Uganda's exchange-rate debate has a long memory, even if economic policy sometimes appears to have a short one. Every time the shilling comes under pressure, the country revisits familiar arguments: the strength of the US dollar, speculative activity, government spending, central bank intervention and the cost of defending the currency.
Yet the exchange rate keeps moving. From around Shs2,000 to the dollar in the early 2010s, to Shs3,000 in 2015, and now beyond Shs4,000 in October 2026, the direction of travel tells a story about an economy whose appetite for foreign exchange has repeatedly outstripped its ability to earn it.
A review of the exchange-rate debate over the years, reveals a recurring lesson: monetary policy can manage the pace of depreciation, but a lasting solution depends on the productive capacity of the economy.
The warning signs were there
In 2011, the shilling came under intense pressure, provoking complaints from importers and calls for government intervention. The debate was already about more than the price of the dollar. It was about whether the authorities could defend a particular exchange rate when the economy was not generating sufficient foreign currency to sustain it.
In March 2015, when the dollar crossed Shs3,000, this column published “The Shilling Collapse Is Our Fault, Not the Dollar's”. The argument was not that international developments were irrelevant. The US Federal Reserve was moving towards tighter monetary policy, the dollar was strengthening globally, and commodity prices were under pressure.
But Uganda also had domestic weaknesses. Its export earnings were vulnerable to commodity-price fluctuations, while demand for imported fuel, machinery, manufactured goods and other products continued to consume foreign exchange.
The warning was that attempting to hold the dollar at Shs2,000 without the economic fundamentals to support that rate would be futile. The exchange rate could be managed, but not indefinitely divorced from the country's capacity to earn dollars.
Adam Mugume's warning: Act before inflation takes hold
An especially revealing contribution to this debate came in October 2015, when Adam Mugume, then Bank of Uganda director of research, explained the central bank's thinking on depreciation and inflation.
In an interview published by Business Vision on October 12, under the headline “Uganda Bracing Itself for More Inflation”, Mugume explained that the central bank had tightened monetary policy in anticipation of inflationary pressure. The concerns included a deteriorating balance of payments, the prospect of tighter US monetary policy and weakening foreign-exchange inflows.
The interview highlighted pressures across foreign direct investment, workers' remittances, exports and tourism, alongside rising imports. Depreciation would increase the domestic cost of imported goods and eventually feed into inflation. Waiting until inflation had surged would make it more difficult and expensive to contain.
The follow-up discussion in this column's October 2015 archive illustrates the enduring policy dilemma. Higher interest rates can support the shilling and restrain inflation, but they can also make borrowing more expensive, slow investment and constrain economic growth.
Mugume's warning remains relevant. The Bank of Uganda can influence liquidity, expectations and the pace of depreciation, but it cannot determine the country's underlying supply of foreign exchange. That depends on exports, services, investment, remittances and other inflows, set against the economy's demand for dollars.
Depreciation is not a straight line
The subsequent history of the shilling demonstrates why individual exchange-rate milestones should not be mistaken for a permanent trend.
In 2022, the dollar approached Shs4,000 as the US Federal Reserve raised interest rates aggressively to combat inflation. Higher yields on dollar assets encouraged global investors to favour the US currency, putting pressure on emerging-market currencies, including the shilling.
The shilling subsequently recovered some ground. In 2024, stronger foreign-exchange inflows, including those associated with coffee exports, helped support the currency.
These recoveries matter. They demonstrate that exchange rates respond to changing supply and demand conditions and that depreciation is not necessarily a one-way journey.
But temporary appreciation does not automatically mean that the structural problem has been resolved. A good coffee season, a surge in capital inflows or improved investor sentiment can strengthen the shilling without fundamentally changing Uganda's dependence on imported goods and external financing.
From coffee to gold: Uganda's export transformation
The story of the shilling is not one of economic stagnation. Uganda has made meaningful progress in expanding its export earnings and diversifying the range of goods and services it sells abroad.
