In just one month between February and March 6, 2020, investors withdrew at least 165 billion Shillings from the country. Of this, at least 59 billion Shillings was in government securities, while 105.7 billion Shillings had been placed in commercial banks in the country as deposits.
Bank of Uganda says tourism, remittances and FDI to remain low until 2022. Photo by UTB
As Uganda prepared to impose a lockdown to stem the spread of the Coronavirus disease (COVID-19), some investors withdrew billions of
shillings from the country and ran for safe havens, according to Bank of
In just one month between February and
March 6, 2020, investors withdrew at least 165 billion Shillings from the country. Of this, at least 59 billion Shillings was in
government securities, while 105.7 billion Shillings had been placed in commercial banks in
the country as deposits.
BOU says in the latest report that captures
the first seven months of 2019/20 financial year that this was a time of panic
and uncertainty and “flight for the havens was unavoidable”.
As the investors flee the country, the
Uganda currency, the shilling, experience the biggest depreciation in recent
times. For instance, mid-March, the local currency breached the Shs 3,900 mark
against the dollar, the lowest level it has traded ever.
Stephen Kaboyo, the
managing director of financial firm Alpha Capital said during the panic,
investors were exiting countries they were unsure of and were willing to hold
the dollar over any other currency.
BOU’s reporting does not capture the months of April and May
when the impact of COVID-19 on Uganda’s economy is assumed to have reached the
peak. However, the Bank of Uganda captures
the extent of plunges expected in key sectors like tourism, remittances, and
Foreign Direct Investments, due to COVID-19.
For tourism, BOU says it expects the
sector’s earnings to fall to USD748m in 2019/2020 financial year from $1.1bn in
This will fall further to USD 369 million in
2020/21 financial, an indicator the pain for the industry is on for at least an
extra year. Tourists to Ugandan come from
countries that have been most ravaged by the virus including Europe and China.
Going forward in the next three years, travel might be relegated to essential
On remittances – the money sent by
Ugandans living abroad to their families – BOU says they will fall from USD 1.3 billion in 2018/19 to USD 955 million in 2019/2020.
This will fall further next year to USD 238 million – indicating an 80 per cent plunge of diaspora remittances. This is because most
Ugandans working abroad, and therefore the source of this money, either lost their
jobs or have had pay cuts. For many, it will take a while before
they find new work to starting sending money again.
Foreign Direct Investment (FDI), the
money that foreigners bring into Uganda to invest in different areas, will also
drop by 80 per cent in the 2020/21 financial year. BOU says FDI will fall from USD 1.4 billion in
2018/19 to USD 766 million in 2019/20. It will fall further to USD 302 million in the 2020/21 financial
Bigger recipients of this money like
real estate, mining and manufacturing are expected to suffer declines in activity.
Falls of this decline have a direct
bearing on the revenues government can collect. This means a likely fall in investment
in social services like health and education.
The government has written to
international lenders to give it money to cover revenue gaps.