By Patrick Godfrey Wakida, MP Kabweri County
Putting it plainly: the Uganda shilling is under pressure from two forces. External shocks are real, but they are not the whole story; domestic factors are also amplifying the strain.
The Treasury is right: when US interest rates rise, investors chase those higher returns, pulling money out of Kampala into New York. The Middle East conflict has also driven up oil and shipping costs. Since Uganda imports all its fuel, every spike in global oil prices puts more pressure on the shilling. This explains the trigger, but not why we are so vulnerable.
The deeper problem lies in the structure of our economy. Uganda exports primary products like coffee but imports almost everything else, including fuel, medicine, edible oil, machinery, even toothpicks. So, when the dollar strengthens, the import bill explodes, and there’s little local production to cushion the shock. Add to that a persistent fiscal deficit, heavy domestic borrowing by the government, and foreign reserves covering less than four months of imports, and you get an economy that catches a cold every time the world sneezes.
Conclusion: external shocks may have lit the fire, but domestic weaknesses have allowed it to spread.
Second, Will Cutting Shs 3 Trillion And Raising The Central Bank Rate To 12% Stabilize The Shilling?
In the short run, yes, it can help. Cutting government spending eases demand for imports and reduces pressure from domestic borrowing. Raising the CBR to 12% makes shilling assets more attractive, slowing capital flight. It also reduces demand, helping to contain inflation.
But Ugandans must understand the cost that come with such measures. When the Central Bank Rate stands at 12%, commercial banks will lend at 22–25%. That is unaffordable for a farmer in Kibuku, a shop owner in Kikuubo, or a private school in Namugongo. Credit shrinks, businesses postpone investment, and growth stalls. If government cuts Shs 3 trillion from development spending, construction slows, jobs are lost, and service delivery suffers.
These measures can stabilize the shilling for 3 to 6 months, but they don’t solve the supply problem. Tight money cannot produce more fuel or cooking oil. If policy stays too tight for too long without boosting production, the risk is stagflation: low growth or economic contraction combined with high prices. And that’s the worst combination for jobs.
Third, What Does This Mean For The Ordinary Ugandan And What Should Government Do?
For the ordinary Ugandan, this translates into higher transport costs, rising food prices, higher school fees, and more expensive loans. The cost of living crisis is real, driven by the fact that our consumption basket leans heavily on imports.
What Should Government Do? Four Things.
- Protect the vulnerable smartly. Don’t waste scarce resources on blanket subsidies. Instead, target relief where it matters most, support public transport, and keep essential medicines and school inputs affordable.
- Stabilize expectations. The Bank of Uganda should smooth excessive volatility but avoid burning reserves to defend a specific rate. Government must demonstrate fiscal discipline, control supplementary budgets, clear domestic arrears, and avoid ad hoc borrowing.
- Produce more of what we import. Uganda must accelerate import substitution in edible oil, fertilizer, steel, and construction materials and move quickly to bring our own oil to market to cut fuel imports. This will reduce dependence and strengthen the shilling.
- Protect the productive economy. As you raise rates, provide credit guarantees for SMEs and agriculture so you don’t choke the very private sector that creates jobs.
In conclusion, austerity and high rates can buy Uganda some time. But time is useless if we fail to use it. The shilling will only find lasting stability when the country earns more dollars through value-added exports and spends fewer dollars on goods we could produce ourselves
