Opinion: Dollarization Of Uganda’s Economy An Economic Time Bomb

Opinion: Dollarization Of Uganda’s Economy An Economic Time Bomb

By By Enock Twinoburyo | From New Vision

In recent times, the media has been awash with digital migration, a term that has cascaded into politics, digital and analogue presidential candidates. Kampala waved good bye to analogue signal in June and since there have been massive adverts for digital migration.

As a recent recruit to DSTV in recent months, I have noticed that the pricing for the different packages has been on an upward swing largely pegged on the exchange rate.

Another classic example of business pegged to the foreign currency is the Electricity Regulatory Authority pricing of electricity units, which has stifled debate among economic practitioners regarding the use of exchange rate as variable for adjusting electricity tariffs when it is already captured in the core inflation computation. Pegging of business pricing to exchange rate is essentially used by investors to cover the exchange rate risk, often time known as covered interest rate arbitrage.

In the extreme case, a country with perpetually weak currencies will face a situation where the citizens of a country officially or unofficially use a foreign country’s currency as legal tender for conducting transactions.

Increasingly the major shopping malls around Kampala charge rental space in the US dollars and so are many other business entities like hotels, schools and land. The corruption cases surface in dollar terms because understandably those who offer bribe use the dollar.

The statistics also indicate that there has been growing trend of foreign deposits as share of the total deposits, also referred to as dollarisation. This by June 2015 stood at 43%. This makes Uganda one of the most dollarised economies in the world. Increasingly also the commercial banks hold significant assets in particular loans in foreign currency; foreign currency loans account for 45% of the total loans.

Read more at New Vision