Absa has lowered its forecast on appreciation of the shilling against the dollar by Shs230 for 2021.
The revision, contained in the Absa sub Saharan Africa Viewpoint report, indicates that the shilling has been relatively stable and marginally strong against the dollar since the beginning of 2021 due to several factors, among them increased export earnings, private remittance, NGO inflows and subdued demand.
The unit currently sells at Shs3,549.7 against the dollar. However, Absa noted it is expected to depreciate to Shs3,650 against an earlier forecast of Shs3,680 even as it remains resilient.
“We still maintain our view that the widening current account deficit will be the main driver of a modest currency depreciation over 2021,” Mr Ridle Markus and Ms Samantha Singh both economists noted in the Absa sub-Saharan Africa Viewpoint report.
The report also noted that renewed foreign investor interest in Uganda recently had supported the shilling, which is expected to continue receiving support from coffee exports, diaspora remittances and external borrowings, boosted by the Central Bank’s foreign exchange purchases from time-to-time to manage reserves.
However, Mr Ridle argued that the shilling remains threatened by a number of vulnerabilities, key among them rising debt, which has already risen above 50 per cent.
The economy, he also noted, was in urgent need of interventions some of which have been highlighted in the budget to sustain growth that is expected to rise to 4.3 per cent in the 2021/22 financial year, up from 3.3 per cent in the previous financial year.
However, Mr Ridle expressed concern, noting that the Shs44.8 trillion budget was lower than the previous financial year due to a projected 8 per cent fall in revenue.