Analysis of recent UGX/ KES performance against the USD

The Ugandan shilling (UGX) has outperformed the Kenyan shilling (KES) against the US dollar (USD) by 20x in the last 5 years. 

However, looking more closely into the past 1 year, the KES has outperformed the UGX. This article will discuss the recent performance of the two currencies and what it means for investors.

Recent performance

In the past 5 years, the UGX has depreciated by 1.2% against the USD, compared to 24% by the KES. According to the Kenya Parliamentary Budget Office report 2023, this trend of the shilling weakening can be attributed to various factors such as Kenya's high inflation rates, high public dollar debt, and political uncertainty. On the other hand, Uganda has shown more political stability and relatively lower inflation rates, which have contributed to the better performance of the UGX.

Performance of UGX and KES against the USD in last 5 years

Drilling further into the data, we see that in the past 1 year, the KES has depreciated by 10% against the USD compared to 15.6% for the UGX. 

Our analysis of the two currencies suggest that the KES is expected to depreciate further against the UGX in the coming years. The Kenyan government has been struggling with high public debt, with the IMF warning Kenya of high debt distress levels. This may lead to further currency depreciation as demand for hard currency for debt repayments outstrips its supply. 

Source: Haba Capital

Additionally, a recent CBK report revealed that Kenya’s forex reserves had fallen to an 88-month low, pointing to the pressure of high inflation and public dollar debt. This can negatively affect the country's economic growth.

Conclusion

For investors keen on deploying USD and are choosing between UGX and USD, it is advisable to invest in UGX especially for the short-term investments. The past isn’t a predictor of the future but it can inform our opinions on how that future would look like.