Museveni says crashing Shilling good for exporters, rejects BoU dollar reserve intervention

President Yoweri Museveni has rejected the idea of using Uganda’s foreign exchange reserves to prop up the shilling, reassuring that the currency’s sharp fall is temporary and could benefit exporters.

As the shilling continued to trade at record lows against the US dollar, Museveni revealed that he had blocked the forex intervention proposal from Bank of Uganda Governor Michael Atingi-Ego

The central bank, he said, should not “squander our dollars” for the sake importers. 

The shilling has fallen by more than 11 per cent against the dollar this year. Commercial banks quoted it at about Shs4,090 buying and Shs4,100 selling on October 8, compared with Shs3,960/Shs3,970 a week earlier. 

Strong dollar demand from importers, energy companies and telecom firms is expected to keep the currency under pressure. 

In his Independence Day address from State House Entebbe, the president blamed the depreciation on rising global fuel prices, weaker export earnings, capital outflows and reduced tourism receipts.

Museveni said one of the biggest shocks had come from conflict in the Gulf, which has pushed up international fuel prices.

“Have you not been hearing about the wars in the Gulf? How are people surprised about the high cost of fuel?” he said.

He said Uganda had initially been shielded from the full impact because of its fuel supply arrangement with Vitol.

Museveni said Vitol had agreed to supply Uganda at lower prices for a period after the country changed its fuel procurement system and reduced reliance on Kenyan middlemen.

“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 said it would be unfair to expect the company to continue absorbing losses as global prices rise.

Museveni also pointed to declining prices for some exports, particularly coffee, as another source of pressure on foreign exchange inflows.

“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,” he said.

Bank of Uganda has given a similar explanation. It says the depreciation reflects a stronger dollar, changes in global interest rates and capital flows, weaker prices for some Ugandan exports, higher oil and shipping costs and strong domestic demand for dollars to finance imports.

Museveni also blamed portfolio investors who have shifted money from Ugandan government securities towards markets offering higher returns.

“Those portfolio investors are quite opportunistic. They go where money is highest,” he said.

Despite the fall, Museveni argued that exporters could benefit because each dollar earned abroad now converts into more shillings.

“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.

He acknowledged that importers face the opposite effect because they must spend more shillings to obtain the dollars needed to pay foreign suppliers.

Dollar reserves intervention rejected 

The central bank has responded by tightening shilling liquidity. It raised the cash reserve requirement to 13.5 per cent effective September 24 and has maintained the Central Bank Rate at 9.75 per cent.

However, Museveni said he opposed using the country’s foreign reserves simply to force the dollar price lower.

“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,” he said.

He said Uganda had about $6 billion in reserves but should preserve them rather than use them to finance unnecessary imports.

“It is not correct to sell them to people who want to import perfumes and dead people's hair,” Museveni said.

“Please minimise the imports. This is the answer. Import less, and buy more local goods.”

Bank of Uganda’s stated policy is also not to defend a specific exchange rate. It says intervention should instead limit excessive volatility and keep the foreign exchange market orderly. 

The central bank has maintained that the shilling remains market-determined and that the forces driving the current depreciation are largely temporary.