Africa-Press – Uganda. Bank of Uganda has warned that growing external financial needs will put pressure on the shilling, which has enjoyed some stability since the year begun.
The shilling, which had rapidly weakened at the close of 2022, has traded in the range of Shs3,700 since December. Yesterday, it opened at Shs3,757.42 against the dollar, before closing at Shs3746.08.
However, Bank of Uganda did not specify which financing needs would impact the shilling, but had earlier indicated that debt servicing and loan repayment was putting pressure on the unit.
While presenting the Monetary Policy report for April in Kampala yesterday, Bank of Uganda deputy governor Michael Atingi-Ego, said growing external financing needs are expected to put pressure on the shilling, which might see it weaken.
The shilling has this month experienced some slight volatility against the dollar due in part to sustained capital outflows and debt repayments.
Debt servicing has also put pressure on foreign exchange reserves, which had declined to $3.5b but rose to $3.7b following reserve building by the Central Bank.
Dr Atingi-Ego, however, noted that despite the threat, the economy had remained resilient and was on track to recovery, supported by a stronger recovery in services and agriculture output.
However, he noted, quarterly growth for the second quarter of the 2022/23 financial year had dropped to 4.4 percent from 9.2 percent in the same period in the 2021/2022 financial year due to a fall in industrial output and moderation in services output growth.
Bank of Uganda also noted that the Central Bank Rate would be maintained at 10 percent to support moderation in money supply but also support economic recovery.
However, Dr Atingi-Ego noted that downside risks to economic growth including lower than expected growth affecting the demand for exports, higher interest rates and cost of living pressure, although necessary, could weigh heavily on household consumption and private sector investment.
Other risks, he said include, lower commodity prices affecting primary commodity exports, unfavourable weather conditions affecting agricultural production, resurgence of supply chain distortions due to geopolitical tensions, weaker-than-expected global economic growth outturns or much tighter and more volatile global financial conditions still existed.
Bank of Uganda also indicated that overall, there were no new shocks, noting that inflation will continue decelerating and coverage to the 5 percent target by the end of 2023 given that factors that favour decline in inflation were lower supported by a reduction in energy prices, improved global supply chains and lower food crop prices.
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