Government to contract in Uganda Shillings only

The permanent secretary, ministry of finance, Keith Muhakanizi has instructed all accounting officers in government to issue contracts for the supply of goods and services in local currency and not foreign currency.

Hitherto, government contracts on works, goods and services were paid either in local or foreign currency. Muhakanizi argues in the letter dated 15th January 2016, that paying in foreign currency has placed significant pressure on the shilling.

Since January 2015, the shilling has lost 21% of its value against the dollar. This implies that for every dollar, government needs to fork out an extra sh750 on average.

Muhakanizi said that awarding contracts in foreign currency causes shilling depreciation which culminates into supplementary expenditure.

"You will note that since budgeting is done in Uganda shillings, awarding contracts in foreign currency has an implication on the budget execution particularly when the exchange rate is unstable," he says.

"Therefore, in order to streamline budget implementation and minimize shortfalls and supplementary requests, all Government contracts will only be issued in Uganda shillings going forward,

"This however, will not affect all contracts which have been concluded and signed," he adds.

Despite the good intentions however, Fred Muhumuza, an economist says that restricting contracts to Uganda shillings might not have a real impact on the shilling and the budget implementation.

He says that if some of the deliverables in the contracts are in dollars, part of the contract has to be in dollars, especially for foreign contractors.

"Even when the contractors are local, still there are some deliverables that have to be procured from abroad in foreign currency. The contractors could inflate budgets and ask for much more than the job requires so as to hedge themselves (from the exchange rate risk),

"The permanent secretary has still not resolved the fundamental issue of hedging (against the exchange rate risk)," he added.