Country Report Uganda March 2011

Outlook for 2011-12: Exchange rates

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 15% of its value in 2010 and we forecast that it will continue to depreciate during the forecast period despite some pressures to appreciate. Faster economic growth, improved political stability 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 large fiscal and current-account deficits. After a particularly steep fall in January, we expect the rate of depreciation to moderate following the peaceful conclusion of the February elections. We forecast an exchange rate of USh2,294:US$1 in 2011, stabilising at around USh2,326: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 or if further bomb attacks were to damage the tourism industry.

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