President Yoweri Kaguta Museveni has rejected a proposal by Bank of Uganda to use the country’s foreign exchange reserves to stabilise the weakening shilling, arguing that the depreciation could benefit exporters and urging Ugandans to reduce imports.
Speaking during his Independence Day address from State House Entebbe, Museveni revealed that he had disagreed with Bank of Uganda Governor Michael Atingi-Ego over a proposal to intervene in the foreign exchange market by selling dollars from the country’s reserves.
The President argued that using the reserves to lower the dollar’s price would unnecessarily deplete the country’s foreign currency holdings, insisting that Uganda should instead focus on reducing its dependence on imported goods.
“The governor was suggesting that he spends our dollar reserves to bring the dollar price down and I don’t agree with it. It is not correct to squander our dollars,” Museveni said.
His remarks come as the Ugandan shilling faces mounting pressure against the US dollar, having depreciated by more than 11 per cent this year.
On October 8, commercial banks quoted the dollar at approximately Shs4,090 for buying and Shs4,100 for selling, compared with Shs3,960 and Shs3,970 respectively a week earlier.
Museveni Says Shilling Depreciation Could Benefit Exporters
Despite growing concerns over the weakening currency, Museveni maintained that the depreciation was temporary and could improve earnings for Ugandan exporters by increasing the amount of local currency they receive for their foreign sales.
He explained that exporters earning dollars from products such as coffee would receive more shillings when converting their earnings at a higher exchange rate.
“When I sell my coffee for the same two dollars when the price of the dollar is 3,700, I get less shillings; when it is more I get more. So the exporters will get more shillings,” he said.
However, the President acknowledged that importers face higher costs because they need more shillings to purchase dollars for payments to foreign suppliers.
He urged Ugandans to prioritise locally manufactured products and reduce unnecessary imports to ease pressure on the country’s demand for foreign currency.
“It is not correct to sell them to people who want to import perfumes and dead people’s hair,” Museveni remarked, emphasising the need to conserve foreign exchange reserves.
Gulf Conflict, Fuel Prices Blamed for Currency Pressure
Museveni attributed the shilling’s depreciation to several external and domestic factors, including rising international fuel prices, weaker export earnings, capital outflows and declining tourism receipts.
He singled out conflicts in the Gulf as a major contributor to rising global fuel prices, which have increased Uganda’s import bill and demand for foreign currency.
“Have you not been hearing about the wars in the Gulf? How are people surprised about the high cost of fuel?” he asked.
The President explained that Uganda had initially been shielded from the full impact of rising fuel prices through a supply arrangement with Vitol, which had agreed to provide fuel at relatively lower prices for a limited period.
According to Museveni, the arrangement was expected to offer temporary relief as international market conditions improved, but the continued instability has made it difficult to sustain the lower prices.
“Vitol guaranteed to give us cheap fuel for some months thinking that the situation would settle down. But the situation has not settled down,” he said.
He added that Uganda could not reasonably expect the supplier to continue absorbing losses as global fuel prices increased.
Falling Coffee Prices Add to Pressure
The President also pointed to declining prices for some Ugandan exports, particularly coffee, as another factor reducing the country’s foreign exchange earnings.
He noted that improved coffee production in Brazil had contributed to lower international prices, meaning Uganda could earn fewer dollars from its coffee exports.
“I hear that coffee in Brazil has done better and therefore the price of our coffee has gone down a bit, which means that it is bringing in less dollars than it was,” Museveni said.
Bank of Uganda has similarly attributed the depreciation to a combination of a stronger US dollar, changing global interest rates, capital movements, weaker prices for some Ugandan exports and increased costs of oil and shipping.
Strong domestic demand for dollars from importers, energy companies and telecommunications firms has also contributed to the pressure on the shilling.
Additionally, portfolio investors have shifted some funds from Ugandan government securities to markets offering higher returns, increasing demand for foreign currency.
Museveni criticised the movement of such investors, describing them as opportunistic because they tend to move their money to markets offering the most attractive returns.
“Those portfolio investors are quite opportunistic. They go where money is highest,” he said.
Bank of Uganda Tightens Monetary Conditions
As the shilling continues to weaken, Bank of Uganda has taken measures aimed at managing liquidity in the domestic financial system.
The central bank raised the cash reserve requirement to 13.5 per cent, effective September 24, while maintaining the Central Bank Rate at 9.75 per cent.
However, the President said he opposed using Uganda’s foreign exchange reserves to defend a particular exchange rate, arguing that the country should preserve its dollar holdings for more critical economic needs.
Museveni disclosed that Uganda had approximately $6 billion in foreign exchange reserves, which he said should not be unnecessarily depleted to finance imports.
Bank of Uganda’s stated policy is not to maintain the shilling at a fixed exchange rate. Instead, the central bank seeks to limit excessive volatility and ensure an orderly foreign exchange market.
The institution has maintained that the shilling remains market-determined and that several of the factors driving the current depreciation are temporary.
With pressure on the currency continuing, Museveni’s position signals a preference for reducing import dependence and strengthening domestic production rather than using foreign reserves to push the dollar’s price down.
For Ugandan businesses and consumers, however, the weakening shilling presents an immediate challenge, particularly through higher import costs and the potential for increased prices of fuel and other imported goods.
