• Wed. Nov 29th, 2023

The Uganda Shilling appreciated by 6.3% in May year-on-year, Xinhua reports. The Shilling’s month-on-month appreciation was 1.95 percent. 

According to their report, factors that helped the Uganda Shilling appreciate include the global depreciation of the United States Dollar, increased government securities and private remittances.

In an interview, Adam Mugume, Executive Director of Research at the Bank of Uganda, explained that:

“The appreciation of the Shilling has been due to several factors: first the Dollar has been weakening since January 2021. Second, on the domestic scene, Uganda has been receiving strong Forex [Foreign Exchange] inflows, especially portfolio inflows, attracted by yields on government securities in comparison with yields obtainable on safe haven investments in advanced economies.”

Mugume further explained that the Shilling had been persistently appreciating since January 2021.

As with many governments worldwide, COVID-19 negatively impacted the Ugandan economy, which led to a revenue shortfall. As a remedy to the shortfall, the government issued Treasury bills and Treasury bonds. However, that action resulted in a rise in governmental interest rates. On a positive note, the increased governmental interest rates attracted foreign investors into the Ugandan Debt Market. 

Mugume, speaking on this matter, explained that: “At the end of May, offshore holding of government securities was about 700 million dollars, up from about 280 million dollars a year ago. Workers’ remittances have also been strong, totalling about 840 million dollars between July 2020 and April 2021.” 

What Does This Mean for Exports?

According to Mugome, the appreciation will hurt exports, but it is not clear how long it will persist. He explained that this would depend on several factors, for example, how the Dollar does globally.

“If the advanced economies reverse their monetary policy easing stance, this could cause taper tantrum resulting in offshore investors in the domestic market to free back into currencies regarded as safe haven,” Mugume said.

Furthermore, another factor is the rise in oil prices, which began at the start of the year. As Uganda moves closer to pumping oil from oil-bearing fields, a shortfall remains. As a result, there is an increased demand for Forex to import the same quantity of oil. Hence, it is likely oil prices will continue to rise.

How Do Exchange Rates Affect Real Estate?

While the appreciation of the Uganda Shilling hurts exports, it means imports become cheaper thanks to the increased purchasing power of the Shilling. Therefore, imported materials used for housing may become cheaper, which is a boon for property developers.

As for real estate investors, exchange rates mostly affect foreign investors. The Uganda Shilling, having increased value, means it is out performing foreign currencies. Therefore, foreign investors have less purchasing power to buy property. During times such as this, it’s more profitable for foreign investors to sell than to buy real estate assets. 

Conversely, if you are looking to buy an investment property in a foreign country, the best time to do so is when your home currency strengthens against the foreign country’s currency. So now may be a good time for you to buy overseas property.

For foreign investors who already own rentals in Uganda, an increase in the Shilling is generally a good thing, as the exchange rate can significantly increase their rental income when converted to their own currency. The downside is, the cost of maintenance, utilities and other charges becomes more expensive.

A strong currency depresses inflation and reduces interest rates. The Bank of Uganda kept its benchmark interest rate steady at a record low of 7% during its April 2021 meeting. When interest rates are low, mortgage payments also decrease. Exchange rates thus have an indirect impact on the interest rate you pay on your mortgage.   

According to Mashvisor, the currency value can show the country’s economic stability. Thus, the currency and real estate may grow together.


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