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Trade Imbalance Causing Weakness of Shilling – BoU

Uganda imports more than she exports, meaning the country receives less U.S. Dollars from exports compared to the amount of US Dollars spent on imports. As of August 2016, Ugandas trade deficit stood at 207 million U.S. Dollars, year-on-year.

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Uganda's weak balance of trade is largely to blame for the weakness of the Shilling against hard currencies, according to the Bank of Uganda (BoU).

The central bank's Executive Director for Research and Policy, Dr Adam Mugume says that since Uganda is a net importer of goods, it sucks loads of U.S. Dollars and other hard currencies away from the country.

Uganda imports more than she exports, meaning the country receives less U.S. Dollars from exports compared to the amount of US Dollars spent on imports. As of August 2016, Uganda's trade deficit stood at 207 million U.S. Dollars, year-on-year.

The Ugandan Shilling has of late been weakening against the U.S. Dollar despite strengthening a bit on Wednesday. Today the BoU is quoting the Shilling against the U.S. Dollar at 3,433 on the sell side and 3,443 on the buy side. This is down from the 3,600-3700 mark early in the week.

Dr Mugume says the weak Shilling is partly attributable to the country's weak trade balance.

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Dr Mugume adds that the conflict in South Sudan has also contributed to the weak Shilling.

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The Ministry of Finance, Planning and Economic Development, in its Performance of Economy Report for August 2016 says the total value of exports fell by 5.3 percent from 242 million U.S. Dollars in June 2016 to 229 million U.S. Dollars in July 2016.

This was due to a decline in non-coffee formal exports and Informal Cross Border Trade (ICBT) exports. The decrease in non-coffee formal exports was due to a drop in the exports of gold, cement and food crops like maize, rice, beans, fruits and vegetables.

During the same period, merchandise trade deficit, however, narrowed by 15 percent on a monthly basis, from a deficit 119.3 million U.S Dollars in June 2016 to a deficit of 101.4 million U.S. Dollars in July 2016.

The report says a higher reduction in the import bill offset the decrease in the exports.

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