The Independent Uganda: You get the Truth we Pay the Price
In this letter to the Finance Minister, Rwakakama outlines a third path between spending the reserves buffer and watching the shilling.
COMMENT | MORRISON RWAKAKAMBA | Dear Henry Musasizi, Minister of Finance, Planning and Economic Development. I write on the evening of our 64th Independence, as a citizen in the coffee business, and as someone who has sat where investment decisions are explained to people with dollars to place. The shilling closed the week at record lows, near 4,090 to 4,100 to the dollar, down more than 11 per cent this year. Kenya, facing the same Gulf oil shock, is still near 130 and barely moved. That gap is the question on every pump and every import invoice. It is also a question your ministry can answer without a new law.
Let me begin where I agree with the President, fully. This morning President Yoweri Museveni rejected the proposal to spend the foreign-exchange reserves in order to pull the dollar back down for importers. He was right. Reserves are the country’s store of seed, not a discount window for what he called dead people’s hair or for perfume. A weaker shilling does raise the shillings a coffee farmer receives for the same dollar price. Flooding the market to defend a level near 3,700 would spend the buffer, reward the importer who is already stockpiling dollars, and fail. I hope the Cabinet minute records that refusal and that it holds.
The refusal, though, is not a complete instruction. Parliament has asked why a buffer of about 6.5 billion dollars sits unused while the litre reprices. The Energy Minister has already done the arithmetic: the move from about 3,790 to about 4,035 added roughly 300 shillings a litre, on top of the 200 shillings excise that took effect on 1 July. Bank of Uganda has tightened shilling liquidity, raising the cash reserve requirement to 13.5 per cent, and has rightly said it will not defend a target. Between “sell the reserves” and “do nothing” there is a third path. Five steps. None of them pegs the shilling. None of them squanders the stock the President has just protected.
- Do not announce a rate. Do stop the rush
An external shock explains why the shilling is weaker. It does not explain a 4 per cent move in a week, or importers buying dollars forward simply to lock today’s rate. That is no longer price discovery. It is a queue. Kenya’s stability is not a peg. It is a thicker buffer, about 15 billion dollars, and a market that can see it. Ours is thinner, which is why it must be used sparingly and seen to be intact.
Action. Authorise the Governor to sell dollars only when the intraday move exceeds 1 percent, or the five-day move exceeds 2.5 percent, in auction clips of 10 to 20 million dollars, sterilised the same week by Treasury bills. Cap October sales at 150 million dollars and November–December at 250 million. Publish the amount every Friday. This is the opposite of the proposal rejected today. It does not chase the rate back to 3,700. It stops the overshoot, and it stops when the overshoot stops.
- Separate the energy dollar from the luxury dollar
The President’s line on non-essential imports is the correct economic distinction. Fuel, fertiliser, essential medicines and wheat reprice the whole economy. Hair extensions do not. Treating them as one queue is why the energy bill and the holiday stockpile hit the same window.
Action. Within ten days, open a supervised window at UNOC and two dealer banks, fed by a 200 million dollar monthly swap from reserves, priced at the previous day’s mid-rate plus a half of one percent. Eligible: petroleum already nominated by UNOC, fertiliser, selected medicines, wheat. Not eligible: consumer durables, cosmetics, hair, and vehicles above a set import value. Everything else clears in the open market. The swap returns as the product is sold. The reserve is used as a pipe, not burnt as a subsidy.
- Raise the cost of sitting on dollars briefly
The September reserve-requirement increase slowed shilling credit. The marginal problem this month is not too many shillings. It is dollars bought and held. A further economy-wide squeeze would punish the farmer and the factory for a panic they did not start.
Action. For ninety days, require banks to hold an extra 5 percent, in dollars, against foreign-currency deposits that have risen more than 10 percent since 1 August. Review it on 15 January. Do not make it permanent. A temporary charge on hoarding is a scalpel. Another rise in the cash reserve requirement would be a blunt instrument.
- Close the customs timing gap
Members have already relayed the traders’ complaint. Goods bought at last month’s rate are being valued for duty at today’s rate. That single rule forces importers to over-buy dollars, and then the over-buying becomes the rate. It is an administrative accident doing the work of a speculative attack.
Action. Issue a practice note this week. For shipments landed before 30 November, duty uses the Bank of Uganda mid-rate on the bill-of-lading date. It costs almost nothing. It removes one mechanical reason to front-run the shilling. Uganda Revenue Authority can do it under your hand.
- Earn the dollars we have refused to spend
Gold and coffee carried about 70 per cent of merchandise earnings in the last financial year, near 8.9 billion and 2.2 billion dollars. The goods deficit excluding gold was 1.4 billion dollars in the April–June quarter, the widest since quarterly records began, and 3.4 billion for the full year. A gold re-export boom conceals that gap. It is not a development strategy, and it is a reserve risk the moment the import leg is delayed. Donor exit is real, and it shows in Kololo rents. It is not the dollar bid of this month. That bid is energy, telecoms and pre-buying.
Action. Three things sit in your docket, not in a new secretariat. First, publish gross reserves, encumbered reserves and import cover on one page this Friday. Silence is what feeds the forward bid. Second, with Energy, publish the pump formula every Friday: reference price, freight, the exchange rate used, tax, and the dealer’s margin. The public can then see that about 500 shillings of the litre is tax and the rate, and Parliament’s argument becomes a number. Third, for licences issued in the next two quarters, ask Uganda Investment Authority for the project’s net foreign-exchange position at month 18. In a quarter when the shilling is at 4 ,100, an import-heavy project without an export offtake is itself a dollar bid. Oil barrels expected in 2027 should lengthen credit, not be spent in 2026.
I have left drought and the cattle corridor out of this letter. That issue will be addressed some other time. What I have put in front of you is the sequence that protects the President’s decision on reserves and still gives Parliament an answer before the next pump cycle.
*****
Morrison Rwakakamba | Coffee farmer and Entrepreneur
