The Ugandan shilling performed the best in East Africa in 2013.
The Rwandan franc lost 5.8 per cent to trade at an average of Rwf669.41 last week, up from Rwf630.40 at the beginning of the year, even though the central bank intervened to stabilise the currency.
The signs of a battered franc were seen when the currency hit a nine-month low of Rwf655/660 to the dollar in July. The franc’s performance has reversed the moderate depreciation rate of 1.8 per cent seen in the first half of 2013. The central bank aims to keep the depreciation rate at 2.5 per cent.
One of the reasons for the drop was the suspension of foreign aid in April (it resumed in the second half in the year.) While inflation in Rwanda has been moderate for much of the year, at single-digits, analysts say the franc is likely to weaken in coming months as demand for imports rises.
The depreciation of the franc, according to John Rwangombwa, governor of the National Bank of Rwanda, is the result of a growing import bill of mostly capital goods without supportive substantive exports.
The country’s imports rose to $1,135.3 million in the first half of this year, up from $1,046.8 million during the same period last year. This has reversed the moderate depreciation rate of 1.8 per cent during the first half of 2013, before rising to an all-time high of 5.8 per cent last week.
“We could expect a further deterioration in the balance of payments, and a still larger import bill. This should be of some concern — it is already around 11 per cent of GDP,” Mr Rwangombwa said.
The Ugandan shilling registered the best performance in the region, appreciating against the US dollar for most of the year; the performance was supported by seasonal factors, offshore inflows attracted by higher yields on treasuries, and inflows from NGOs and exports amidst weak dollar demand. Offshore investors are mainly investing in shorter term government securities as opposed to long term securities.
Adam Mugume, Bank of Uganda’s executive director for research, said the Ugandan shilling had appreciated by 6.3 per cent through the year.
The Ugandan currency was at Ush2,683.8 to the dollar at the beginning of the year, and up to Ush2,513.7 in December.
“This is in contrast to the depreciation of several other currencies. For instance, during the same period, depreciations on average included the South African rand by 17.7 per cent; the Euro by 3 per cent; the Tanzanian shilling by 1.6 per cent; and the Rwanda franc by 5.7 per cent. However, the Kenyan shilling appreciated, but by only 0.4 per cent,” Mr Mugume said.
The Kenyan shilling traded at an average of Ksh85.71 against the dollar in December, up from Ksh86.07 in January, Central Bank of Kenya data shows. However, in mid December, the shilling was trading at Ksh86.75, blamed on increased economic activity due to the December holidays.
The currency registered minimal gains despite the IMF announcing that it had disbursed its last tranche of Ksh9.4 billion ($109.3 million) in December, under Kenya’s extended credit facility with the fund.
The Tanzanian shilling settled at Tsh1,581 against the dollar last week, according to the Bank of Tanzania, from Tsh1,585 in January and Tshs1,599 in April.
“We expect the shilling to strengthen against the dollar during the coming week due to local currency requirements to meet month and year end obligations,” said Upendo Lyatuu of research and bonds trading at Tanzania Securities Ltd. A drop in inflation rates to 6.3 per cent in November held the shilling stable.
Widening deficits across the East African countries slowed their currencies’ performance, experts said.
“It makes the economies more vulnerable as they seek more capital inflows to finance the deficit,” said Andrew Mold, senior economic affairs officer at Sub-Regional Office for Eastern Africa of the United Nations Economic Commission for Africa based in Kigali.
In Kenya, figures from the Kenya National Bureau of Statistics show that the country imported goods worth Ksh1.04 trillion ($12 billion), Ksh22.7 billion ($263 million) more than in the same period last year.
“There were a lot of exports; the East Africa market is also problematic, with Uganda and Tanzania imposing a 25 per cent excise duty on imports, which has affected Kenyan exports to the region,” said Betty Maina, chief executive of the Kenya Association of Manufacturers.
Source: The EastAfrican, reported from Rwanda, Tanzania, Uganda and Kenya
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