Uganda’s foreign exchange reserves, which are the foreign assets held by the country’s central bank, stood at $4.074 billion in June 2023. This amount is equivalent to covering 4.15 months of Uganda’s expenses for importing goods and services. The Bank of Uganda (BoU) reported a decrease of 0.37% from June 2022, when the reserves were $4.089 billion, covering 4.17 months of import expenses. In addition, there was a decrease of 3.31% from June 2021 when the reserves were $4.214 billion, covering 5.48 months of import expenses.
The reduction in foreign reserves during the financial year was mainly due to the outflow of foreign currency for government payments to meet external debt and import obligations, as explained in the BoU’s annual report for the fiscal year 2022/23 released on October 16, 2023.
The Bank of Uganda also noted a significant improvement in the return on foreign assets, which increased to 2.54% at the end of June 2023, up from -0.89% at the end of June 2022.
According to the report, the central bank continued to manage foreign exchange reserves with a focus on capital preservation, liquidity, and reasonable returns while considering acceptable risk. During the period, the BoU revised its Foreign Exchange Reserves Management Policy to adopt the Conditional Value at Risk (CVaR) approach instead of the Value at Risk (VAR). This change was in line with the widening of the country’s investment options, including revisions to market and credit risk limits and the inclusion of Organization for Economic Co-operation and Development (OECD) countries as eligible markets.
The report also highlighted an increased allocation to the internally managed fixed income portfolio, with performance expected to remain strong due to reinvestment in higher yielding issuances and reduced volatility as interest rates are projected to stabilize or decline in the coming year.