Uganda and Tanzania currencies are the best performing media of exchange in East Africa against the dollar, whereas Kenyan and Rwandan currencies continue to lose value against the greenback.
According to Bloomberg Refinitiv data, the Uganda shilling continues to hold steady against the dollar followed by the Tanzanian currency at 2.45 percent and 0.76 percent, respectively. They are among six African currencies with a positive outlook with the kwacha remaining best performing by end of November, appreciating at 19.64 percent followed by Mozambique’s metical and Angola’s kwanza at second and third respectively.
The Kenya shilling and Rwanda franc were ranked 11th and 12th among top African currencies depreciating at -2.93 percent and -3.48 percent respectively.
Currency policy in most of Africa is characterised as flexible without pegging the currency rate against the dollar.
The Uganda shilling is projected to remain strong to the end of 2021, buoyed by dollar inflows from coffee exports and foreign investors chasing yields.
Uganda is Africa’s biggest coffee exporter and shipments climbed to a record level in June on better yield from new trees, favourable weather and improved prices, according to the Uganda Coffee Development Authority.
The pandemic has hurt economic output from the net importer but the country remains optimistic the dollar will continue to appreciate post-Covid.
“In 2021 and beyond, the shilling could benefit from a projected dollar depreciation against other reserve currencies. Moreover, the outlook for a post-pandemic rebound in global growth and trade in 2021 and the reduced odds of unpredictable trade wars should lead to a reduction in exchange rate volatility," said Dr Adam Mugume, executive director of research Bank of Uganda.
Mid November, the IMF differed with Kampala, terming the Uganda currency overvalued and urged the authorities to only intervene in moments of “extreme” market distress.
Given uncertainties linked to the pandemic and recent appreciation of the exchange rate, Uganda’s planned fiscal consolidation will help to narrow the current-account deficit. The gap widened to $1.28 billion in the second quarter from a deficit of $702.3 million in the previous three months.
The IMF will visit Uganda this month to evaluate the “reform agenda” and discuss the next tranche of a three-year $1 billion loan. Uganda received $258 million when the loan was approved in June.
In Tanzania, the shilling has continued to gain ground against the dollar in the past few weeks from a steady flow of the greenback from tourism, exports and funds from development partners.
The BoT predicts that the shilling will remain stable in coming months.
The BoT’s latest Monthly Economic Review says Tanzania earned $2.941 billion from gold exports during the year to August 2021, a significant improvement from the $2.735 billion during the same period last year.
Tanzania’s also recorded a 33.2 percent rise in exports of manufactured goods to $1.125 billion in the year to August 31.
In Kenya, the shilling dropped to a new historic low on December 1 where it traded at Ksh112.83 against the dollar.
The shilling, which opened the year at Ksh107.23, has been losing ground against major world currencies despite numerous support by the CBK to iron out volatility.
Analysts say the shilling, just like other currencies, is feeling the heat of global inflation, with economies like the US and UK experiencing the worst cost of living in almost two decades.
The US inflation rate rose to a 13-year high in September as rising costs for food and shelter pushed the rate up to 5.4 per cent. In the UK, annual inflation accelerated to its fastest rate in a decade, hitting 4.2 per cent last month.
This week, the Kenya National Bureau of Statistics said the cost of living eased to 5.8 per cent in November on reduced cost of petroleum products.
Even so, prices of household products like sugar, maize flour and cooking oil have risen in recent days as importers pass high currency bills to consumers.
The CBK had warned that the weak shilling will not only push up the cost of living but also the debt servicing.
Even so, CBK Governor Patrick Njoroge insists that the shilling is not out of line with other currencies.
Njoroge said while the shilling has shed three per cent of its value against dollar in the year to date, the yen, the Swedish Krona and the euro have lost ground by 10.3, 9.0 and 7.9 per cent respectively.
“The question of whether we have been out of line with other currencies does not arise. Basically, it has to do with the strengthening of the dollar against most currencies,” he added.
-MPC media briefing on Tuesday.
The CBK states that it has held its policy on non-intervention in the foreign exchange, only stepping in to stamp out volatility which would leave the economy susceptible to instability.
Since November 9, the shilling has consistently touched record lows against the dollar, with Ksh112.38 of the local unit fetching one greenback at the close of trading on November 26, as CBK data shows.
Banks are selling the dollar at between Ksh114 and Ksh117 in a parallel market.
The CBK documents show that the financial regulator has been in the market for the past five months in a bid to stabilise the shilling. But this has had very little effect.
In Rwanda, the IMF mission, led by Haimanot Teferra has continued with visits to discuss unprecedented policy support, robust remittances, efforts to step up the vaccination rate, and progress in structural reforms is supporting economic recovery in 2021. Growth is projected at 10.2 percent, from a sizable contraction of 3.4 percent in 2020.
The outlook is benefiting from positive spillovers from the global recovery. Policies to attract private sector investment and manage climate change will remain key for more durable, inclusive, and resilient growth.