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.