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The duration at which Uganda’s foreign exchange reserves can cover future months of imports has dropped from 5.2 months to 4.9 months. Foreign exchange reserves (also called Forex reserves or FX reserves) are only the foreign currency deposits and bonds held by central banks and monetary authorities.
The central bank said last week that in May 2010, the level of Uganda’s gross foreign exchange reserves stood at $2.5 billion; which indicates a $178 million decline in comparison to the previous month. “This reserve level was sufficient to cover 4.9 months of future imports,” said the Bank of Uganda.
Explaining the reasons for the decline, the Deputy in the Research Department Bank of Uganda, Dr Jacob Opolot, said: “The decline in the reserve level has been caused by a shortfall in budget support by donors and reduction in the amount which could be used to purchase more US dollars for building reserves.”
Before the recent global economic crisis, Uganda’s gross foreign exchange reserve cover was above 6 months of imports as a result of the multilateral debt relief in 2005. They slightly reduced to 5.6 months before falling to 5.2 months as the world started recovering from the crisis.
However, Dr. Opolot argued that the decline in Uganda’s stock of foreign exchange reserves is not a worrying situation in the sense that the country is still above the international requirement for foreign reverse.
Developing countries are required to have at least gross foreign reverses which can cater for three months of future imports.
“Some years ago we used to have foreign exchange reserves, which could cover only two weeks of future imports of goods and services. In some developing countries, the level of foreign exchange reverse is under two weeks to one month,” he said.
For instance in the budget framework paper of 2009/10-2013/14 the domestic resources are projected to rise from a projected outturn of Shs3,9 billion in financial year 2008/09 to Shs4,4 billion in 2009/10, which represents an increase in the domestic revenue to Gross Domestic Product (GDP) ratio, from 12.7 per cent of GDP 2008/09 to 12.8 per cent of GDP in 2009/10.
Donor assistance in form of budget support alongside Uganda’s capital accounts has been very vital in boosting the reserve level. The Official Development Assistance (ODA) provided by the development partners to Uganda has also played an important role in supporting Uganda’s growth and poverty reduction efforts in form of budget support.
The duration at which Uganda’s foreign exchange reserves can cover future months of imports has dropped from 5.2 months to 4.9 months. Foreign exchange reserves (also called Forex reserves or FX reserves) are only the foreign currency deposits and bonds held by central banks and monetary authorities.
The central bank said last week that in May 2010, the level of Uganda’s gross foreign exchange reserves stood at $2.5 billion; which indicates a $178 million decline in comparison to the previous month. “This reserve level was sufficient to cover 4.9 months of future imports,” said the Bank of Uganda.
Explaining the reasons for the decline, the Deputy in the Research Department Bank of Uganda, Dr Jacob Opolot, said: “The decline in the reserve level has been caused by a shortfall in budget support by donors and reduction in the amount which could be used to purchase more US dollars for building reserves.”
Before the recent global economic crisis, Uganda’s gross foreign exchange reserve cover was above 6 months of imports as a result of the multilateral debt relief in 2005. They slightly reduced to 5.6 months before falling to 5.2 months as the world started recovering from the crisis.
However, Dr. Opolot argued that the decline in Uganda’s stock of foreign exchange reserves is not a worrying situation in the sense that the country is still above the international requirement for foreign reverse.
Developing countries are required to have at least gross foreign reverses which can cater for three months of future imports.
“Some years ago we used to have foreign exchange reserves, which could cover only two weeks of future imports of goods and services. In some developing countries, the level of foreign exchange reverse is under two weeks to one month,” he said.
For instance in the budget framework paper of 2009/10-2013/14 the domestic resources are projected to rise from a projected outturn of Shs3,9 billion in financial year 2008/09 to Shs4,4 billion in 2009/10, which represents an increase in the domestic revenue to Gross Domestic Product (GDP) ratio, from 12.7 per cent of GDP 2008/09 to 12.8 per cent of GDP in 2009/10.
Donor assistance in form of budget support alongside Uganda’s capital accounts has been very vital in boosting the reserve level. The Official Development Assistance (ODA) provided by the development partners to Uganda has also played an important role in supporting Uganda’s growth and poverty reduction efforts in form of budget support.
