US dollar likely to drop to Shs 3,000 by next year, predicts Mwenda

The US dollar could fall to around Shs3,000 next year if Uganda starts exporting oil as planned and global crude prices remain high.

This is according to Journalist and political commentator Andrew Mwenda, who predicts that in a few months, Uganda will start to receive a major influx of dollars once commercial oil production begins, potentially reversing the sharp depreciation that has pushed the shilling to record lows in recent months.

“If tourism resumes and if we begin exporting oil and assuming that crisis in the Middle East continues, and if the conflict in Russia prevents it from putting as much oil as it used to on the global market; and then if the Strait of Hormuz remains closed, there will be a huge deficit on the market and prices could shoot up to $200 a barrel,” Mwenda said.

“When Uganda starts producing 240,000 barrels by June next year, we will have a huge influx of dollars. The dollar could fall up to Shs3,000,” he said.

The Uganda shilling over the past weeks has struggled through one of its worst periods in decades.

The currency briefly touched about Shs4,500 against the dollar in late October, its weakest level in more than 30 years, before recovering. 

On November 2, the shilling traded around Shs4,275 to Shs4,285 after recovering from an intraday low of about Shs4,305.

The depreciation has also contributed to rising prices, with annual inflation climbing to 5.8 per cent in October.

The current pressure has been linked to high global oil prices, heavy dollar demand from fuel importers and manufacturers, offshore investors withdrawing from government securities and weaker foreign exchange inflows.

Government figures show foreign exchange demand from the energy sector jumped from about $360 million in the three months to September 2025 to $620 million over the same period this year. Some of that demand has also come from imports linked to Uganda’s oil projects ahead of production.

Bank of Uganda responded to the slide in October by raising the Central Bank Rate from 9.75 per cent to 12 per cent and increasing the cash reserve requirement from 11 per cent to 13.5 per cent. It has also intervened in the foreign exchange market to contain sharp movements.

Mwenda, however, believes the picture could change dramatically when Uganda becomes an oil exporter.

Uganda National Oil Company says commercial oil production is expected to begin before the end of June 2027. The East African Crude Oil Pipeline, which will carry crude from western Uganda to Tanzania’s Tanga port, was reported to be about 92 per cent complete in October.

The Tilenga and Kingfisher projects are expected to produce up to about 230,000 barrels per day at peak, slightly below the 240,000 barrels cited by Mwenda. UNOC has already appointed Vitol to market Uganda’s Pearl Sweet crude internationally.

Mwenda warned, however, that a flood of oil dollars could create another problem.

“Ugandans should even worry that with an increasing oil crisis, we shall have a lot of dollars coming in without anything to use it for and soon Ugandans will be complaining,” he said.

a sharp appreciation of the shilling, he said,  could hurt manufacturers and other exporters by making Ugandan products less competitive.

“It could be a disaster for exporters because oil may crowd out all this manufacturing that we have been doing,” Mwenda said.

He argued that the current expensive dollar has some advantages for local industry because it discourages imports while increasing the value of export earnings when converted into shillings.

“In order to drive manufacturing in Uganda we need a very expensive dollar. An expensive dollar makes locally made goods attractive to Ugandans. An expensive dollar reduces our appetite for imports but increases our export earnings,” he said.

Mwenda warned that if oil becomes the dominant source of foreign currency without corresponding growth in other productive sectors, Uganda could face what economists call the “Dutch disease”.

The phenomenon occurs when large foreign currency earnings from natural resources strengthen a country’s currency, making its other exports more expensive and imported goods cheaper.

“But if the export earnings are coming from fuel without any other dynamic activities, it can make the dollar very cheap, which is called the Dutch disease, encourage imports, and kill off all the other exports,” Mwenda said.