The historical record in this column's Uganda exports archive documents the expansion of the export basket beyond traditional agricultural commodities. Fish, flowers, cement, manufactured products, electricity and regional trade have created additional sources of foreign exchange.
The transformation has continued. In “When Coffee Ruled the Uganda Shilling”, published in April 2026, this column examined the emergence of gold as Uganda's leading export earner. Coffee receipts were estimated at about $2.5 billion in 2025, while gold earnings reached approximately $6.4 billion.
Official data also illustrate the scale of the expansion. In the first eleven months of financial year 2025/26, merchandise export receipts reached $14.47 billion, up 34.4 per cent from $10.76 billion in the corresponding period a year earlier. The growth was driven principally by coffee and gold. See the Ministry of Finance's March 2026 economic performance report.
This is significant progress. In the past, the timing of the coffee harvest could have a pronounced effect on the supply of dollars in the domestic market. Gold, alongside other agricultural and non-agricultural exports, has broadened the sources of foreign exchange and altered the seasonal pattern of inflows.
It would therefore be misleading to explain the shilling's depreciation simply by claiming that Uganda is not exporting enough or that nothing has changed in the productive economy.
Diversification, however, does not eliminate vulnerability. Gold and coffee prices fluctuate, and export receipts do not necessarily translate into an equivalent increase in dollars available in the domestic market at the moment importers need them. The timing of repatriation, the foreign-exchange requirements of businesses and the movement of capital all influence the exchange rate.
There is also a new concentration risk. Gold's growing importance means that Uganda is more exposed to developments in that market. The destination of exports matters, too: a concentration of gold shipments in particular markets can leave receipts vulnerable to changes in trading arrangements and demand.
The broader discussion in this column's Uganda gold archive is relevant to the currency debate. Gold can provide a powerful source of foreign exchange, but the durability of that benefit depends on the value retained locally, the industry's structure and how the proceeds are used.
Uganda has made progress in earning more dollars. The question is whether those earnings are keeping pace with the economy's total demand for foreign exchange.
The trade deficit: Where the dollars go
The merchandise trade balance provides part of the answer. It measures the difference between the value of goods Uganda exports and the value of goods it imports. When imports exceed exports, the country must finance the gap through other foreign-exchange inflows, such as services earnings, remittances, investment, borrowing or the use of reserves.
Uganda's problem is that import demand can grow just as rapidly as export earnings, sometimes faster. In June 2026, merchandise imports rose by 33.2 per cent year-on-year to $1.88 billion, while exports increased by 11 per cent to $1.28 billion. The monthly merchandise trade deficit consequently widened to approximately $598 million. The figures appear in the Ministry of Finance's July 2026 economic performance report.
The import bill reflects more than consumer demand. Uganda imports petroleum products, machinery, vehicles, chemicals, industrial inputs and equipment needed to expand productive capacity. Some of these imports are essential to future growth and export production. Treating every import as a problem would therefore be a mistake.
The challenge is to ensure that the productive capacity created by these imports eventually generates sufficient additional income, including foreign exchange, to justify the expenditure. Machinery that enables a manufacturer to export more can strengthen the economy's external position over time. An import that produces no corresponding increase in future earning capacity can leave the country more dependent on fresh foreign-exchange inflows.
The merchandise trade balance is not, however, the same as the current-account balance. The latter also includes trade in services, primary income and transfers. Uganda may earn more from exports while paying more for freight, insurance, technical services and income accruing to foreign investors. These outflows help explain why rising merchandise export receipts do not necessarily translate into an equivalent improvement in the country's overall external position.
The IMF's 2026 Article IV assessment of Uganda highlighted the continuing current-account deficit despite strong coffee and gold exports. Investment-related imports, gold imports and a wider services-account deficit were among the pressures.
The distinction matters when explaining the shilling. The exchange rate responds not just to the value of goods crossing Uganda's borders but to the country's entire flow of foreign-currency receipts and payments, alongside capital movements and market expectations.
Uganda has made progress on exports, but the benefits are being offset, at least in part, by a substantial import bill and other external payments. The policy task is not simply to export more, but to improve the net foreign-exchange contribution of economic growth.
