KAMPALA, Uganda — The Ugandan shilling is buckling under the weight of escalating geopolitical hostilities in the Middle East, ending a period of relative stability as investors retreat to safe-haven assets.
The local unit closed Friday at Shs3,674.91, a marked depreciation from the sub-3,500 levels seen just two weeks ago. The slide reflects an immediate reaction to the conflict involving Iran, Israel, and the United States, which has unnerved global financial markets and triggered a capital flight from emerging market currencies.
Dr. Adam Mugume, Bank of Uganda executive director for research, noted the market’s sensitivity to the shock, stating the shilling depreciated by approximately Shs100 in a 48-hour window following the outbreak of hostilities. Because Uganda maintains a fully liberalized foreign exchange market, offshore investors have been able to exit local positions rapidly.
The pressure is being compounded by a strategic exodus from the domestic bond market. Richard Nsubuga, acting head of trading at Absa, reported that offshore investors are offloading government bonds in favor of more secure global assets. This divestment coincides with heavy dollar demand from the energy, manufacturing, and telecommunications sectors, which are grappling with the rising costs of imported inputs.
Stephen Kaboyo, managing partner at Alpha Capital, observed that the crisis hit just as domestic bond yields dropped, prompting investors to take profits and convert their proceeds into dollars. He warned that the simultaneous surge in global crude oil prices threatens to import inflationary pressure into the Ugandan economy.
Beyond the immediate currency fluctuations, the conflict jeopardizes a massive portion of Uganda’s foreign exchange inflows. Exports worth $5.27 billion, representing nearly 42 percent of the country’s total export earnings, remain under threat. Furthermore, the $1.6 billion in annual remittances from Ugandans working in the Middle East could face significant disruption if regional economic activity is paralyzed by prolonged warfare.
