Uganda shilling: mistaken identity?

Abdul Qadeer FitratConfusing Uganda for Afghanistan is not in your ordinary order of mistaken identity. After all, the two countries fall on different continents and even at a cursory first glance the basics are glaringly different: one is at war, one is not.

But as the Afghan central bank governor Abdul Qadeer Fitrat (pictured) fled Kabul reportedly in fear of his life, the Ugandan shilling was fast collapsing to ever new lows. Uganda’s central bank at least, thought the two events were decidedly related.

“Bank of Uganda Governor has not resigned,” came the announcement, as the panic-struck sellers disgorged themselves of their shillings. On the same day, the shilling fell to a new all-time low of 2,635/2,650 against the dollar.

“Some radio stations appear to have confused the news that the Governor of the Afghan Central Bank had resigned, reported yesterday in the international media, with the situation in Uganda,” said a statement from deputy governor Louis Kasekende.

After all, ever since Uganda’s central bank governor Emmanuel Tumusiime-Mutebile criticised President Yoweri Museveni for failing to replenish reserves after dipping into central bank coffers to help fund $720 million worth of Russian fighter jets, the shilling has been reaching for daily record lows.

This week it earned itself the dismal accolade of the world’s “third worst performing currency” this year, outpacing even the Kenyan shilling’s precipitous drop of last week.

No wonder then, perhaps, that Tumusiime-Mutebile’s European tour to Basel and Oxford, for a central bank governors’ convention no less, was interpreted by some as a rout.

Since the shilling started its near-daily slide, the central bank has been forced to intervene – first selling $20 million and then a second time to the value of $40 million, according to one source.

“It is doing nothing, nothing, absolutely nothing; we are wasting money by intervening,” the governor told beyondbrics, mid-tour, of the double intervention that ate into already-depleted central bank reserves without turning around the currency’s fortunes.

On Thursday, the central bank’s third and by all accounts much much larger intervention did something of the trick, sending the shilling back up by eight percent from the latest all-time low of 2,710 to the dollar.

Tumusiime-Mutebile blames the euro, the dollar and speculators for regional currency collapse that has extended in both time andgeographic scope far beyond any possible due impact of his earlierstatements, which cast doubt on Uganda’s hard-won fiscal discipline, macroeconomic stability and the impact of post-election politicalunrest. “I am not so influential that I can send the Kenyan shillingand the Tanzanian shilling down too,” he said, playing down the likely impact of his comments.

Plus, Uganda’s fundamentals are for the first time looking a little rosier, as new data this week announced inflation had slowed to 15.8 per cent, from 16 per cent in May, the first drop in eight months. Prices for essentials including maize flour and paraffin are still rising, however.

The IMF, which failed Uganda as part of its regular policy review process earlier this year following an unscheduled $250m pre-election supplementary budget, this week praised Uganda’s “generally sound macroeconomic policies”.

Nevertheless, in language more opaque than that of the central bank governor, it also warned against “increased” inflation risks, the need to “safeguard” macroeconomic stability, “rebuild” international reserves, eliminate some tax exemptions, and strengthen investment project selection.

That sure is a long list.

Related reading:
Uganda’s economy: an update, beyondbrics