BoU Warns Sovereignty Bill Could Trigger Shilling Slide, Fuel Inflation Pressures

Kampala, April 28, 2026 - Uganda’s central bank has cautioned that the proposed Protection of Sovereignty Bill, 2026 could destabilise the country’s macroeconomic environment by weakening the shilling, reducing foreign investor inflows, and reigniting inflationary pressures if passed in its current form.

Appearing before Parliament’s Joint Committee on Defence and Internal Affairs and Legal and Parliamentary Affairs, the Governor of the Bank of Uganda warned that the legislation risks undermining decades of financial liberalisation that have supported economic growth and stability.

He stressed that while the intention behind strengthening national sovereignty is legitimate, any disruption to capital inflows could have far-reaching consequences on Uganda’s balance of payments position and foreign exchange reserves. He added that reduced inflows would likely lead to currency depreciation, which in turn would increase the cost of imported goods and push inflation above the central bank’s 5% target.

The central bank further cautioned that Uganda’s foreign reserves, estimated at around USD 6 billion, could come under pressure if investor confidence weakens. It noted that recent stability in the shilling has been supported by a balance of payments surplus of approximately $1.5 billion in the last financial year.

According to the bank, any shock to these inflows could force reserve drawdowns, increasing economic vulnerability.

In recent months, the shilling has shown relative resilience, trading in a range of approximately Shs3,650-3,850 per US dollar. It has also remained broadly stable against regional currencies, supported by export earnings, remittances, and development financing.

However, economists warn that this stability remains fragile and highly dependent on continued foreign exchange inflows. A sustained depreciation, they caution, would raise the cost of imports such as fuel, machinery, and pharmaceuticals, feeding into broader inflation across key sectors including manufacturing and transport.

Over time, a weaker currency could also reduce household purchasing power, increase the burden of foreign-denominated debt, and dampen investor appetite for Ugandan assets.