BoU Governor denies sovereignty law contributed to shilling depreciation

What the report says

Bank of Uganda Governor Michael Atingi-Ego has dismissed claims that Uganda’s Protection of Sovereignty Act contributed to the recent weakening of the shilling. Speaking in Kampala on Wednesday, he said the currency’s depreciation was driven mainly by a larger current account deficit and softer portfolio investment inflows, rather than the law, which regulates foreign funding and activity linked to foreign interests.

The remarks came after the central bank raised the Central Bank Rate by 2.25 percentage points, from 9.75% to 12%, to help contain inflation and reduce further pressure on the exchange rate. Atingi-Ego said Uganda’s external payments position had worsened, pointing to a bigger goods trade deficit, a wider services deficit and a larger primary income deficit. He also said tourism had been affected by Ebola-related losses, while secondary income, including remittances, had still provided some foreign exchange support.

The governor said the shilling’s movement was “purely a balance of payments matter,” though the article notes that the figures cited do not by themselves prove whether regulatory uncertainty affected investor decisions. He did not directly confirm reports of more than $200 million leaving the country in the previous two weeks. He also acknowledged that tighter monetary policy could raise borrowing costs and slow growth, but argued that allowing inflation to become entrenched would be more damaging over time.

Bank of Uganda research head Adam Mugume said the rate increase could help curb inflation and make local assets more attractive, even as it may reduce credit growth. Atingi-Ego also said the central bank still viewed Uganda’s debt as sustainable, though an updated assessment factoring in the weaker shilling had not yet been completed.