The exchange rate of the US dollar against the Ugandan shilling has reached record levels, causing concern among financial experts and businesses. As of September 18, 2023, the US dollar was trading in the range of 3720 to 3760 Ugandan shillings at most forex bureaus in Kampala. This marks a significant increase from the 3500 shillings per dollar rate observed in August.
Several factors have been cited as contributing to this sharp rise in the US dollar’s exchange rate. Financial experts point to the World Bank’s decision to freeze funding to Uganda, global oil price fluctuations, and speculative trading activities by forex traders. This increase in the exchange rate poses a potential risk of cost-push inflation.
In practical terms, this means that individuals and businesses need more Ugandan shillings to purchase one US dollar. For instance, to acquire one US dollar, you would need over 3800 Ugandan shillings.
Stephen Kaboyo, the proprietor of a forex bureau, has expressed that the financial market is currently facing challenges due to various factors affecting the exchange rate.
Financial experts believe that the issue extends beyond Uganda, as other East African countries are also grappling with a dollar shortage. Kenya, Tanzania, Rwanda, and Burundi, among others, have seen significant reductions in their forex reserves.
Shadrack Kolya, another financial expert, has warned that while the immediate impact might not be severe, the long-term consequences could worsen the situation.
On a more positive note, the depreciation of the Ugandan shilling could make Ugandan exports more competitive on the international market.
In light of these developments, experts advise businesses to minimize their risk exposure to foreign exchange losses. While hedging is a complex strategy requiring investment bankers or financial experts, using foreign exchange-denominated accounts or dollar accounts for transactions is seen as a favorable option for minimizing currency risks.