In September I argued that we should brace for a difficult six months as higher fuel prices and disruptive weather work their way through the economy. The picture has now been complicated by the slump of the shilling against the US dollar.
We have written many times this year about vulnerability of being import dependent especially on fuel and there is reason now to be concerned about what the new status of the shilling means for the average family. Many of us are feeling the heat.
At the beginning of this month the shilling fell to a record low of about UGX 3,970 to the US dollar. Within days it had gone through UGX 4,000, with banks now quoting around UGX 4,020. It is possible on the street to get cheaper dollars, but this now depends on one’s network and access. Consider that in March the shilling was priced at UGX 3600 on average. It means it costs now 11% more in shillings for every dollar. This is a full-on melee on the shilling.
Let us illustrate it this way.
If you are an investor planning on spending say USD 1 million on machinery; at UGX 3600, the cost would be 3.6 billion shillings. At the current rate of UGX 4000, you need UGX 4 billion. It is a significant chunk of change and has many implications for individuals, companies and businesses. As of the writing of this article, Ms Proscovia Nabanja, the head of the National Oil Company told Members of Parliament that imported fuel will be repriced because of the higher costs abroad but also because oil marketing companies need more shillings to buy dollars to pay for the already costlier fuel (in the last piece we looked at the crude oil prices and argued we would be better off with our own refinery. It is a fact, but we must add that the prices of refined products which we import has also gone up). Higher prices applies to all imported economic goods especially machinery, vehicles, chemicals such as fertilizer, industrial equipment and essential medicines. The new costs will in turn be passed on to consumers and customers.
The new status of the shilling is well, new.
Until recently there were many headlines about how the Uganda shilling was one of the best performing ones on the continent. But things change and sometimes that change is fast and furious. In the present case, at least theoretically, Ugandan demand for foreign currency is at an all-time high as it rumps up economic activity to put the country at a pace of a 10-fold growth. This is in addition to normal demand for an import heavy economy which is also servicing a large and growing external debt. In good times steady foreign investment, robust exports, high remittances from diaspora etc would referee the shillings and balance demand versus supply.
This in fact was the story of 2025. Major inflows allowed the Central Bank to accumulate significant foreign reserves (at 6.1 billion dollars currently).
But these are times when white cockerels must be slaughtered and their blood spattered around to ward off curses because every day comes with new challenges. Friends in the hospitality business (tourism, hotels and travel) now just dread checking their phones because God forbid Kenya announces, as it did, an Ebola case with Uganda catching strays amidst one of the longest travel restrictions to significant countries in recent memory.
The United States issued a Level 4 “Do Not Travel” advisory and barred entry to most foreign nationals who had recently been in Uganda. That ban was renewed in September to run until 11 October. I run into a former ranking member of cabinet and businessman who said he was unable to travel to the United Nations General Assembly last month for official engagements and could neither travel to the Gulf for business meetings ( I won’t write here who he blames) but Canada has suspended visas and permits for Ugandan residents until the end of November while the United Arab Emirates stopped issuing visas to Ugandans in June and announced lifting of the suspension only at the end of September though travel has not resumed.
Now Uganda earned about $1.86 billion from tourism in 2025, and the advisories were made just before the June to August gorilla-trekking season. Many operators reported cancellations within days, KLM suspended its Entebbe flights and international conferences moved elsewhere. For context air travel via services like Aerolink during this season sometimes earns more than the national airline. Between an estimated 100,000 and 160,000 Ugandans work in the UAE, sending home millions of US dollars a year but recruitment for new jobs there stalled for almost four months. In practice many of these residents spend more when they return on their vacations to visit family and friends and check on their investments. This has not been possible for months. The Ebola situation has also meant Uganda imposing a border closure with DRC, a key trade corridor of approximately US$ 1 billion a year, further constraining the economy.
As we can see global wars, politics and competition have narrowed the filters for shocks at home because some of the pressure has now compounded. Amidst the energy shock we have discussed here before (there is also the high yield US treasury bond that is drawing international capital away), Uganda has to compete for dwindling foreign capital in a volatile global marketplace when demand for the dollar has gone up significantly especially by oil marketing companies and manufacturers.
(above Soft Ground Wrestling)
The public debate on the state of the shilling is also shaping (Ugandan style) the psychology of the present tense economic situation. Players will try and game the future by buying and keeping dollars today if they think the shilling will be worse off next week. When big enough bets of this kind are placed it will push demand further and worsen the exchange rate of the shilling for everyone.I suspect this is what is happening this week.
It is particularly depressing to think of borrowers who have dollar denominated loans that are due in this period. I had a call with a central banker about this situation which I think amongst others requires that Bank of Uganda responds, if only to reassure markets. He said the Bank was actively reviewing the situation and had the capacity to intervene using several tools at its disposal (selling dollars, raising interest rates or increasing the cash reserve requirement for Banks so as to reduce the supply of the shilling etc) but my main argument is that calming the storm also requires a clear explanation of the situation. Already fingers are pointing here and there (online today I tried to explain that the Sovereignty Act did not directly affect the present situation even if no doubt it is one of the many compounding factors limiting inflows in some sectors).
Worse things can happen if this storm is not a simple adjustment driven by temporary events but something sustained. Foreign bond investors who hold significant stake in government securities could reduce their position if their investment is eroded by a further loss of the value of the shilling and there are already early signs. An optimist such as I retreats to the lessons learned and hopes that sensible actions follow this recent turbulence (one is that exporters earning in dollars should now show the rest why this is a good thing especially in coffee as well as those earning in foreign exchange from domestic economic activity).
Uganda is also close to the point where one of its largest drains on foreign exchange (heavy investment in the oil sector) should become a major source of it. Commercial oil production will bring dollars in, and the heavy import bill for building the sector should begin to fall. The IMF expects the start of production to bring a lasting improvement in Uganda’s fiscal and external balances ( positive news coming in this regard as I may revise the oil readiness and production timeline published here by bringing it forward after speaking to oil executives).
However (sigh) the handling of some policy such as the Sovereignty Bill (now law), Uganda’s Ebola response, certain aspects of geopolitics that interfere with remittances, investment and cross border flows leave a lot to be desired. Further still, like bad signs, this currency depreciation, the travel restrictions, dry and unpredictable weather and general tomfoolery in the administration of public affairs do not portend well for a country navigating a political transition as well as building on a vision of major economic transformation.
Fewer government officials these days speak of the 10-fold growth which ultimately requires significant foreign capital even more than is earned from domestic production. How challenges are met is not just a sign of resilience but of “capacity”; that quality for which all sovereignty is judged. Uganda will still enter the coming months with strong growth, stronger reserves than a few years ago and the prospect of significant oil earnings.
But who knows what the headlines should bring tomorrow?
