KAMPALA: The International Monetary Fund (IMF) has warned the Bank of Uganda (BoU) over its growing reliance on short-term foreign currency borrowing, even as the central bank begins purchasing local gold to strengthen national reserves.
In its 2026 report, the IMF said BoU’s cross-currency repurchase agreements, commonly known as repos, have nearly doubled to $770 million.
At the same time, Uganda has launched a pilot programme to buy gold from local miners using shillings, refine it, and later include it in official foreign reserves. The programme began in April 2025 and is expected to run for three years.
The Bank of Uganda is purchasing locally produced gold, refining it, and planning to classify it as part of the country’s reserve assets. Similar strategies have been adopted elsewhere, including Ghana, which increased its gold holdings from about 8.7 tonnes in 2021 to more than 40 tonnes in 2025.
Gold is widely used by central banks as a reserve asset, although its value can fluctuate significantly.
The IMF’s main concern is the sharp increase in BoU’s short-term foreign currency borrowing. These repo transactions rose from $400 million in December 2025 to $770 million in 2026.
Repos allow the central bank to access foreign currency quickly by using assets as collateral, but the funds must be repaid or rolled over.
The IMF cautioned that while such instruments can provide short-term liquidity, they carry risks, including refinancing pressure, potential losses if market conditions change, and weaker reserve quality compared to accumulation through sustained inflows.
Uganda’s foreign reserves stood at $6.1 billion in May 2026, equivalent to about 2.7 months of import cover.
The Bank of Uganda said it is using repos to manage short-term foreign exchange shortages when inflows are weak, while maintaining its long-term goal of building reserves through market-based purchases when conditions improve. It also reaffirmed that exchange rate flexibility remains its primary tool for absorbing external shocks.
On the gold programme, the IMF said it could help diversify Uganda’s reserve portfolio but warned of several risks, including price volatility, limited liquidity, overreliance on a single asset class, and challenges in verifying the origin of gold.
The Fund also highlighted broader concerns related to illegal mining, money laundering risks, and weak oversight in the gold supply chain.
The IMF urged Uganda to strengthen supervision and governance of the gold initiative, exercise caution in expanding short-term borrowing through repos, and prioritise steady reserve accumulation through sustainable foreign exchange inflows.
While acknowledging Uganda’s efforts to strengthen its financial buffers, the IMF said both the gold strategy and rising short-term borrowing require stronger oversight to avoid future vulnerabilities.
chimpreports.com