Shilling crush: Government calls on Ugandans to cut unnecessary movement to save fuel

Government has urged Ugandans to cut unnecessary travel and reduce the number of vehicles they use as the country grapples with fuel shortages, rising pump prices and a sharp fall in the Uganda shilling.

Defence minister Kiryowa Kiwanuka made the appeal on the floor of Parliament as MPs debated the weakening currency and its link to growing pressure on fuel imports.

Kiwanuka said Uganda remains heavily dependent on imported petroleum products and should consider temporary austerity measures to reduce consumption.

“The public needs to be notified of the reality of what we are dealing with, that we do not have any product of our own and probably it is about time that we start thinking about austerity measures as far as the use of the product is concerned,” he said.

“So, we encourage people not to do unnecessary movements, for some of us here in the House who are using two to three cars, maybe it is about time we started pooling the cars so that we can reduce the consumption.”

He added that families sending several vehicles onto the road each day should also reconsider their habits.

“If you have a family which releases four vehicles from the compound in a day, it is time we start thinking that maybe we can use one car,” he said.

His remarks come as the shilling trades at record lows against the US dollar.

The local currency crossed the Shs4,000 mark this week, with commercial banks quoting it at about Shs4,045 buying and Shs4,055 selling on October 6. That followed weeks of sustained depreciation driven by heavy dollar demand and limited inflows.

Bank of Uganda says the shilling is market-determined and that its recent weakness reflects both global and domestic pressures.

Central bank officials have pointed to stronger global demand for the dollar, changes in international interest rates and capital flows, weaker export earnings from commodities such as coffee, higher import costs and heavy demand for foreign exchange from manufacturers, telecom companies and energy importers. 

The energy sector has emerged as one of the biggest sources of pressure.

Reuters reported last week that Uganda’s currency had hit a record low as fuel importers increased dollar purchases amid global supply concerns and instability linked to conflict in the Middle East.

Oil prices have also remained elevated. Brent crude settled above $100 a barrel this week as markets weighed supply risks from the Middle East and other global disruptions. 

The higher oil bill means Ugandan importers need more dollars to bring petroleum products into the country. That raises demand for foreign currency and puts further pressure on the shilling.

The problem has been compounded by end-of-year demand from traders and manufacturers stocking up on imports. Forex dealers say some businesses have brought forward dollar purchases, adding to pressure in an already tight market. 

Foreign investors have also been selling local bonds and moving money into perceived safer assets, creating another source of dollar demand. 

The shilling has lost more than Shs300 against the dollar since March, when it traded at about Shs3,604. By early October, commercial bank rates had moved above Shs4,000. 

Bank of Uganda has sought to reassure the public that it has tools to contain excessive volatility and maintain an orderly foreign exchange market.

“The Uganda shilling is market-determined, with its value influenced by the forces of supply and demand in line with Uganda’s liberalised foreign exchange market,” Bank of Uganda communications director Kenneth Egesa said this week. 

The central bank has already tightened liquidity conditions this year. In May, it raised the Cash Reserve Requirement to 11 per cent from 9.5 per cent as part of efforts to reduce excess money in the banking system.

However, the weakening shilling is beginning to feed into household costs.

Petrol and diesel prices in parts of Kampala are approaching Shs7,000 per litre, increasing transport and production costs for motorists, traders and manufacturers.

A weaker shilling also makes imported goods more expensive because businesses need more local currency to buy the same amount of dollars.

That exposes consumers to higher prices for fuel, medicines, machinery, vehicle spare parts and other imports.

Kiwanuka told MPs that leaders should now help the public understand the scale of the problem and encourage conservation while authorities deal with the shortage and foreign exchange pressure.