Museveni rejects BoU proposal to deploy foreign reserves to save shilling

President Museveni has said he blocked Bank of Uganda's proposal to dip into the national foreign exchange reserves to stem the rapid depreciation of the Ugandan shilling against the US dollar.

Speaking during the national Independence Day celebrations, President Museveni argued that deploying foreign reserves to defend the currency would be counterproductive, noting that a weaker shilling works to the advantage of local exporters.

"I am totally against the Governor Bank of Uganda's proposal to squander our reserves and deploy more dollars in the market to counter the falling shilling," Mr Museveni stated. "This is not good. You cannot start helping people who are importing dead people's hair. We shall minimize the imports."

The President's directive comes amid heightened economic pressure marked by a weakening local currency and rising tuel costs. By morning, the exchange rate had reached Shs4,011 per dollar, rising sharply from Shs3,700 recorded in late September.

To counter the sharp rise, the central bank had proposed drawing from Uganda's $6 billion foreign exchange reserves to inject liquidity into the local market. Central bank officials were optimistic that flooding the market with greenbacks would reduce demand for the dollar, allowing the shilling to regain ground.

However, President Museveni dismissed the proposed intervention, emphasizing that currency depreciation presents a silver lining for the export sector.

"The depreciating shilling is good for exporters because they will earn more shillings for example the dollar remains and when you exchange, you get more shillings. It is the importers who are affected," he said.

Addressing the broader economic pressures, Mr Museveni attributed the surge in fuel prices to a combination of geopolitical conflicts, shifts in global capital, and local health crises.

"When the Iran-America war started biting, I negotiated with Vitol to supply us fuel at subsidized prices which they did for months and now war has persisted where fuel prices have gone high so for now I want to assure Ugandans that everything will return to normal," the President said.

He noted that external economic factors have created temporary shocks beyond immediate domestic control.

"Another problem of the opportunistic investors who snubbed our government bonds and ran to America which is offering high interest... another is Ebola so some of these issues are beyond our control but we are working on them," he added.

Despite these hurdles, the Head of State reassured the public that the macroeconomic environment remains stable, driven by manageable inflation rates. He highlighted the National Resistance Movement (NRM) administration's long-term economic track record, noting that Uganda's Gross Domestic Product (GDP) has expanded from $3.9 billion in 1986 to $69.3 billion as of June this year.

"We project that the economy will be at $74 billion. We are not yet there but from our journey, we shall reach where we are going," Mr Museveni said, reiterating that the post-1986 economic strategy was built on five pillars: recovery, expansion, diversification, value addition, and transtormation.

source: Monitor