Uganda’s foreign exchange reserve stood at $4b in June, says BoU

Uganda’s foreign exchange reserve had reduced due to a number of factors, including growing debt servicing and repayment. PHOTO/FILE/COURTESY

What you need to know:

  • Foreign exchange reserves refer to foreign assets held by the central bank of a country.

The Bank of Uganda has said the level of foreign exchange reserves ending June 2023 was $4.074 billion, which is equivalent to 4.15 months of Uganda’s import cover for goods and services.

On Monday, Uganda’s central bank noted that it saw a decrease of 0.37 per cent from $4.089 billion which was 4.17 months of import cover in June 2022 in addition to a decrease of 3.31 per cent from $4.214 billion, which was equivalent to 5.48 months of import cover for June 2021.

“The drop in the foreign reserves during the financial year was mainly on account of net outflows of foreign currency relating to government payments to meet external debt and import obligations,” the central bank explained in its annual report for the FY 2022/23 released on October 16, 202.

Bank of Uganda also observed that the return on foreign assets significantly recovered to close at 2.54% at the end of June 2023 from a slump of -0.89% seen at the close of June 2022.

The report states that the central bank continued to manage foreign exchange reserves in line with the investment objectives of capital preservation, liquidity, and reasonable returns, consistent with the acceptable risk.

It further reveals that during the period, the Bank of Uganda revised the Foreign Exchange Reserves Management Policy to include Adoption of the Conditional Value at Risk (CVaR) approach as opposed to the Value at Risk (VAR).

This came amidst the widening of the country’s investment room through revision of market and credit risk limits as well as inclusion of Organization for Economic Co-operation and Development (OECD) countries as part of the eligible markets, in line with global investment trends by central banks. Revised Strategic Asset Allocation framework.

“The significant enhancement was the increased allocation to the internally managed fixed income portfolio. Performance of the foreign reserves’ portfolio is expected to remain strong mainly due to re-investment in higher yielding issuances, which will be enhanced by the increase in the fixed income portfolio, and reduced volatility as rates peak, plateau and possibly decline over the next year,” the central bank explained in the report.