Uganda’s foreign exchange reserves jumped 56% to $6.7 billion in the year ended June, strengthening the country’s external financial position even as its currency comes under renewed pressure against the US dollar.
Data from the Bank of Uganda showed that reserves rose from $4.3 billion in the previous year, providing Ugandan economy with a larger buffer to meet external payment obligations and manage potential shocks.
The central bank said the increase reinforced confidence in Uganda’s macroeconomic position and resilience in the external sector.
However, the stronger reserve position has not prevented the Ugandan shilling from weakening sharply in recent weeks, highlighting the difference between a country’s ability to meet foreign currency obligations and the forces determining its exchange rate.
Reserves still below central bank target
The $6.7 billion reserve stock is equivalent to 3.7 months of prospective imports, according to the Bank of Uganda. This remains below the central bank’s target of four months of import cover.
Foreign exchange reserves are crucial for financing imports, meeting international obligations and cushioning economies against disruptions in foreign currency inflows.
The increase offers additional protection against external shocks, including changes in global financing conditions and fluctuations in export earnings.
The central bank, however, has indicated that it does not target a specific exchange rate for the shilling. Its interventions are aimed at smoothing excessive volatility rather than defending a particular currency level.
This means the shilling can remain under pressure even as the country accumulates more dollars in its reserves.
Bank of Uganda steps up gold diversification
The central bank also plans to continue its gold purchase programme in the 2026/27 financial year as it seeks to diversify its foreign exchange reserves.
Gold can provide an alternative store of value alongside conventional reserve assets, helping central banks diversify their holdings and manage exposure to fluctuations in financial markets.
The move comes as several economies seek to strengthen their reserve portfolios against external uncertainty and changing global financial conditions.
What it means for Uganda’s economy
The rise in reserves is a positive signal for Uganda’s external stability, but it does not automatically translate into a stronger shilling or lower import costs.
Demand for dollars from importers, movements in investment flows and broader market conditions can continue to influence the currency.
A weaker shilling can make imported fuel, machinery and other goods more expensive, potentially increasing costs for businesses and consumers.
The key challenge for Uganda will therefore be to sustain reserve accumulation while strengthening the sources of foreign currency earnings and managing pressures on the exchange rate.
Although the latest figures point to a stronger external buffer, the gap between the current import cover and the central bank’s target shows that there is still room to build resilience.