Why the Ugandan Shilling Is Appreciating and Why It Must Be Protected Understanding the rise of the Ugandan Shilling, the forces behind its strength and why vigilance is essential to protect sustained gains.

BY BONNY KOMAGUM

The recent 3.2% appreciation of the Ugandan Shilling against the US dollar has become a major talking point in economic discussions across the country. 

Over the 12 months to July 2025 it appreciated by about 3.2% year-on-year to an average of UGX 3,586.57/US$ from UGX 3,705.85/US$ a year earlier. 

While many are celebrating this development, it is important to understand the forces driving the Shilling’s strength and why these gains must not be taken for granted. 

The currency’s performance reflects positive economic momentum, yet it also depends heavily on factors that can shift quickly.

The shilling has strengthened mainly because Uganda is currently receiving more foreign currency than it is spending. 

Export earnings have risen for example, Coffee over the 12-month period June 2024 to May 2025: reached 7.43 million bags, revenue about US$ 2.09 billion, compared to 6.08 million bags in the previous comparable period. 

That’s a roughly 22% increase in volume and much larger in value. Gold, on the other hand, according to a Reuters report, gold exports in 2023 jumped to US$ 2.3 billion, compared to about US$ 201 million the year before, a more than 10-fold increase. 

Remittances from Ugandans working abroad As of January 2024, reported at US $1.42 billion, up ~13.4% from ~US $1.25 billion the previous year, and this does not include NGOs and donor-funded projects. 

On top of that, foreign investors have shown increased interest in Uganda’s financial markets, trading economics reported FDI as % of GDP: For 2024 the “Foreign direct investment, net inflows (% of GDP)” for Uganda was about ~6.16%, particularly government securities that offer competitive returns. 

These inflows improve the availability of dollars in the market, increasing demand for the Shilling and boosting its value.

The global environment has also played a part. 

In recent months, Medium-term forecasts from JPMorgan suggest the dollar could lose another 10%-20% against major peers over the next few years. 

When the dollar weakens worldwide, currencies such as the Ugandan Shilling tend to strengthen as capital looks for new opportunities. 

This means part of the Shilling’s appreciation has more to do with external conditions than domestic policy alone.

Even so, Uganda’s own economic management deserves credit. According to BoU, Annual headline inflation for the 12 months to July 2025 was 3.8 %, down from 3.9 % the month before while Core inflation (which excludes food & fuel volatility) was 4.2 % in May 2025. 

With this, BoU projects core inflation to average 4.5-5.0 % in FY 2025/26. Importantly, BoU has allowed the exchange rate to be driven largely by market forces rather than artificial intervention. 

This signals to investors that the currency’s value is rooted in real performance, not temporary manipulation. 

Such credibility attracts more investment and helps reinforce the Shilling’s strength.

Additionally, improvements in Uganda’s foreign exchange market infrastructure including better liquidity tools and more transparency have reduced volatility and improved efficiency.

 These reforms ensure that when foreign currency enters the system, it supports the Shilling more effectively.

However, while the appreciation brings clear benefits such as cheaper imports and reduced inflationary pressure, it is not automatically permanent. 

Uganda remains vulnerable to external shocks: a sudden fall in commodity prices, increased import demand, or a renewed surge in the US dollar could quickly reverse these gains. 

Foreign investors may also withdraw funds as global financial conditions change. Because a significant portion of the current strength comes from factors outside Uganda’s control, the stability of the Shilling relies on continued disciplined policy and sustained export competitiveness.

In summary, the Ugandan Shilling’s recent appreciation is a positive signal for the economy.

 It reflects strong inflows, supportive global trends, and credible economic management. 

But the lesson for policymakers and the public is clear: celebrate the gains but stay vigilant. 

For the Shilling to remain strong, Uganda must keep building the economic fundamentals that make it worth more today and tomorrow.

The author works as a Profitability Analyst at Airtel Uganda.