The Uganda shilling has outperformed all major regional and trading-partner currencies, strengthening by 4.3% against the U.S. dollar in the year to August 2025 — its strongest performance in several years, according to the Bank of Uganda’s State of the Economy Report.
The report attributes this resilience to steady foreign-exchange inflows from offshore investors, robust remittances, and strong export receipts from commodities such as coffee, cocoa, and gold. Net inflows in the interbank foreign exchange market rose to USD 73.3 million in August 2025, up from USD 23.7 million a year earlier, helping to stabilise liquidity and strengthen the local unit.
The nominal effective exchange rate (NEER) — which measures a currency’s performance against a basket of trading-partner currencies — appreciated by 3.5% year-on-year, making the Uganda shilling the best-performing currency among its regional peers. Between 2021 and 2025, it recorded a modest average annual appreciation of 0.3%, outperforming every currency in East Africa.
“The Uganda shilling outperformed all peer currencies, supported by prudent monetary policy, financial market reforms, and stable capital inflows,” the central bank said.
Regional and Global Performance
The BoU report shows that Uganda’s currency fared better than those of all its major trading partners.
The Rwanda franc weakened by 8.9%, while the Burundi franc depreciated by a sharp 10.4% over the same period, reflecting continued current account deficits and external financing pressures in both economies.
The Kenyan shilling lost around 4.9% against the U.S. dollar, weighed down by high external debt repayments and tighter liquidity.
The Tanzanian shilling depreciated by 2.8%, while the South African rand weakened by 2.7% amid global capital outflows from emerging markets.
In contrast, the Uganda shilling’s gains placed it ahead of larger global economies such as China (1.3%), India (3.2%), and Indonesia (2.3%), showing that Uganda’s policy stability has delivered one of the world’s strongest frontier-market currency performances.
“The Uganda shilling’s stability reflects strong domestic fundamentals and cautious monetary management,” the report noted, adding that reforms in financial markets and stable investor participation in government securities have supported resilience.
Why the Shilling Stayed Strong
Analysts credit Uganda’s performance to low inflation, fiscal discipline, and sound macroeconomic policy.
A weakening U.S. dollar — partly driven by shifts in global trade settlements away from dollar dependence — also created upward pressure on frontier-market currencies like Uganda’s.
Steady gold export earnings and resilient remittance inflows have further boosted Uganda’s foreign-exchange reserves.
The central bank said remittances “remain historically strong and are expected to stay stable throughout the year,” providing reliable foreign-currency support.
Risks on the Horizon
Despite the upbeat performance, BoU cautioned that the shilling faces depreciation risks in the near term.
These include possible reductions in foreign aid and NGO inflows, as key donors such as the United Kingdom and the Netherlands scale back overseas spending.
The UK has already committed to capping its aid budget at 0.3% of gross national income.
Falling global coffee prices — amid bumper harvests in Brazil, Vietnam, India, and Indonesia — could also reduce export earnings.
Additionally, geopolitical tensions in the Middle East and Asia may disrupt trade routes, raise shipping costs, and dampen investor sentiment.
Still, the report concludes that Uganda’s balance of risks remains tilted toward stability, with gold exports, remittances, and prudent monetary policy expected to sustain the shilling’s strength in the near term.
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