What you need to know:
At least $52m was drawn out of Uganda in the second half of the 2021/22 financial years, completing a combined draw out of $274m in the full year ended June
This, according to Bank of Uganda, was almost double the $145m, which the country earned from foreign exchange thus exposing the shilling to further volatility during the period.
“There has been a shift in the direction of portfolio flows to net outflows of $274m, from net inflows of $145m the previous year. In the second half of 2021/22 financial year, offshore withdrawals of $52m were observed. Other investment net inflows contracted by 14 percent,” the Central Bank said, noting that a decrease in loan disbursements amid increased external debt service payments, was also observed.
The shilling has been under pressure amid an increase in dollar demand due to a rapid surge in the import bill yet dollar outflows continue to grow due to exiting offshore investors and capital outflows.
For instance, Bank of Uganda noted that in the six months to June, offshore investors withdrew $52m form government papers, putting more pressure on the shilling, which has since the beginning of the year depreciated by more than 6 percent.
Bank of Uganda data also indicates that during the period, the balance of payment recorded a surplus of $51m but was a 79 percent contraction from a surplus of $241m recorded in the same period in the 2020/21 financial year.
The Central Bank has been intervening in the foreign exchange market to control the movement of the shilling against the with a dollar intervention of $565m in the period to June.
The volatile economic environment has also impacted gross reserves, reducing them to $4.099b worth of 4.2 months of import cover as of June, from $4.154b worth of 4.3 months of imports as of June 2021.
Going forward, the Central Bank noted that the current account deficit is projected to remain elevated at 8 percent of gross domestic product in the 2022/23 financial year due to a faster than planned expansion in imports and lower export earnings, amid heightened global inflation.
Bank of Uganda has also expressed concern, noting that the high cost of debt service amid exchange rate depreciation pressures will further constrain the surplus but said the strong foreign direct investments inflows associated with oil sector will provide relief to an already fragile situation.