Uganda’s Central Bank Begins Gold Purchases to Bolster Foreign Reserves

Uganda’s central bank has launched a program to buy locally-produced gold to strengthen its foreign reserves and navigate challenges in international financial markets. This initiative aims to mitigate declining foreign currency reserves and address emerging risks, as outlined in the Bank of Uganda’s (BoU) June State of the Economy report.

The BoU’s new domestic gold purchase program is set to decrease Uganda’s gold exports, which saw a significant rise in revenue from $201 million in the previous year to $2.3 billion last year. “The gold purchase program will help in accumulating foreign currency reserves and address the associated risks in the international financial markets,” the bank stated.

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As of April 30, 2024, Uganda’s foreign exchange reserves were approximately $3.5 billion, equivalent to 3.2 months of import cover, a slight drop from the previous year’s 3.4 months. The central bank attributed the decline in reserves to increased external debt repayments and a reduced ability to buy foreign currency due to the depreciation of the local currency.

Uganda’s gold production capacity has seen a significant increase in recent years, with investments from various entities, including Belgian refiner Alain Goetz, establishing processing facilities in the country. Despite this growth, there are concerns that some of the gold might be sourced from the conflict-ridden eastern Democratic Republic of Congo.

Adam Mugume, an economist and director of research and policy at BoU, explained that the bank plans to purchase gold directly from local artisanal miners. This gold will be processed to at least 99.5% purity and then converted into monetary gold. “This initiative is expected to support the government’s ongoing value addition to the minerals and Import Substitution Strategy by reducing the imports of raw gold into the country,” Mugume added.

By buying gold directly from artisanal and small-scale miners, the BoU aims to support their livelihoods and create positive economic spill-over effects, aligning with the bank’s mission to support the government’s socioeconomic transformation.

The move reflects a strategic shift in how Uganda is managing its economic resources, ensuring that the country can maintain adequate foreign reserves to support its financial stability in a volatile global market.