A Costlier Dollar, Tougher Choices: How Uganda Is Responding to Shilling Pressure
On the fiscal side, government is supporting monetary policy through expenditure restraint and careful prioritisation.
Uganda is tightening monetary and fiscal measures to contain pressure on the shilling after it weakened from about Shs3,604 per US dollar in March 2026 to around Shs4,500 by late October, Finance Minister Henry Musasizi has told Parliament.
In a statement on the state of the economy in Parliament on Tuesday , Musasizi attributed the depreciation to rising demand for foreign currency, particularly the US dollar, amid higher petroleum costs, uncertainty in international markets and reduced inflows from some of Uganda’s key export and tourism sectors.
The minister urged businesses and households to avoid panic buying of foreign currency and speculative transactions driven by rumours, warning that such behaviour could amplify short-term pressure on the shilling.
“Remain calm, avoid panic-driven decisions,” was among the key messages delivered by the minister as government sought to reassure the public about the economy’s resilience and the measures being taken to address the currency pressures.
The depreciation presents challenges for importers, manufacturers and households because a weaker shilling increases the local-currency cost of goods and services priced in dollars.
Petroleum products and imported production inputs are particularly exposed to exchange-rate movements, potentially adding to business costs and inflationary pressures.
External shocks drive demand for dollars
Musasizi said the underlying pressure reflects an imbalance between the supply of and demand for foreign exchange.
“When demand for dollars to finance imports and meet other external obligations exceeds the supply generated by exports, investment and other foreign-exchange inflows, the price of the dollar rises,” he said.
He identified higher international petroleum costs as a major factor increasing Uganda’s demand for foreign exchange. Geopolitical tensions in the Middle East have heightened uncertainty and pushed up petroleum-related expenses, including shipping and insurance.
Demand for foreign currency has also increased across other sectors, while international financial conditions and market expectations have contributed to pressure on the exchange rate.
On the supply side, declining global prices for key agricultural exports, particularly coffee and cocoa, have temporarily constrained foreign-exchange inflows.
Reduced tourism receipts have added to the pressure, limiting the dollars available to meet import payments and other external obligations.
The combination of rising import-related demand and constrained inflows has exposed the shilling to external shocks, highlighting Uganda’s vulnerability to movements in international commodity prices and global financial conditions.
Bank of Uganda tightens monetary policy
To address the pressure, the Bank of Uganda has tightened monetary conditions, raising the Central Bank Rate from 9.75 per cent to 12 per cent and increasing the commercial banks’ cash reserve requirement from 11 per cent to 13.5 per cent.
The measures are intended to moderate excessive demand, contain inflationary pressures and support confidence in the shilling.
Musasizi said the central bank would continue managing liquidity and, where necessary, intervene in the foreign-exchange market to address excessive volatility, in line with its mandate.
However, Uganda remains committed to a market-determined exchange rate, which allows the shilling to adjust to changing external conditions.
The minister also defended the importance of international reserves, describing them as a buffer against external shocks. He said their prudent management was necessary to address disruptive market conditions while preserving the country’s capacity to meet external obligations.
Government targets expenditure and waste
On the fiscal side, government is supporting monetary policy through expenditure restraint and careful prioritisation.
Musasizi said non-essential expenditure would be rationalised, including foreign and domestic travel, workshops, meetings and other administrative costs. Critical public services and priority development investments would be protected.
The government is also relying on timely and factual communication to support informed decisions and maintain confidence in the economy.
Despite the currency pressures, Musasizi maintained that Uganda’s economic fundamentals remained strong, with growth supported by increased production, investment and exports.
He called on households to prioritise essential spending, conserve fuel and energy, and make informed purchasing decisions. Businesses, meanwhile, were encouraged to eliminate waste, improve operational efficiency, source inputs locally where commercially viable and expand production for export markets.
The effectiveness of the measures will depend partly on how quickly external pressures ease, how foreign-exchange inflows perform and whether tighter monetary conditions help moderate demand without unduly constraining productive economic activity.
For businesses and households, the immediate challenge is managing higher costs and uncertainty. For government and the central bank, it is to stabilise market conditions while sustaining economic growth and protecting essential public services.
