The Bank of Uganda has issued a sharp warning that speculative dollar buying is aggravating severe pressure on the Ugandan shilling, complicating official attempts to stabilize the national currency. In response to the worsening macroeconomic environment, the central bank’s aggressive monetary policy is now being backed by sweeping fiscal cutbacks, as the government moves to halve discretionary spending across state ministries and public agencies.
Adam Mugume, research chief at the Bank of Uganda, pointed out that surplus local-currency liquidity in the financial system has enabled both private investors and commercial businesses to hoard US dollars. This speculative accumulation has severely blunted the impact of targeted foreign-exchange interventions.
“The speculative side seems to be stronger than the fundamental real trade,” Mugume noted, highlighting how market behavior has decoupled from underlying commercial demand.
To reinforce monetary tightening and rein in mounting inflation, the Finance Ministry has slashed planned operational spending for the October–December quarter of the 2026/27 financial year by nearly UGX3 trillion ($682 million). Under the new directives, government entities must immediately cut expenditure by 50% on non-essential items, including travel, fuel, workshops, and administrative entertainment.
Ramathan Ggoobi, Permanent Secretary and Secretary to the Treasury, confirmed that the strict spending limits are designed to complement central bank liquidity absorption. Ggoobi also urged Ugandan households to adjust to tighter economic reality by curtailing unnecessary travel and substituting imported foodstuffs with locally produced alternatives. Despite the widespread budget cuts, the Treasury clarified that core allocations for priority growth drivers—including agriculture, industrial development, tourism, and science and technology—remain fully protected.
The financial measures follow unprecedented volatility in the local foreign-exchange market. On October 23, the shilling briefly plummeted to UGX4,500 against the US dollar—its weakest nominal exchange rate since 1993—before closing at approximately UGX4,429 per dollar according to official Bank of Uganda counter rates.
Analysts point to multiple structural pressures driving the currency’s decline. Enock Nyorekwa Twinoburyo, chief economist at the Uganda Bankers’ Association, noted that net foreign-exchange demand from the energy sector jumped to $620 million in the quarter ending September, up from $360 million during the same period last year, driven primarily by elevated international crude oil prices. Stephen Kaboyo, managing partner at Alpha Capital Partners, cited significant offshore capital withdrawals from government debt securities alongside high energy import bills, warning that central bank dollar sales alone cannot resolve the deep trade and liquidity imbalances.
In an effort to stem capital outflows and curb inflation, the Bank of Uganda raised its central bank rate by 225 basis points to 12% on October 14. This followed an earlier decision to hike commercial banks’ cash reserve requirements from 11% to 13.5%. Citing tighter credit conditions and rising energy expenses, the central bank also lowered its projected GDP growth forecast for the 2026/27 fiscal year to between 6% and 6.5%, down from an earlier projection of 7% to 7.5%.
Despite President Yoweri Museveni’s public stance against depleting foreign-exchange reserves to defend the currency, the central bank re-entered the forex market on October 22 to sell unannounced quantities of dollars after initial market stabilization stalled. Uganda’s foreign exchange reserves stood at $6.52 billion at the end of August—representing 3.6 months of import cover (excluding oil project imports)—which remains below the central bank’s target of 4 months. Mugume emphasized that while reserve levels remain adequate, policymakers prefer draining excess shilling liquidity directly rather than relying on sustained dollar interventions.
