Shilling will be under pressure amid reduced inflows - Absa 

Absa says the shilling might soon depreciate to Shs3,800 from the current rate of Shs3,696.09.

What you need to know:

  • Absa said the current account deficit is rapidly widening, which is expected to distort gains made by the shilling in the last one year. 

Absa has cautioned that the shilling is expected to be under pressure due to the widening gap between export earnings and expenditure on imports.
The shilling has been largely been stable since the beginning of the year. However, Absa says a number of factors, key among them, the widening current account deficit and the weakening of the global economy due to Covid-19 are expected to destabilise the stability.
 
While presenting a research conducted by Absa during a media round table, Mr Ridle Markus, the Absa Group non-equity senior research analyst, said Uganda’s economy has been weakened by Covid-19 at a time when it was already experiencing difficulties. 

 Therefore, he said that whereas the shilling has been relatively stable since the beginning of the year”, it is going to be under pressure due to the weakening in the external account”.   
 Mr Ridle projected the effect will weaken the shilling to about or above Shs3,800 per dollar in the near future. 
The shilling yesterday opened strong, selling at Shs3,696.09 against the dollar, according to Bank of Uganda, after sustained appreciation on the back of increased inflows from offshore investors, non-governmental organisations and commodity exporters. 

However, Absa said the current account deficit is rapidly widening, which is expected to distort gains made by the shilling in the last one year. 
 Mr Ridle also noted that the economy continues to face a lot of uncertainties, which will require governments to prioritise interventions with the need to drive economic recovery.

Government, has, since August, provided stimulus packages to selected sectors with the first beneficiaries being SMEs and tourism. 
UDB recently called players in tourism to apply for a Shs64b stimulus that seeks to provide to support recovery of businesses weakened by Covid-19. 
 Mr Ridle also said the forthcoming elections will have little or no negative impact on the economy, noting that since the country had escaped recession, it will register growth of between 4 and 5 per cent next year. 

However, he said, the growth will most mostly depend of how global issues pun out than on local disruptions. 
 According to Bank of Uganda, in September, the shilling depreciated slightly against the dollar by 0.5 per cent to average at a mid-term rate of Shs3,695.1.