African Reserves

Uganda: increase in import bill affects foreign exchange reserves

The Bank of Uganda drew $ 216.8 million from the reserve account during the quarter ended in February to finance a growing deficit resulting from the growing import bill.

This is due to growing demand for imports against a backdrop of slowing dollar inflows and low export earnings.

The levy therefore led to a slight reduction in the duration of the hedging of foreign exchange reserves for imports, from 4.4 months to 4.3 months.

According to the Bank of Uganda’s Monetary Policy Report, the estimated reserve stock for the quarter ended in February fell to $ 3.5 billion (4.3 months of import coverage) from $ 3.6 billion. dollars (4.4 months of import coverage) in November 2020.

As a result, the Central Bank noted, the balance of payments recorded a deficit growth of $ 216.8 million, compared to $ 96.7 million recorded in the quarter ended November 2020 due to insufficient inflow to compensate. the current account deficit.

However, the Bank of Uganda noted that the country’s foreign exchange reserves were still within the East African Community’s target of 4.5 months of import coverage.

Foreign exchange reserves, which are usually held in foreign currencies, consist of different assets, which can be held in international currencies such as the dollar, euro, pound or Japanese yen.

The Central Bank manages foreign exchange reserves to achieve a number of macroeconomic objectives, including the maintenance of confidence in the country’s monetary and exchange rate policies and financial markets, as well as the guarantee that the country has of sufficient capacity to meet its external obligations.

During the period, the central bank said, the current account deficit, which is the difference between a country’s exports and imports, worsened to grow 24.9 percent to $ 1.9 billion. dollars, noting that it is likely to deteriorate further as rebounding domestic demand continues to boost demand for goods and services.

However, the Bank of Uganda noted that a gradual recovery in travel (tourism) receipts and a pickup in foreign direct investment inflows, especially in the oil and gas sector, are expected to close the gap in the medium term.

Growing trade deficit

According to the Bank of Uganda, during the quarter ended in February, the trade deficit, which is the amount by which the cost of a country’s imports exceeds its exports, increased significantly to reach $ 666.3 million from $ 8.1 million in November 2020, due to an increase in imports, which more than offset the increase in export earnings.

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