This archive report was first published on 6 October 2019.
Uganda's economy is experiencing a welcome boost, thanks to a surge in gold exports. The increased earnings from gold have strengthened the Ugandan shilling, helping to ease inflationary pressure from imported goods.
According to the Uganda Bureau of Statistics, annual headline inflation slowed to 1.9 per cent in September, down from 2.1 per cent in August. This decline is largely attributed to a stronger shilling, which has remained stable at around 3,600 units against the dollar since August.
Bank of Uganda data shows that the shilling, which was trading at 3,765.6 against the dollar in May, has remained stable at just over the 3,600 units for the months of August and September, coinciding with a steady fall in headline inflation since June 2019.
Uganda's earnings from gold exports have been increasing since May, from $78.7 million to $97.3 million in July, the freshest month for which data is available.
Dr. Fred Muhumuza, a development economist, attributes the shilling's strength to Uganda's gold exports. 'The oil price drives the cost of other consumer goods,' he notes, explaining that the strengthening of the shilling has resulted in a reduction of the price of oil in Uganda, at a time when attacks on fields in Saudi Arabia should have led to a different outcome.
However, experts have cautioned that the growing importance of gold as a major Ugandan export is providing mixed results for the economy. On one hand, gold exports have made imports cheaper, leading to a fall in the inflation rate for the third month running. On the other hand, over-reliance on the mineral could distort the export market.
Chris Mukiza, Director Macroeconomic Statistics at UBOS, has previously cautioned that the movement of headline inflation further away from the 5 per cent target signifies shrinkage in aggregate demand for goods and services. However, he notes that the current trend is not cause for worry, as the reduction in inflation has been hailed as good for the economy, thanks to the strengthening of Uganda's perennially weak shilling.
With a stronger shilling, the merchandise trade deficit has narrowed by 17 per cent. In June, the merchandise trade deficit reduced from $278.91 million to $231.42 million in July, while export earnings grew by 5.9 per cent.
