How Oil Dollar Inflows Stabilized Shilling

The inflow of oil revenues in U.S dollars has helped stabilize the Uganda Shilling against the world major currencies on two important occasions.

On 16th June 2011 Bank of Uganda, pharm the monetary regulator injected USD$ 20million into the money market to save the shilling that had weakened by 5.1 percent in 5 months and ranked by Bloomberg as the fourth worst performing currency in Africa.

The shilling that was averaging at 2,432 against the dollar was only ahead of Kenyan shilling, Sudanese pound and Tanzanian shillings in performance in the continent.

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A month later, the industry forecasts indicated that the intervention made no significant  change.

In mid-July, President Yoweri Museveni, then Finance Minister, Maria Kiwanuka and BOU Governor, Prof. Emmanuel Mutebile met to find a way forward to save the country’s currency.

The meeting agreed that the USD$ 449million from oil money that was being kept in dollars be bought by BOU and sent to foreign reserves.

A BOU internal memo of 20th July 2011 circulated at the Central Bank by the Deputy Governor, Luis Kasekende, communicated the meeting resolution.

“Following a consultative meeting between H.E. the President, Honorable Minister of Finance and the Governor, it was agreed that the oil tax revenue of USD$449,424,960.00 be transferred from the government ring fenced account to BOU reserves,” part of the memo obtained by ChimpReports, said.

On 21st July, BOU effected the transaction and a shillings equivalent amount of 1.6trillion was put in the Government of Uganda Oil Revenue account number 00330032800004.

By 20th January 2012, the shilling that had declined against the dollar peaking at 2,799 in September 2011, regained to 2,394.

The second occasion was in October 2014 when the shilling was trading against the US dollars at average 2,646.

On 1st October 2014 the Ministry of Finance Permanent Secretary and Secretary to the Treasury, Keith Muhakanizi wrote to BOU directing the institution to again buy the accumulated USD$ 171.6m from the Uganda Oil Revenue dollar account to replenish the reserves.

“Please note that the purpose of keeping portion of the Uganda Oil Revenue Account in the United States Dollars was to hedge against the depreciation of the Uganda shillings. However in order to boost BOU Reserves so as to enable future containment of unanticipated shocks, this is to authorize you to purchase portion of the USD$ 171.6m Oil Revenue account holdings in order to meet both objectives,” part of the letter obtained by this website, said.

Transaction was effected the next day and the shillings equivalent of 450bn was transferred to the oil money shilling account. 

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