Ugandan Shilling Appreciates for 14 Consecutive Months Amid Strong Economic Fundamentals

The Ugandan shilling has been on a steady path of appreciation for the past 14 months, reflecting the country’s strengthening economic position and growing investor confidence. According to Bank of Uganda (BoU) Governor Michael Atingi-Ego, this upward trend is not the result of direct central bank intervention but rather a sign of strong underlying economic fundamentals.

This development comes at a time when Uganda continues to pursue economic reforms aimed at maintaining macroeconomic stability, boosting exports, and attracting foreign investment.

What Is Driving the Shilling’s Appreciation

Governor Atingi-Ego attributes the local currency’s consistent growth to a combination of domestic and global factors. Among the most significant contributors is the robust performance of Uganda’s exports, particularly in coffee and cocoa, which have generated substantial foreign exchange inflows. The surge in global coffee prices has further strengthened Uganda’s earnings from these exports, making the shilling more resilient.

Additionally, the Bank of Uganda’s prudent monetary policies have helped maintain price stability and investor confidence. These policies, combined with ongoing reforms in the foreign exchange market, have made it easier for businesses and investors to access and trade foreign currency, thereby improving market efficiency.

Another key factor is the increase in offshore investor inflows into Uganda’s financial markets. More foreign investors are buying Ugandan government securities and participating in local markets, which has boosted demand for the shilling. On the global stage, the U.S. dollar’s relative weakness over the past year has also supported the currency’s appreciation, making it stronger compared to other regional currencies.

A Market-Determined Exchange Rate Policy

Governor Atingi-Ego stressed that Uganda follows a market-driven exchange rate system, meaning that the value of the shilling is primarily determined by the forces of supply and demand in the foreign exchange market.

He clarified that the Bank of Uganda has not actively intervened to influence the exchange rate during this period. “The currency has indeed appreciated for about 14 months. But let me clarify — the Bank of Uganda did not intervene during that period. Our last sale-side intervention was in June 2022,” he explained.

By choosing not to interfere artificially, the BoU avoids creating imbalances that could lead to long-term economic instability. The Governor explained that supporting exporters by weakening the shilling deliberately would risk higher inflation and increased interest rates, which could negatively affect the broader economy. Instead, the central bank’s approach focuses on preserving financial stability and allowing market fundamentals to shape exchange rate movements.

Implications for Exporters, Importers, and Consumers

The sustained appreciation of the shilling carries mixed implications for different sectors of the economy. For exporters, a stronger currency can reduce profit margins because their earnings in foreign currencies convert to fewer shillings. However, the benefits for importers and consumers are considerable.

A stronger shilling reduces the cost of imported goods, lowers foreign exchange pressures, and helps control inflationary risks. This means essential commodities, fuel, and raw materials that Uganda imports become relatively more affordable, which in turn helps stabilize prices in local markets.

Furthermore, consumers experience improved purchasing power as the overall cost of living is cushioned from sharp price increases that often result from a weaker currency. For businesses that rely on imports, reduced costs can also improve profitability and competitiveness in both domestic and regional markets.

Investor Confidence and Economic Outlook

The 14-month appreciation of the Ugandan shilling signals a growing confidence among both local and international investors. With a stable currency, prudent monetary policies, and rising export earnings, Uganda is becoming an increasingly attractive destination for foreign investment.

This currency strength is also an indicator of macroeconomic resilience. It demonstrates that Uganda’s efforts to manage inflation, improve fiscal discipline, and diversify its economy are paying off. While challenges remain, particularly for exporters affected by a stronger shilling, the overall economic outlook is positive.

According to the Bank of Uganda, maintaining this momentum will require continued investment in productive sectors, supporting export diversification, and strengthening policies that ensure sustainable economic growth.

The appreciation of the Ugandan shilling over the past 14 months is a reflection of sound economic management, strong export performance, and growing investor confidence. By allowing the exchange rate to be determined by market forces and avoiding unnecessary central bank intervention, Uganda is prioritizing long-term stability over short-term gains.

For importers, consumers, and investors, this trend provides significant benefits through lower foreign exchange pressures, controlled inflation, and a more attractive business environment. While exporters face tighter margins, the continued growth of key sectors like agriculture, manufacturing, and services will play a critical role in balancing the economy’s needs.

Uganda’s economic progress highlights the importance of maintaining strong fundamentals, prudent policies, and market-driven strategies as the country positions itself for sustained growth in the years ahead.