Tuesday, June 2, 2009

Uganda shilling continues to fall against dollar

Written by AGGREY NSHEKANABO - Saturday, 02 May 2009

KAMPALA, UGANDA - The Uganda shilling continued to fall, hitting a low of UShs2,250 against the dollar last week.

As a result, East African Business Week has learnt, some indigenous companies especially those listed on the stock exchange are now remunerating their board members in dollars.
In the transport sector, some airline agencies and companies no longer accept Ugandan shillings. The airline companies are now instructing their customers to first convert the shillings to dollars.

Formerly, airline companies had their fixed exchange rates and if anyone walked in with their Ugandan shillings, the airlines would take them at their exchange rate which was usually above the market rate.

Asked whether money market players are losing confidence in the shilling, Dr. Henry Opondo, the Director Financial Markets at the Bank of Uganda, claimed Uganda cannot reverse the policy of demand and supply to determine the forex market rates.

"It is a floating foreign exchange market where demand and supply allocate the rate. We cannot come in to determine the rate. That is reversal of policy and we must be consistent with the liberal undertaking that we chose to pursue," Opondo said last week.

He, however, said the central bank sees a smooth exchange regime that is not out of the ordinary.

"I want you to know that we are not out of the woods and wounds of the global recession yet. Remittances from our Ugandan nationals have dwindled. Also, NGO support has reduced and there are exits from offshore investors in treasury bills. All this puts pressure on the Ugandan shilling," Opondo explained.

He added that additional pressure comes from unreduced imports, implying that there are dollar exits.

"You remember at one time, the shilling had gained up to UShs1,600 against the dollar and exporters cried out to the central bank for intervention. Now it is importers who are crying out loud. As a central bank, if we were to interfere every time, importers and exporters cry out, we would not be serious. What we are seeing now is a flexible, stable, smooth floating money allocation," Opondo said.

A mini survey conducted by East African Business Week at forex bureaus in Kampala revealed the shilling is continuing to perform poorly across other currencies. At the beginning of April, the shilling was trading at 2,135 against the dollar yet at the end of the same month; the shilling was averaging at 2,250.