THE SHILLING HAS CROSSED 4K, WHAT NOW?

There are some numbers in an economy that are more than numbers. In Uganda Shs4,000 to the dollar is one of them.

For years, Ugandans watched the exchange rate move around Shs3,500, then Shs3,700, occasionally threatening Shs4,000. Now the psychological barrier has been breached. Last week, the shilling crossed Shs4,000, from about Shs3,604 in March.

So what is happening—and where do we go from here?

There is a useful historical lesson here.

In March 2015, when the dollar first broke through Shs3,000, I wrote in this column that “the shilling collapse is our fault, not the dollar’s.”

The dollar’s global strength mattered. The US Federal Reserve was tightening after years of extraordinary monetary stimulus. But global currency movements were only part of Uganda’s problem.

Coffee exports had fallen by almost a fifth because of drought. Donor inflows had not fully recovered. Meanwhile, demand for imported goods and fuel was growing.

In other words, our supply of dollars was weakening just as our appetite for dollars was increasing.

That sounds remarkably familiar today.

"The immediate explanation for today’s depreciation is straightforward. Manufacturers, energy companies and other importers are buying more dollars. Some businesses are bringing forward foreign-currency purchases ahead of the end-of-year import season. Higher global oil prices are adding pressure...

Oil prices have risen sharply amid the conflict involving Iran and the wider Middle East, raising fears of disruption to supplies and shipping through the Strait of Hormuz.

For Uganda, which imports virtually all its petroleum products, this matters twice. We need more dollars to buy the same fuel, while higher fuel costs feed into transport and production costs throughout the economy.

There is also evidence of offshore investors trimming Ugandan debt holdings or buying dollars to hedge those positions.

But underneath all this is the same basic equation: the exchange rate is a price. It reflects the supply of dollars coming into Uganda against demand for dollars going out.

And our demand has grown considerably.

We import fuel, machinery, pharmaceuticals, vehicles, electronics and industrial inputs. We also have foreign debt obligations and a private sector increasingly integrated into global supply chains.

"The question is therefore not simply whether Uganda is earning more dollars. It is whether we are earning them fast enough...

In the late 1990s, you could predict the shilling by looking at the coffee calendar. September was coffee season. Exporters brought dollars into the country, converted them into shillings to pay farmers and meet local costs, and the shilling strengthened.

Coffee was so important that the currency almost danced to its harvest cycle.

But Uganda is no longer that economy.

In the late 1990s, coffee accounted for roughly 58 percent of exports. Today it remains a major source of foreign exchange, but gold has become an even larger export earner. Tourism, remittances, regional trade and other exports have diversified our dollar earnings.

The old coffee clock has not disappeared because coffee is unimportant. It has disappeared because the economy has become much bigger and more complicated.

Coffee earnings in July were 18.2 percent below the previous year, while August shipments fell 13.6 percent in volume and 10.3 percent in value. At the same time, dollar demand from energy, manufacturing and other importers remains strong.

The seasonal pattern is still there. It is simply being overwhelmed.

The lesson from 2015 remains valid.

The Bank of Uganda can smooth excessive volatility, manage liquidity and use reserves when necessary. But it cannot permanently manufacture dollars.

Trying to defend an artificially strong shilling simply requires the central bank to continually sell dollars. Eventually, reserves run down and the market forces the adjustment anyway—potentially more violently.

The answer cannot be to defend a particular number forever.

Did the Sovereignty Bill contribute?

It would be wrong to say the Protection of Sovereignty Bill caused the shilling to cross Shs4,000. There is no evidence for such a simple causal relationship.

But legislation affecting foreign capital does have economic consequences.

When the original bill was before Parliament, Bank of Uganda Governor Michael Atingi-Ego warned that restrictions could discourage foreign investment, portfolio capital and remittances. The legislation eventually passed was substantially amended, with legitimate financial flows protected.

So the final law should not be blamed for today’s depreciation.

"But investors watch more than the final wording. They watch how laws are conceived, debated and implemented. For someone deciding whether to invest $10 million in Uganda for ten years, predictability matters.

That is the confidence channel through which politics eventually becomes economics...

There are winners too

Uganda is predominantly a net importer, so a weaker shilling means higher prices for fuel, machinery, pharmaceuticals, electronics and consumer goods.

But the exporter sees the same exchange rate differently. A coffee farmer, gold exporter, tourism operator or company earning dollars gets more shillings for every dollar.

Consider the Ugandan waiting for a diaspora relative to send $100 for Christmas. At Shs3,600 it bought Shs360,000. At Shs4,000, it buys Shs400,000.

There are also less obvious beneficiaries.

NSSF’s record 22.53 percent interest rate for 2025/26 was driven primarily by strong investment performance, particularly regional equities. But currency movements were part of the story. The Fund invests in assets denominated in regional currencies, and a weaker shilling can increase the value of those assets when translated back into shillings.

Some of the millions celebrating the record NSSF return are therefore, indirectly, beneficiaries of the same currency movement making imported goods more expensive.

The real danger is persistent depreciation that feeds inflation, erodes purchasing power and changes expectations.

The lesson for us remains that there are no shortcuts.

"Uganda cannot permanently protect itself from currency movements by leaning on the central bank. The answer is to produce more, export more and add more value...

A decade later, our export base is more diversified. Coffee is a much bigger earner in absolute terms, gold has emerged as a major source of foreign exchange, tourism and remittances remain important, and oil is approaching commercial production.

But we have also become a much bigger consumer and importer.

That is why Shs4,000 should be treated as a price signal, not a crisis. It is telling us that Uganda’s demand for the rest of the world is, for now, growing faster than its capacity to earn from the rest of the world.

The strongest defence of the shilling is therefore not central-bank intervention, a law or a presidential directive.

It is an economy that earns more dollars than it needs to spend.