Uganda’s trade deficit now stands at about 3 billion dollars. Financial experts attribute this shortfall to the negative trade balance. With Uganda importing more than it exports.
“There are a number of other things that influenced the shilling direction, one is we were entering the political cycle¡ the election cycle was just looming and that sends shockwaves especially the uncertainty it creates and affects flows so flows that will be destined here, go elsewhere.”Stephen Kaboyo – Alpha Capital Partners
The European Union remains the biggest market for Ugandan goods like fish, flowers and agricultural products. Economic experts say the slow down in key export markets like the Eurozone, has influenced the value of currencies like the Uganda shilling.
“We see that for example our exports are declining¡ even when the volumes are increasing – like in-terms of coffee, the value is declining because we have a decline in coffee prices the same story goes to tea and cotton¡ so those ones are still affected by the global economic environment.” Dr. Adam Mugume –
Director Research, Bank of Uganda
Since October the shilling has remained stable and the Bank of Uganda attributes this to improved inflows resulting from the successful sale of government securities, which attracted international investors. But financial analysts are certain that the shilling could slide back to lower levels in quarter one of 2016.
They fear that the US Federal Reserve rate hike is going to trigger a wave of problems across emerging markets, including in Uganda.
“That in it’s self leads to capital outflows going back into the US… now that the US market is starting to be attractive. We have not seen the end of that yet because, reading from what the FED was talking about yesterday, the expectation is that there will be a series of increases going forward… so that is a major risk that we face with respect to the currency.”Stephen Kaboyo – Alpha Capital Partners
Security concerns across Uganda’s boarders also continue to threaten the exchange rate markets. And there’s more uncertainty ahead with Uganda’s presidential elections taking place in February, and economists are predicting that could cause the shilling could depreciate further.
