Patrick Reveals Why The Uganda Shillings Is Increasingly Declining

Kabweri County Member of Parliament Patrick Godfrey Wakida has blamed Uganda’s weakening shilling on domestic economic pressures, including declining foreign currency inflows, investor uncertainty and rising demand for dollars, arguing that the country’s economic challenges cannot be explained solely by external shocks.

In an October 9th, 2026 statement posted on his X handle, Wakida said the depreciation of the Ugandan shilling was driven more by endogenous factors than exogenous developments such as the Middle East conflict and the strengthening of the United States dollar. He noted that the shilling had weakened from Shs 3,604 against the US dollar in March to Shs 4,027 in early October, representing a depreciation of approximately 11.7 per cent.

Wakida contrasted Uganda’s performance with that of Kenya and Tanzania, whose currencies, he said, had remained comparatively stable over the same period. “If it was war in the Middle East or a strong US dollar, all three would fall together. They didn’t. Only UGX fell,” he said, arguing that the disparity pointed to domestic economic weaknesses that required urgent attention.

According to the legislator, Uganda’s foreign exchange market had come under increasing pressure following the withdrawal of offshore investors from government securities, a development he linked to concerns about the Protection of Sovereignty Bill passed by Parliament in May 2026. Wakida argued that foreign investors feared the legislation could introduce restrictions affecting foreign funding and capital movements, prompting them to sell shilling-denominated government bonds and convert the proceeds into dollars before exiting the market.

He estimated that between $400 million and $600 million had left Uganda within four months, reducing the supply of foreign currency available to businesses and other market participants. The MP cited remarks he attributed to Bank of Uganda Governor Michael Atingi-Ego, who reportedly warned legislators that the sovereignty legislation could destabilise the balance of payments and lead to substantial depreciation.

Wakida maintained that the alleged investor withdrawals had compounded existing pressure on the shilling by increasing demand for dollars at a time when Uganda needed foreign currency to finance imports and meet external debt obligations. He estimated that the country spends approximately $2.1 billion annually on fuel imports, while other imports, including machinery, medicines and vehicles, account for about $7 billion. He put annual external debt repayments at approximately $800 million.

The legislator also identified changes in petroleum import arrangements as another factor contributing to demand for dollars. He said the Uganda National Oil Company (UNOC), which became the sole importer of petroleum products in July 2024, requires between $150 million and $180 million in foreign currency each month to finance fuel purchases.

According to Wakida, concentrating fuel imports under a single company has created substantial demand for dollars within relatively short periods, potentially intensifying competition among importers for the available foreign currency. He argued that the situation could also encourage other market participants to buy dollars earlier than necessary in anticipation of further depreciation, creating a cycle in which expectations of a weaker shilling fuel additional demand for foreign currency.

However, the pressure on the shilling is not limited to the factors identified by Wakida. The Bank of Uganda and financial market analysts have also pointed to strong import demand, higher energy costs and seasonal buying of foreign currency as contributing factors. Reuters reported on October 8 that the shilling was facing pressure from merchandise importers, energy companies and telecommunications firms seeking dollars. Financial services expert Stephen Kaboyo told the news agency that businesses were aggressively sourcing foreign currency ahead of the fourth-quarter holiday season, while elevated energy prices were adding to demand.

The seasonal increase in demand comes at a time when businesses need dollars to replenish stocks and finance imports ahead of the festive period. Such demand can intensify competition for foreign currency when inflows from exports, remittances and investment are insufficient to meet immediate requirements. The central bank has also maintained that the exchange rate is determined by market forces and that its interventions are intended to contain excessive volatility rather than defend a particular exchange-rate level.

President Yoweri Museveni has similarly rejected calls to use foreign exchange reserves to prop up the shilling, instead urging Ugandans to reduce their reliance on imports. These positions highlight a key difference in the debate over the currency’s depreciation: while Wakida advocates measures to increase dollar inflows and restore investor confidence, the government has also emphasised the need to reduce import dependence and avoid using reserves to sustain a particular exchange rate.

Wakida further argued that Uganda was not benefiting fully from its export earnings because some foreign currency generated by gold and coffee exports remained outside the domestic market. He estimated annual gold export earnings at $4.2 billion and coffee earnings at $1.2 billion, but said some proceeds were retained in offshore accounts instead of being converted into shillings in Uganda’s foreign exchange market. He also estimated tourism receipts at $1.3 billion annually, arguing that a decline in tourist arrivals, alongside relatively flat remittances from Ugandans living abroad, had further constrained the supply of dollars.

The legislator’s argument is that export earnings do not necessarily translate into immediate foreign currency supply in Uganda if exporters retain proceeds abroad or delay converting them into local currency. However, the extent to which such practices have contributed to the current depreciation would require independent verification, particularly given the differences between gross export earnings, the timing of payments and the amount of foreign currency actually sold in the domestic market.

Wakida also questioned the Bank of Uganda’s approach to intervention, estimating that the country’s foreign exchange reserves stood at $3.8 billion, equivalent to approximately four months of import cover. He argued that the central bank’s decision not to sell dollars aggressively to defend the shilling could influence market expectations and encourage traders to purchase foreign currency in anticipation of further depreciation. The Bank of Uganda’s position, however, reflects the distinction between managing excessive exchange-rate volatility and attempting to maintain a specific exchange rate.

Selling reserves to meet market demand can temporarily ease pressure, but sustained intervention may be costly if underlying demand for dollars continues to exceed supply. Wakida acknowledged that the Middle East conflict and rising global oil prices had contributed to Uganda’s economic difficulties. He estimated that Brent crude oil had risen to $107 per barrel, increasing the cost of fuel imports, but argued that these external pressures were less significant than the domestic factors reducing foreign currency availability.

He said the loss of investor confidence and limited availability of export proceeds could have more persistent effects than a temporary increase in international oil prices because they directly affect the supply of dollars in the economy. To address the depreciation, Wakida called for measures to restore offshore investors’ confidence, improve the repatriation of export earnings, revive tourism and ensure that coffee export proceeds return to the domestic market more quickly. He also proposed requiring gold exporters to repatriate 30 per cent of their foreign currency earnings, arguing that the measure would increase the amount of dollars available within Uganda and ease pressure on the shilling.

The MP’s proposals place particular emphasis on increasing foreign currency inflows rather than relying exclusively on the central bank to intervene in the market. The depreciation has wider implications for households and businesses because Uganda relies heavily on imported fuel, machinery, medicines and other essential goods. When the shilling weakens, importers generally require more local currency to purchase the same amount of dollars, potentially increasing the cost of goods and services. Higher fuel import costs can also feed into transport, production and distribution expenses, placing additional pressure on businesses and consumers.

Nevertheless, the precise contribution of investor withdrawals, fuel-import demand, seasonal dollar purchases and other factors to the recent depreciation remains a matter for further verification. While Wakida attributes much of the pressure to domestic policy decisions and declining foreign currency inflows, the explanations offered by market analysts and authorities point to a combination of domestic demand pressures and external economic conditions.

The debate therefore centres on how Uganda can increase the availability of foreign currency, maintain investor confidence and manage exchange-rate volatility without unnecessarily depleting its reserves or imposing measures that could discourage investment. For Wakida, the immediate priority is to restore confidence and ensure that more of the dollars generated by Uganda’s economy become available to finance domestic trade and investment. He argues that without addressing these underlying pressures, the shilling could remain vulnerable even if international conditions improve.

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