KAMPALA: The Ugandan Shilling was flat against the dollar on Friday and is expected to tread water ahead of the 2014/15 budget speech next week when the government is expected announce an increase in public borrowing.
At 0921 GMT commercial banks quoted the shilling at 2,565/2,575, unchanged from Thursday's close.
Uganda's government has so far failed to reach its tax revenue targets, and may resort to borrowing from the market to meet its annual budget.
A surge in public borrowing through treasury bills or bonds would drain the local currency from the market and help strengthen the shilling, traders said.
Uganda's 2014/15 budget speech is due to be read on June 12.
"We think if there's a significant rise in the amount the government is planning to borrow then there should be a positive market response for the shilling as that would potentially weaken credit flow," said Faisal Bukenya, head of market making at Barclays Bank. The central bank has frequently drained excess liquidity through repurchase agreements (repos) to support the shilling.
On Friday the central bank mopped up 214 billion shillings ($83.27 million).
Revenue collection has been dwindling and figures from the Uganda Revenue Authority show that tax revenue for the period to March during the 2013/2014 fiscal year was about 6 trillion shillings ($2.33 billion), against a target of 6.5 trillion shillings. Analysts have said poor revenue performance reflects broader lethargy in the economy which was manifested through slow consumer spending and soft importer demand for dollars.
The central bank has already downgraded its projection for 2013/14 economic growth to 5.7 percent from 6 percent. Peter Mboowa, trader at KCB Bank, said the shilling would trade between 2,560-2,590 to the dollar over the next week.
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