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Uganda’s portfolio investment account deteriorated in the three months to July with net outflows increasing to USD 194 million from USD 75.6 million in the quarter to April largely attributed to offshore investment outflows on domestic debt securities.
According to the Bank of Uganda (BoU), capital inflows of its banking system are weakening largely as a result of offshore investment outflows on domestic debt securities. The other reasons are declining budget and project support loans, and banks increasing exposure of deposits abroad.
While foreign direct investments (FDIs) have been strong, other financial flows have weakened substantially and weighed on forex reserves. These facts have been revealed in the latest State of the Economy report for September released by the BoU recently.
Uganda’s portfolio investment account deteriorated in the three months to July with net outflows increasing to USD 194 million from USD75.6 million in the quarter to April largely attributed to offshore investment outflows on domestic debt securities.
Meanwhile, the ‘other investment account’ recorded net outflows of USD 352.7 million from net inflows of USD 120.9 million in the same period. This is due to banks increasing their placements of deposits abroad and a decrease in both budget and project support loans.
Uganda’s gross foreign exchange reserves fell to USD 3.3 billion in July from USD 3.7 billion in December 2023, with coverage of imports at three months (excluding oil projects), reflecting higher external debt service payments, inability to secure external loans at affordable terms, and limited foreign exchange purchases by the BoU due to unfavorable domestic foreign exchange market conditions.
FDI inflows remained robust and increased by USD 55.3 million to USD 813.7 million in the three months to July, mainly on investment in the oil sector.
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Net other investment inflows have significantly declined in recent years from a peak of USD 500 million in the 2019-20 fiscal year to around USD 200 million in the 2023-24 fiscal year as external project and budget support inflows fell. According to the bank, these developments in the financial account are primarily reflected in a combination of factors, including offshore exits, high debt service payments, and constrained donor support inflows.
