Withdrawal from coffee body could affect dollar inflows, says BoU

Uganda on average earns more than $500m annually from coffee exports. It is still early to tell how the decisions will impact the earnings. PHOTO | FILE

What you need to know:

  • Last month, UCDA announced that Uganda had decided to withdraw from the International Coffee Agreement over failure to get assurances on how ICO plans to improve lower cadres in the value chain. 

The Central Bank has said the withdrawal of Uganda from the International Coffee agreement (ICA) could impact importer sentiments due a reduction in dollar inflows in the market. 

This comes at a time when Bank of Uganda has projected an increase in capital outflows due to a rise in interest rates in advanced economies, many of which have drawn up plans, among which include rising interest rates to counter rising inflationary pressures. 

Adverse impact

“Uganda’s withdrawal from the International Coffee Agreement (ICA) could adversely impact on importer’s sentiments. However, Uganda Coffee Development Authority (UCDA) maintains that Uganda’s coffee earnings will not be affected,” the Central Bank said.

On Wednesday,  Mr Emmanuel Iyamulemye, the UCDA executive director, reiterated his earlier position, noting that exporters will continue to export coffee as it has been before. 

He also dismissed the Central Bank’s fears, noting: “Bank of Uganda is not an expert on trade” adding that: “Clearly [International Coffee Organisation] ICO has no regulatory or marketing role” , to affect export of Uganda’s coffee.   

Last month, UCDA announced that Uganda had decided to withdraw from the International Coffee Agreement over failure to get assurances on how ICO plans to improve lower cadres in the value chain. 

It is not yet clear how coffee earnings, which form the largest part of Uganda’s exports receipts, will be affected by the decision. 

Uganda on average earns more than $500m annually from coffee exports.  It is still early to tell how the decisions will impact the earnings. 

Portfolio outflows

In its report, Bank of Uganda also noted that whereas the financial account surplus is expected to widen due to a recovery in foreign direct investment, especially in the oil sector and continued loan and budget support disbursements to support public sector projects, a rise in outflows may be recorded as interest rates in advanced economies. 

Therefore, the Central Bank said these developments are expected to result in an overall balance of payment deficit leading to slight decline in foreign currency reserves of up to $4.168b or four months of import cover. 

“In the medium term, the current account deficit is projected at 8 percent of gross domestic product in 2022/23 financial year, narrowing to 7 percent and 5 percent in the 2024/25 financial year and 2025/26 financial year, respectively,” the Central Bank said. 

During the period, expenditure on imports grew by 11.6 percent to $1.725b with both oil and non-oil imports increasing significantly.

Oil imports rose by 33.2 percent while non-oil imports grew by 11.6 percent. 


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