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Uganda

 
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Uganda

Currency and Inflation

Between 1981 and 1988, the government repeatedly devalued the Ugandan shilling in order to stabilize the economy. Before 1981 the value of the shilling was linked to the IMF's special drawing right ( SDR--see Glossary). In mid-1980 the official exchange rate was USh9.7 per SDR or USh7.3 per United States dollar. When the Obote government floated the shilling in mid-1981, it dropped to only 4 percent of its previous value before settling at a rate of USh78 per US$1. In August 1982, the government introduced a twotier exchange rate. It lasted until June 1984, when the government merged the two rates at USh299 per US$1. A continuing foreign exchange shortage caused a decline in the value of the shilling to USh600 per US$1 by June 1985 and USh1,450 in 1986. In May 1987, the government introduced a new shilling, worth 100 old shillings, along with an effective 76 percent devaluation. Ugandans complained that inflation quickly eroded the new currency's value. As a result, the revised rate of USh60 per US$1 was soon out of line with the black market rate of USh350 per US$1. Following the May 1987 devaluation, the money supply continued to grow at an annual rate of 500 percent until the end of the year. In July 1988, the government again devalued the shilling by 60 percent, setting it at USh150 per US$1; but at the same time, the parallel rate had already risen to USh450 per US$1. President Museveni regretted this trend, saying "If we can produce more, the situation will improve, but for the time being we are just putting out fires." The government announced further devaluations in December 1988 to USh165 per US$1; in March 1989, to USh200 per US$1; and in October 1989, to USh340 per US$1. By late 1990, the official exchange rate was USh510 per US$1; the black market rate was USh700 per US$1.

All of the government's efforts to bring the economy under control succeeded in reducing the country's staggering inflation from over 300 percent in 1986 to about 72 percent in 1988. Then the government contributed to rising inflation by increasing the money supply to purchase coffee and other farm produce and to cover increased security costs in early 1989, a year in which inflation was estimated at more than 100 percent. Low rainfall levels in the south contributed to higher prices for bananas, corn, and other foodstuffs. Shortages of consumer goods and bottlenecks in transportation, distribution, marketing, and production also contributed to rising prices. Moreover, the depreciation of the United States dollar increased the cost of Uganda's imports from Japan and Europe. The government tried to curb inflation by increasing disbursements of import-support funds and tightening controls on credit. These measures helped lower the rate of inflation to 30 percent by mid-1990, but by late 1990, inflation had once again resumed its upward spiral.

Data as of December 1990

Uganda - TABLE OF CONTENTS

  • The Economy

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    Information Courtesy: The Library of Congress - Country Studies


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