Why Shs4,000 now?
The move beyond Shs4,000 should not be interpreted as proof that Uganda's export strategy has failed. Rather, it demonstrates that export growth and currency stability are related but not interchangeable.
A country can earn more dollars than ever before and still experience depreciation if its demand for dollars rises faster, if its other external payments increase, or if investors shift their portfolios towards foreign currencies.
The immediate pressures include international oil prices, geopolitical uncertainty, demand for imports and the timing of foreign-exchange inflows. The longer-term issue is whether Uganda can convert its expanding export base into a sufficiently strong and dependable net supply of foreign exchange.
The shilling traded around Shs3,604 to the dollar in March 2026. By October, commercial bank quotations had crossed Shs4,000. The Daily Monitor reported the record low on October 5.
On October 14, the Bank of Uganda raised its Central Bank Rate by 2.25 percentage points, from 9.75 to 12 per cent, in response to mounting inflation and exchange-rate risks.
Higher interest rates can make shilling-denominated investments more attractive, restrain demand and help contain inflation expectations. If government bond yields rise in response to the new policy rate and market conditions, the additional return could attract demand for shillings and moderate depreciation.
However, this outcome is not guaranteed. Higher borrowing costs can discourage investment, increase the government's debt-servicing burden and constrain private-sector expansion. Nor can monetary tightening create export earnings overnight.
Who pays for a weaker shilling?
Depreciation redistributes purchasing power. Importers pay more for dollar-priced goods, and consumers face higher prices for fuel, medicines, machinery and other essentials. Businesses with dollar-denominated debts face higher repayment costs in shilling terms.
Exporters, tourism operators and recipients of remittances may receive more shillings for every dollar earned. Investors with foreign-currency assets can also benefit from the translation effect when those assets are valued in shillings.
But the benefits are not uniform. An exporter that depends on imported fertiliser, fuel, packaging or machinery may find that rising input costs erode the advantage of a weaker currency.
The deeper question is whether Uganda is becoming better at earning foreign exchange. Coffee and gold have become important sources of export receipts, while tourism and remittances remain significant. Oil production offers further possibilities.
Yet a country cannot sustainably finance an expanding import bill through occasional commodity booms, external borrowing or the sale of foreign reserves.
The real defence of the shilling
The debate has repeatedly returned to the same choices: intervene or let the market work; raise interest rates or protect affordable credit; defend purchasing power today or preserve the capacity to invest for tomorrow.
These are genuine policy trade-offs. The Bank of Uganda can manage liquidity, anchor inflation expectations and respond to disorderly movements in the currency market. It cannot manufacture an unlimited supply of dollars.
Government must complement monetary policy with fiscal discipline, predictable investment rules and productive public expenditure. Businesses must invest in productivity and exports rather than depend indefinitely on preferential access to foreign exchange. Farmers and manufacturers need better infrastructure, reliable energy and affordable finance to compete internationally.
Uganda must also capture more value from what it produces. Processed and branded coffee, agricultural manufacturing, tourism, mineral beneficiation and other tradable services offer opportunities to earn more from each dollar of foreign exchange generated.
Shs4,000 should therefore be treated as a price signal, not automatically as either a national catastrophe or an achievement. It tells us that, under prevailing conditions, demand for foreign exchange is exceeding supply at the previous price.
The lesson from the warnings of 2011, the debate in 2015 and the subsequent recoveries is that defending the shilling cannot be the responsibility of monetary policy alone.
Uganda has expanded and diversified its exports. That progress should be recognised. But the next challenge is to ensure that export growth, domestic production and the wider balance of payments improve fast enough to meet the country's rising demand for foreign exchange.
The strongest defence of the shilling is an economy that earns more dollars, creates more value from its exports and reduces its dependence on imports that it could competitively produce at home.
The dollar may rise or fall. The more important question is whether Uganda will finally address the economic fundamentals that turn every new exchange-rate milestone into another national debate.
