Kampala, Uganda — Uganda has preserved its fourth-place ranking in the Absa Africa Financial Markets Index for 2023, despite a slight decrease in its overall score from 64.4 to 62.8.

The index, which assesses financial market development in African countries, highlighted areas of both improvement and challenge for Uganda, particularly in access to foreign exchange and local investor capacity.

A significant factor contributing to the decline was a weaker performance in the access to foreign exchange (Pillar 2), with Uganda’s score dropping by 10 points to 67. This was attributed to a decrease in interbank foreign exchange turnover and a reduction in international reserves, which fell nearly 18% to $3.6 billion in 2022, equating to 3.4 months of import coverage, down from 4.6 months the previous year.

On the other hand, Uganda showed progress in the macroeconomic environment and transparency (Pillar 5), where its score improved by one point to 86, maintaining its second-place position in this category. The improvement was driven by a slight decrease in external debt as a percentage of GDP and by the country’s continued high marks for policy transparency, macroeconomic data standards, and a relatively low inflation rate.

Analyst’s view

Jeff Gable, Chief Economist at Absa, said despite the recent uptick, inflation in Uganda is expected to briefly touch the 5% target mid-year before settling at 4.4% by December 2024, with an average of 4.2% forecast for the year, compared to 5.4% in 2023.