AN OPEN LETTER TO THE MINISTRY OF FINANCE PLANNING AND ECONOMIC DEVELOPMENT

Hon Henry Musasizi

Minister of Finance, Planning and Economic Development

Sir Apollo Kaggwa Road, Kampala.

Dear Honorable Minister,

Hold the reserves. Stop the rush for dollars. A third path between spending the reserves buffer and

watching the shilling.

I write on the evening of our 64th Independence, as a citizen in the coffee business, and as someone who has sat where investment decisions are explained to people with dollars to place. 

The shilling closed the week at record lows, near 4,090 to 4,100 to the dollar, down more than 11 percent this year. Kenya, facing the same Gulf oil shock, is still near 130 and barely moved, that gap is the question on every pump and every import invoice and it is also a question your Ministry can answer without a new law.

Let me begin where I agree with the President, fully, this morning he refused the proposal to spend the

foreign-exchange reserves in order to pull the dollar back down for importers. He was right. Reserves are the country’s store of seed, not a discount window for what he called dead people’s hair, or for perfume. 

A weaker shilling does raise the shillings a coffee farmer receives for the same dollar price and flooding the market to defend a level near 3,700 would spend the buffer, reward the importer who is already stockpiling dollars, and fail and i hope the Cabinet minute records that refusal, and that it holds.

The refusal, though, is not a complete instruction, Parliament of Uganda has asked why a buffer of about 6.5 billion dollars sits unused while the litre reprices. 

The Minister of Energy has already done the arithmetic: the move from about Ugx 3,790 to about Ugx 4,035 added roughly Ugx 300 a litre, on top of the Ugx 200 exercise duty that took effect on 1st July. 

Bank of Uganda has tightened shilling liquidity, raising the cash reserve requirement to 13.5 percent, and has rightly said it will not defend a target. Between “sell the reserves” and “do nothing” there is a third path.

There are 5 steps and none of them pegs the shilling and one of them squanders the stock the President has just protected.

1. Do not announce a rate. Do stop the rush: An external shock explains why the shilling is weaker. It does not explain a 4 percent move in a week, or importers buying dollars forward simply to lock today’s rate. That is no longer price discovery. It is a queue.

Kenya’s stability is not a peg. It is a thicker buffer, about US 15 billion dollars, and a market that can see it and ours is thinner, which is why it must be used sparingly and seen to be intact.

Action: Authorise the Governor to sell dollars only when the intraday move exceeds 1 percent, or the five-day

move exceeds 2.5 percent, in auction clips of US 10 to 20 million dollars, sterilised the same week by Treasury bills.

Cap October sales at US 150 million dollars and November–December at US 250 million. 

Publish the amount every Friday and this is the opposite of the proposal rejected today. It does not chase the rate back to 3,700. It stops the

overshoot, and it stops when the overshoot stops.

2. Separate the energy dollar from the luxury dollar: The President’s line on non-essential imports is the correct economic distinction. Fuel, fertiliser, essential medicines and wheat reprice the whole economy. Hair extensions do not. Treating them as one queue is why the energy bill and the holiday stockpile hit the same window.

Action: Within ten days, open a supervised window at UNOC and two dealer banks, fed by a US 200 million dollar monthly swap from reserves, priced at the previous day’s mid-rate plus a half of one percent. 

Eligible: Petroleum already nominated by UNOC, fertiliser, selected medicines, wheat. Not eligible: consumer durables,

cosmetics, hair, and vehicles above a set import value. Everything else clears in the open market. The swap

returns as the product is sold. The reserve is used as a pipe, not burnt as a subsidy.

3. Raise the cost of sitting on dollars, briefly: The September reserve-requirement increase slowed shilling credit. The marginal problem this month is not toomany shillings. It is dollars bought and held. A further economy-wide squeeze would punish the farmer and the factory for a panic they did not start.

Action: For ninety days, require banks to hold an extra 5 percent, in dollars, against foreign-currency deposits that have risen more than 10 percent since 1 August. Review it on 15 January. Do not make it permanent. 

A temporary charge on hoarding is a scalpel. Another rise in the cash reserve requirement would be a blunt

instrument.

4. Close the customs timing gap.

Members have already relayed the traders’ complaint. Goods bought at last month’s rate are being valued for duty at today’s rate. That single rule forces importers to over-buy dollars, and then the over-buying becomes the rate. 

It is an administrative accident doing the work of a speculative attack.

Action. Issue a practice note this week. For shipments landed before 30 November, duty uses the Bank of

Uganda mid-rate on the bill-of-lading date. It costs almost nothing. It removes one mechanical reason to

front-run the shilling. Uganda Revenue Authority can do it under your hand.

5. Earn the dollars we have refused to spend: Gold and coffee carried about 70 percent of merchandise earnings in the last financial year, near 8.9 billion and US 2.2 billion dollars. The goods deficit excluding gold was US 1.4 billion dollars in the April–June quarter, the widest since quarterly records began, and 3.4 billion for the full year. A gold re-export boom conceals that gap.

 It is not a development strategy, and it is a reserve risk the moment the import leg is delayed. Donor exit is real, and it us shows in Kololo rents. It is not the dollar bid of this month and that bid is energy, telecoms and pre-buying.

Action: Three things sit in your docket, not in a new secretariat. First, publish gross reserves, encumbered reserves and import cover on one page this Friday. Silence is what feeds the forward bid. Second, with Energy, publish the pump formula every Friday: reference price, freight, the exchange rate used, tax, and the dealer’s

margin. 

The public can then see that about 500 shillings of the litre is tax and the rate, and Parliament’s

argument becomes a number. Third, for licences issued in the next two quarters, ask Uganda Investment

Authority for the project’s net foreign-exchange position at month 18. 

In a quarter when the shilling is at

4,100, an import-heavy project without an export offtake is itself a dollar bid. Oil barrels expected in 2027 should lengthen credit, not be spent in 2026.

I have left drought and the cattle corridor out of this letter. That issue will be addressed some other time.

 What I have put in front of you is the sequence that protects the President’s decision on reserves and still gives Parliament an answer before the next pump cycle.

You will always have my support.

Yours sincerely,

Morrison Rwakakamba

Founder, Heartland Coffee

Ikuniro, Rujumbura, Rukungiri