President Yoweri Museveni has rejected proposals to use Uganda’s foreign exchange reserves to stabilise the shilling, arguing that the currency’s depreciation reflects reduced dollar inflows and should instead be addressed by boosting domestic production and cutting non-essential imports.
Museveni said Uganda was experiencing a mismatch between the supply of dollars and demand from importers, partly attributed to the conflict in the Middle East, declining international prices for some export commodities, reduced foreign investment inflows and Ebola-related fears that had discouraged some tourists from visiting the country.
Speaking during the virtual 64th Independence Day celebrations at State House, Entebbe, on Friday, Museveni argued that the government should not deplete its foreign exchange reserves to make dollars cheaper for importers of goods that Uganda could do without.
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His remarks come amid mounting pressure on the shilling and rising domestic fuel prices, which have increased transport and business costs and heightened concerns about the cost of living.
Museveni also defended rising fuel prices, saying Uganda had benefited temporarily from a procurement arrangement with international oil trader Vitol that lowered the cost of importing petroleum products before global market conditions deteriorated.
He said the government had negotiated to purchase fuel directly from refineries, reducing reliance on intermediaries in Kenya. However, the continuing conflict in the Middle East had disrupted expectations of stabilising international prices, making it difficult to sustain the earlier price reductions.
Museveni said he had been able to shield Ugandans from high fuel prices for several months and that it would be unfair to expect the supplier to maintain lower prices after international petroleum costs had risen.
During the celebrations, ICT and National Guidance Minister Justine Kasule Lumumba read out figures at the President’s request to illustrate the savings associated with the agreement, which was signed on August 18, 2023.
Lumumba said the quoted price of diesel had fallen from USD118 to USD83 per metric tonne, a reduction of USD35. The price of petrol had declined from USD97.50 to USD61.50 per metric tonne, representing a saving of USD36, while aviation fuel had fallen from USD114.25 to USD79.25 per metric tonne, a reduction of USD35.
The figures correspond with those published in Museveni’s September 2026 statement. Lumumba also cited annual savings of USD78.8 million from bulk fuel supplies under the agreement, although the figure could not be independently verified against the available official records.
However, lower procurement costs do not necessarily translate into equivalent reductions at petrol stations. Retail fuel prices are also influenced by international market movements, exchange rates, taxes, transportation, insurance and other supply-chain costs.
On October 7, Energy Minister Monica Musenero told Parliament that the shilling had weakened from approximately Shs3,790 per US dollar at the beginning of September to about Shs4,035 by October 5, increasing the cost of importing petroleum products.
Musenero also cited a 200 Shillings per-litre increase in excise duty on petrol and diesel that took effect on July 1, 2026, as another factor contributing to higher pump prices. Parliament subsequently demanded a detailed breakdown of the prices at which the Uganda National Oil Company (UNOC) supplies fuel to oil marketing companies, questioning whether the benefits of bulk procurement were being adequately reflected in retail prices.
Uganda relies on imported refined petroleum products, leaving domestic fuel prices vulnerable to fluctuations in international oil prices and the exchange rate. When the shilling weakens against the dollar, importers need more local currency to obtain the dollars required to pay foreign suppliers.
Museveni argued that currency depreciation could benefit exporters by increasing the amount of local currency they receive when converting their foreign earnings, even as importers face higher costs.
Using coffee exports as an example, he explained that an exporter earning the same amount in dollars would receive more shillings when the dollar trades at 4,000 Shillings than when it trades at 3,700 Shillings.
Museveni attributed the reduced supply of foreign currency partly to declining international prices for some export commodities, including coffee, whose prices he said were under pressure amid improved production in Brazil.
He also pointed to foreign investors who purchase government securities, saying some were moving their funds to the United States in search of higher interest rates. Such portfolio investors, he argued, tend to shift their money to markets offering better returns, potentially reducing dollar inflows into Uganda.
Museveni further cited Ebola-related fears as a factor that had discouraged some tourists from visiting Uganda, potentially reducing foreign exchange earnings from tourism. He said the country should respond to the pressure on the shilling by increasing domestic production, strengthening export earnings and reducing dependence on imports rather than selling foreign exchange reserves to defend the currency.
Museveni put Uganda’s inflation rate at approximately four per cent, arguing that price movements should be understood in the context of international conflicts, drought and other economic pressures-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
