The Uganda shilling will this July hit Shs4000 mark against the dollar, economists from Barclays Africa Group predict.
This June the shilling dropped to over Shs3,800 against the US dollar and market analysts attributed the depreciation to dollar demands from corporations that were reporting their financials in preparation for the end of the FY2017/18.
Presenting a forecast by the Barclays Africa Group, economist Samantha Singh said that the shilling will continue to lose against the dollar due to external pressures.
The dollar which had weakened made a huge comeback in May this year. The US Dollar Index, which measures the value of the US currency against major global currencies like the euro and the yen, is up 2.69% year-to-date, as at June 22nd. In the last three months, it has risen 5.78%. Analysts say that it may remain on a slight increase through the year.
Singh said that Uganda will also continue to feel some base effects from the dipping of the economy when inflation rose due to a drop in agricultural returns. The country suffered greatly in 2016 from changing weather patterns which caused drought in parts of the country and affected the sector which contributes 25% to national GDP. An increase in pests and diseases also hit the sector hard.
In addition to that, global oil prices have also been on an upward trend this year affecting the price of fuel in the country.
“Bank of Uganda is likely to leave the policy rate at 9% for the remainder of the year,” Singh told the breakfast meeting at Kampala Serena Hotel on Thursday.
Uganda’s foreign exchange reserves are equivalent to 4.9 months of import cover, and this might reduce any likelihood that the central bank will intervene on the currency.
“They might allow the currency to move a bit more,” Singh said.
Barclays predicted that GDP growth will go over 6% and said that the finance ministry was “strangely conservative” in its own forecast. Growth will be due to improving weather conditions that will favour returns from agriculture.
Singh expressed a lot of concern on Uganda’s debt servicing costs. Uganda’s recently read budget has a 15.6% interest-to-revenue which is expected to average 18% between 2018 and 2021.
Most of Uganda’s debt is currently targeting national infrastructure in communications and transport, and mining and natural resources in anticipation for the first oil. Foreign Direct Investment stood at $742million for the year ending February 2018 – mostly from United Kingdom, United Arab Emirates, Australia, Netherlands and regionally, from Kenya.
Uganda has also borrowed heavily domestically, with about 32.5% of domestic debt due in 2018.
Debt servicing costs will be 52.8% of total revenue in this financial year, in comparison to Kenya’s which will 40% of total revenue.
“Debt is good, but Uganda will be spending more than half of its total revenue on servicing costs,” Singh said.