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Shilling remains stable despite reverses being under pressure
The shilling remains strong despite the pressure mounted on Uganda's reserves due to increased public debt. Photo / File
What you need to know:
- Absa says despite foreign reserves being under pressure, the shilling remains among Africa's best African currencies
Absa Group chief economist and head of FICC research Jeff Gable has said that the shilling has benefited from fiscal consolidation and vigilant monetary policy that continues to cushion it as one of Africa’s best-performing currencies amid global turmoil.
Speaking during an overview of Uganda’s economic landscape, Mr Gable said despite foreign reserves being under pressure, the shilling remains among the best African foreign exchange performers and is forecasted to stay stable in the foreseeable future.
“We forecast further resilience over the next 12 months to trade at Shs3,654 against the dollar in 2025 and Shs3,720 in 2026,” he said, noting that the economy, as a whole, has remained calm in a turbulent world.
Instability in foreign reserves destabilises the performance of the shilling.
Uganda’s foreign reserves have been under mounting pressure as a result of mounting debt, whose repayments have sometimes rolled-over, thus eating into the reserves.
However, despite the pressure, Bank of Uganda Deputy Governor Michael Atingi-Ego, said the exchange rate had been resilient over the years, with the unit appreciating by 2.7 percent year-on- year in November 2024.
“This strength is attributed to robust inflows from foreign direct investments, particularly in the oil and mining sectors, and higher coffee export revenues," he said.
Mr Gable said Uganda’s real gross domestic product is expected to grow by 5.9 percent this year and 5.5 percent in 2026, while fiscal deficit to gross domestic product is projected at 5.7 percent this year and 4.7 percent in 2026.
However, Mr Gable said Bank of Uganda policy rate remains elevated, even as it is likely to decline through 2025.
The policy rate is used to control inflation, maintain stability in interest rates, foreign exchange market as well supporting economic growth.
Mr Gable said Absa’s research forecasts inflation to edge higher but remain below the 5 percent target until late 2026.
“We forecast average inflation of 3.8 percent this year versus 3.3 in 2024. For 2025, we project inflation to be at 3.3 percent and 4.0 percent, while the policy rate (Central Bank Rate) we expect to drop to 7.5 in 2026 and stay the same at 7.5 percent in 2026,” he said.
