We forecast that the Uganda shilling will continue to depreciate steadily in 2011-12, although it will fluctuate in line with seasonal trends and global financial market volatility. The shilling lost value in 2010 in a depreciation partly engineered by the central bank to improve the competitiveness of exports. We expect this to continue in 2011-12 despite some pressures to appreciate. Faster economic growth and strong inflows of foreign exchange from remittances and investment (boosted by interest in the oil sector) will support the currency, but they will be negated by loose fiscal and monetary policies. After a particularly steep fall in January, we expect the rate of depreciation to moderate when the political environment becomes more stable after the February elections. We forecast an exchange rate of USh2,303:US$1 in 2011, stabilising at around USh2,336:US$1 in 2012 as higher foreign investment and a tighter monetary policy boost confidence in the currency. A significant devaluation could occur if relations with donors were to worsen dramatically, if further bomb attacks were to damage the tourism industry or if there were large-scale violence around the time of the elections.