Uganda’s shilling strengthens

 

 

National Insurance Corporation's (NIC) builidng in Kampala, Uganda and a graphic of its assets and investments. The insurer is exploring a bonus issue, a move that could sweeten its ongoing rights issue. Photo/FILE.   NATION MEDIA GROUP

 

 By Bernard Busuulwa

In Summary

• The current account deficit narrowed from $591 million between June and August, to $537.8 million in November.
• The Uganda shilling gained by 0.4 per cent against the US dollar in November and also recorded annual growth of 6.6 per cent against the green buck, averaging Ush2, 512 in midday trading sessions, BoU data shows.
• Declining exports matched by future increases in the import bill could give way to an expanded current account deficit, analysts say.

Uganda saw a $53.2 million improvement in its current account deficit between September and November 2013 on the back of reduced demand for goods and services; a trend that also strengthened the local currency, Bank of Uganda data shows.

The current account deficit narrowed from $591 million between June and August, to $537.8 million in November.

While detailed figures on performance of various import items were not available by press time, private sector related imports fell by $82.7 million to $1.1 billion between September and November compared to $1.183 billion recorded in the previous quarter.

Observers attribute this decline to lower demand for major imports such as motor vehicles and second hand clothing.

Gains made

The Uganda shilling gained by 0.4 per cent against the US dollar in November and also recorded annual growth of 6.6 per cent against the green buck, averaging Ush2, 512 in midday trading sessions, BoU data shows.

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Notable earnings from coffee exports boosted dollar flows and also caused appreciation in the shilling during this period. Total revenues from coffee exports rose from $22.74 million in October to $26.71 million in November 2013.

Faced with a lower current account deficit, growth in import taxes appeared modest in October despite notable increases in import volumes.

International trade taxes grossed Ush298 billion ($117.9 million) but narrowly exceeded target with a performance ratio of 104 per cent in October which translated into a surplus of Ush13.2 billion ($5 million), according to statistics compiled by the Uganda Revenue Authority.

In contrast, non-fuel imports rose by 11.5 per cent to Ush1,031.6 billion ($408 million).

South Sudan problems

However, trade experts anticipate the current account deficit to worsen between December 2013 and February due to ongoing political violence in South Sudan and the Democratic Republic of Congo which absorb a lion’s share of Uganda’s exports.

Declining exports matched by future increases in the import bill could give way to an expanded current account deficit, analysts say.

“The current account deficit might worsen in coming months due to major disruptions in South Sudan and DRC which consume 26 per cent of our exports. Rising import needs in the oil and gas sector caused by preparations for field development and ongoing road construction works alongside fewer exports will inevitably push up the current account deficit till the security situation improves in those areas,” noted Lawrence Othieno, a trade specialist with Imani Development, a consultancy firm.