BoU says the total public debt as at end October 2018 amounted to Shs42.3 trillion (about 41 per cent of GDP). Of this, external debt stood at Shs27.8 trillion ($ 7.3 billion) while domestic debt stood at Shs14.2 trillion).
Statistics by the Central Bank show that Uganda’s trade deficit widened by $514million to $ 2.095 billion
“The import bill by grew by $ 829 million to $ 5.733 billion supported by increased private sector imports, attributed to pick up in economic activity moderated by increased export receipts of $138 million; as favourable weather was experienced in the 12 months to October 2018,” said the central bank.
On the Balance of Payment (BOP Outlook) on the short to medium term, the central bank says Uganda’s Current Account Deficit (CAD) is projected to widen further on account of a pickup in imports by government and private sector partly due to oil & gas developments and increased infrastructural investments.
“The CAD may, however, be moderated by projected inflows in the financial account,” the central bank said.
In the 12 months to October 2018, the central bank said the CAD widened by $732 million to $1.740 billion relative to the year to October 2017.
“Financial account surplus in the 12 months to October 2018 was insufficient to finance the high current and capital account deficit recorded in the year, leading to a drawdown in reserve assets by $189 million,” the central bank explained.

OUTLOOK

On the Balance of Payment (BOP Outlook) on the short to medium term, the central bank says Uganda’s Current Account Deficit is projected to widen further on account of a pickup in imports by government and private sector partly due to oil and gas developments and increased infrastructural investments.