There has been a reduction in dollar inflows amid rising demand, especially among importers. PHOTO | FILE
A significant reduction in foreign exchange inflows between October and December forced the Central Bank to make a $193.1m (Shs709.2b) draw down from the reserve account, according to Bank of Uganda.
The draw down sought to avail dollars to importers, whose appetite for the unit has been growing since lifting the lockdown, amid a widening current account deficit.
Uganda’s current account deficit, which is also known as the value between exports and imports, has been growing with mounting demand from importers of different goods and services.
Therefore, during the period under review, the Central Bank sought to avail more dollar in supply to finance the increased import bill.
“During the quarter under review, the capital inflows received were insufficient to finance the widened current account deficit; leading to a draw-down in reserve assets of $193.1m,” the Central Bank monetary policy report for the period ended December reads in part.
For instance, the report noted the stock of reserves as of October stood at $3.8b (including valuation changes), holding an equivalent of 4.9 months of future imports.
However, the report said, the reduced inflows are likely to be moderated by a rise in remittance receipts often associated with the festive season and a slight pick-up in travel receipts expected following the opening of the airport.
The report also noted that foreign direct investment inflows are likely to remain subdued in the wake of the 2021 elections coupled with the weak global economy. However, the country, the report notes, is expected to attract additional donor inflows related to Covid-19 donations as well as payouts from existing project loans.
The capital account gives a summary of the expenditure and income for a country, and a summary of the net inflow of both private and public investment into an economy.
The report also notes that the decrease in foreign exchange could have been driven by a 78.1 per cent reduction in inflows observed through other investment, specifically, budget support loans which reduced to $215.4m (Shs791.1b) from $1.2b in the previous quarter.
The Central Bank also said although the capital account balance increased by $22.4m to $35.6m for the quarter to October, relative to $13.1m in the previous quarter, the financial account surplus reduced by $973.9m to $428.7m in the quarter to October from $1.4b recorded in the previous quarter.
Broadly, Bank of Uganda said the external sector continued to strengthen in the 12 months to October, reflecting improvements in the financial account.
Over the period, the Central Bank said, preliminary data indicated that the overall balance of payments recorded a surplus of $690.2m, up from the deficit of $45.8m in the 12 months to October in 2019.
widening gap between value of exports and imports
During the period between October to December, the current account deficit, also known as the value of earnings between exports and imports, widened by 14.6 per cent (or $351m) to $2.748b, up from a deficit of $2.397b in the 12 months to September 2019. This was largely due to the widening of the services account deficit and projections are forecasting further deterioration on account of a rise in the import bill linked to the festive season. Preliminary data indicates that the current account deficit widened by $322.0 million to $998.3 million in the quarter to October 2020, primarily due to deterioration of the goods and services deficits in the quarter under review, relative to the previous quarter.
No comments :
Post a Comment