BoU: Strong Exports Crucial for Long-Term Shilling Stability

The stability of the Ugandan Shilling in the long run is intrinsically linked to the nation’s export performance and the resulting foreign exchange inflows, according to Bank of Uganda Deputy Governor Prof. Augustus Nuwagaba.

Speaking on the sidelines of an event in Kabale, Prof. Nuwagaba stated that while the central bank possesses tools to manage short-term exchange rate fluctuations, sustained stability requires a significant increase in the country’s export revenues. He noted that the shilling experienced relative stability in July, trading around Shs3,704 against the US dollar.

However, recent market observations suggest the shilling has faced downward pressure. Prof. Nuwagaba highlighted the need for Uganda to scale up exports of key commodities like coffee, milk, and cocoa, stressing the importance of value addition to maximize foreign exchange earnings. He explained that a scarcity of US dollars in the market directly impacts the local currency, underscoring the necessity of deliberate strategies to boost foreign exchange inflows.

Beyond exports, Prof. Nuwagaba also pointed to the critical role of enhanced private sector financing in supporting economic growth. He indicated that private sector credit growth currently stands at 13.6%, but noted that low domestic savings contribute to shallow financial depth, thereby constraining lending capacity.

The Bank of Uganda continues to support initiatives aimed at improving access to affordable credit for productive sectors through various facilities and projects designed to assist manufacturing and export-oriented businesses. These efforts underscore the interconnectedness of export growth, foreign exchange availability, and exchange rate stability, alongside the imperative to strengthen domestic financing to fuel economic expansion.

Source: Nile Post