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October 18, 2019By Our Reporter
Uganda’s foreign exchange reserves as of June 30, 2019 rose 2.56 percent to about US$3.3 billion, equivalent to 4.2 months of import cover when compared to US$3.166 billion realised in the same period in 2018, equivalent to 4.4 months of import cover, the Bank of Uganda (BoU) says in its latest report for 2019.
“Several milestones contributed to the improvement in the foreign exchange reserves position. These include expansion of the universe of counterparties; review and update of foreign exchange reserves management policy; reduction of fees paid to external funds managers; and renegotiation of contracts of three external funds managers to close ended from open ended,” says BoU’s Annual Report 2019.
The report says other factors further contributed to the growth, like; like the investment with Afreximbank with a positive return of 0.42 percent; review of Strategic Asset Allocation (SAA); investment in covered bonds which offer higher yields compared to US treasuries; and international capacity building of BoU staff under the reserves management mandate.
Nonetheless, the report says, there were challenges that were encountered that hampered the management of foreign exchange reserves. They included sluggish global economic growth; low global interest rates; global trade protectionism and increased uncertainty; in a bid to de-risk, global banks decreased the intake of deposits; negative interest rate regime in the Eurozone; volatility of the Unites States dollar against other major currencies; as well as uncertainty of Brexit outcome.
BoU manages foreign exchange reserves in line with the objectives of capital preservation, liquidity and reasonable and consistent returns, as stipulated in the foreign exchange reserves management policy.
BoU reserves are divided into two portfolios; the internally managed and externally managed portfolios. The internally managed portfolio comprises the fixed income portfolio with duration of 0-3 years and the money market portfolio, while the externally managed portfolio is mainly invested in 1-5 years fixed income instruments.
