Uganda started with its currency linked to those of Kenya and Uganda (the other members of the East African Community). It then had a long period of evolution in its objectives and instruments, interrupted and complicated in the earlier years by political and military conflicts, but paving the way ultimately for loose inflation targeting from 2013.


Targets and attainment



currency fixed to USD, with devaluation 1974 bringing return to previous parity vs USD and maintaining 1:1 parities with Kenyan and Tanzanian currencies; monetary policy limited in actions and effects; central bank relies mainly on global and specific credit controls, but also sets liquid asset and cash ratios, while interest rates rarely altered; significant banking system, adversely affected in 1972 by forced departure of ‘noncitizen’ Asians and by concentration of public sector accounts in state-owned commercial bank; central and commercial banks typically provide substantial finance to central government, feeding rapid monetary growth; measures to indigenise economic system, including nationalisation of foreign-owned firms; tightening of import, price and other controls; devaluation autumn 1975 with peg switched to SDR, in line with Kenya and Tanzania; consistent income decline and wider economic deterioration: proliferation of parallel markets in goods as well as forex with large premiums, some shift from bank deposits to currency, fall in number of bank branches, rise in overall liquidity of economy; 1977 breakdown of East African Community; 1978-9 invasion of and then by Tanzania (plus Ugandan civil war) lead to end of military regime; 1979 banknote reform to cut cash holdings and excess liquidity, raise bank deposits

augmented exchange rate fix AERF


1981 SDR peg abandoned, massive depreciation, followed by further smaller adjustments; determined stabilisation and reform efforts including reduction in price controls, fiscal and monetary contraction, and more active monetary policy using cash ratio and interest rates as well as credit controls; 1981-5 civil war; 1982 dual exchange rate with second rate set in weekly forex auctions, transactions shifted over time from first to second ‘window’; mid-1984 major adjustment of interest rates; mid-1984 exchange rates reunified, but new exchange restrictions in response to depreciation following renewed spurt in monetary growth ensure that parallel forex market premium persists; 1985 army coup; 1986 military government overthrown, new president; 1986-8 various exchange rate arrangements and adjustments tried and reforms attempted, but fiscal and monetary stabilisation prove elusive, soaring parallel market premium; devaluation 1989 followed by regular adjustments, fiscal and monetary control begin to improve, parallel premium declines, real interest rates go positive 1993; forex bureaux authorised 1990, largely absorb parallel market (official market remains separate); 1992 forex auctions for allocation of import support funds; 1993 regular treasury bill auctions; as of 1993 low monetisation and low bank deposits, monetary policy has multiple objectives, and instruments include reserve requirements, central bank lending to banks, treasury bill auction and rediscount policy, and minimum liquidity ratio (no inter-bank money market but interest rates mostly liberalised), while fiscal deficits still exert major influence on monetary growth; some rise in central bank’s legal autonomy 1993, ongoing reforms include recapitalisation, restructuring and training, bank supervision, and moves towards indirect monetary management; from late 1993 official exchange rate set by new interbank forex market, forex auction abolished; many commercial banks have excess liquidity and high NPLs, monetary transmission is weak; 1997 exchange controls liberalised; 1997-8 privatisation of state-owned dominant commercial bank delayed by corruption scandal; improved financial infrastructure for government and central bank securities; 1998-9 large market-induced depreciation, banking sector difficulties; 1998-2003 Ugandan army involved in Second Congo War; growing emphasis in monetary policy on price stability, to be pursued via base money; banking sector fragility and other issues; major concern is sterilisation of aid inflows, undertaken via varying mix of treasury bill issues and forex sales, more often latter from mid-2000s; apart from these sales, occasional smoothing and some purchases to build reserves, exchange rate floats freely; 2004 long-term government bonds issued; 2007 talk of move to inflation targeting; 2009 more flexible liquidity management (to ensure lower interest rate volatility) complicated by fiscal and money demand shocks; improved forecasting and modelling at central bank, together with formal policy rate (but no standing facilities), pave way for ‘inflation targeting lite’ from mid-2011, but targets missed 2011-12

loosely structured discretion LSD


loose inflation targeting: medium term core inflation target with +/-3% bands plus unquantified income objective (output as close to potential as possible); outturn inflation fluctuates above and below but mostly within 3-4% range of target; recapitalisation of central bank with marketable securities 2014 increases its instrument independence

loose inflation targeting LIT

Selected IMF references: RED 1974 pp44, 50-4, 82-7, 92-3; SR 1974 pp5, 9, 14; RED 1976 pp46-7, 63; RED 1979 pp51-2; RED 1983 pp56, 61, 73; SR 1983 pp3-4, 18-21; RED 1984 pp45-7, 59-60; SR 1984 pp3-5, 8-9; RED 1985 pp51, 65-6; RED 1986 pp39, 50-4; SR 1986 pp12-14; RED 1987 p64; SR 1987 pp9-10; RED 1988 p45; SR 1988 pp4-8; SR 1989 pp5, 8-10; BPSA 1991 pp1-4; SR 1991 pp4-5, 14, 18; BPSA 1992 pp2-6; BPSA 1993 pp1, 10-12, 15-17; BPSA 1995 pp9-12, 16, 18; BPSA 1996 pp6-14; SISA 1998 pp10-11; SR 1998 pp10-11, 16; SISA 1999 pp27; SR 1999 pp10-13, 20-1; SR 2001 pp22-3; SR 2003 pp12-13; SISA 2005 pp26-7; SR 2005 pp12, 17, 44; SR 2006 pp10, 19; Second Review under PSI… 2007 pp6-7; SISA 2008 p14; Sixth Review under PSI … 2009 p11; SR 2010 pp19-20; Second Review under PSI… 2011 p17; Fourth Review under PSI… 2012 pp9-10, 35; SR 2013 pp9-11, 17-19; SR 2015 pp5, 19-22; SI 2017 pp8-9; SR 2017 pp18-20; SR 2019 pp15, 21, 25.

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