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Uganda's change in its net foreign assets raises concerns

Ugandan currency
  • Uganda's net foreign assets showed a slight increase of Shs29 billion ($7.8 million) in March, indicating a gradual inflow of foreign money and alleviating pressure on the local currency. 
  • However, there has been a significant decrease in net foreign assets from December 2022 to March, raising concerns about the country's ability to pay for imports and service foreign loans. 
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  • The fluctuations in net foreign assets highlight the need for effective management of foreign assets and liabilities to mitigate economic shocks unique to Uganda and ensure stability in the global market.

In March of this year, Uganda's net foreign assets climbed by Shs29 billion ($7.8 million), showing a slow but steady inflow of foreign money. The pressure on the local currency has decreased as a result.

Although the assets only slightly increased throughout the 12-month review, the most recent figures from the Bank of Uganda (BoU) show that after December 2022, they have drastically decreased.

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The difference between a country's overseas assets and its domestically owned foreign assets is known as its net foreign assets (NFAs).

As part of its foreign assets, the Bank of Uganda retains money in foreign currencies, especially those of important trading partners, such as US dollars, euros, yuan, rupees, and yen. These reserves are employed to offset import expenses, settle foreign debt, or preserve currency value.

"Balancing the net foreign assets position involves managing both foreign assets and liabilities. Fluctuations like these are expected as the country tries to mitigate sudden shocks to the economy that are unique to Uganda rather than being systemic to the global market," Mr. Mustapha B Mugisa, an economic expert, said.

The short-term fall in Uganda's net foreign assets from December 2022 to March, according to Mr. Mugisa, is concerning because it signals a deteriorating capacity to pay for imports and service foreign loans.

The assets saw a significant increase of Sh807 billion from November 2022 to December 2022. But as of March, they had dropped from Sh1.8 trillion to Sh1.4 trillion.

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According to Uganda's Ministry of Finance's medium-term debt management strategy (2023/2024), as of December 2022, about 30% [$6.58 billion (Shs24.3 trillion)] of the country's total public debt was expressed in US dollars.

This circumstance may make it more difficult for the nation to obtain the US dollar, which is essential for international commerce. A 13% drop from the $404.46 million (Shs1.4 trillion) sent in January, Uganda's exports in February were $349.44 million (Shs1.2 trillion). Net domestic assets, in contrast, rose by Sh2.233 trillion over the same period under review, from Sh25.949 trillion in March 2022 to Sh28.082 trillion in March 2023.

Alarmingly, the Treasury says that from $636.26 million (Shs2.3 trillion) in January 2023 to $642.43 million (Shs2.4 trillion) in February 2023, the value of goods imported grew by 1%.

This is a Business Insider Article, for more articles like this, visit africa.businessinsider.com

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