Uganda’s remittance inflows have significantly increased in the last 12 months the revelation was made by Michael Atingo-Ego, the Acting Governor of the Bank of Uganda
While releasing the monthly monetary policy statement, Atingo-Ego said the country’s remittances increased from $1.42 billion (Shs6 trillion) in the last 12 months to 1.25 billion (Shs5.3 trillion) recorded in January, originating from migrant labour in the Middle East, with Saudi Arabia being the primary contributor.
Foreign Direct Investment (FDI) inflows into Uganda grew from $1.5 billion (Shs6.3 trillion) for the year to $2.9 billion (Shs12.3 trillion). FDI contributes over 4% of Uganda’s gross domestic product (GDP), according to the World Bank.
The central bank noted the country’s exports have increased to $4.8 billion (Shs20.4 trillion), with gold and coffee fetching the highest amounts of money.
The bank increased the Central Bank Rate (CBR) to 10%. The increase is alluded to by the depreciation of the shilling exchange rate, and there was a need for monetary policy to be tightened.
The inflation outturns in February 2024 indicate that both headline and core inflation rose to 3.4% from 2.8% and 2.4% in January 2024, respectively. Whereas the main contributors to the rise in inflation are services and energy fuel and utilities (EFU), this combined with the shilling depreciation could spill over into a generalised price increase if not contained.
“The exchange rate depreciation since November 2023, with sharp depreciation in February 2024, was in part caused by the outflow of some offshore investor funds from the domestic market pursuing more attractive yields available in other markets, strong domestic demand partly as a hedging mechanism against further depreciation, and seasonal factors,” he said.
Further exchange rate depreciation could drive inflation above the medium-term target of five percent by the second half of 2024. Additionally, whereas there are downward inflationary pressures arising from the continuing vanishing effects of supply-side shocks, receding inflation around the world, and improved domestic food supply, these are likely to be outweighed by the effects of a weaker shilling.
The bank noted that the inflation trajectory going forward would be shaped by the outlook of the shilling and other goods inflation. The inflation forecasts have been revised upward in the short term in light of the exchange rate depreciation. Inflation is projected to rise above the medium-term target of five percent by quarter one of FY 2024/25 and stay above five percent throughout 2025 unless monetary policy is tightened.
The risks to the inflation outlook remain highly dependent on the global and domestic environment. Specifically, higher global commodity prices, partly due to geopolitical tensions and an increase in shipping costs resulting from the Middle East conflict, as well as tighter global financial market conditions, could result in higher domestic inflation.
