The country’s inflation dropped to 3.3% in March from 3.4% in February, driven by a reduction in food inflation which dropped to -0.4% from 0.5%. Still, the policymakers maintained that elevated inflation risks persist due to global factors and exchange rate woes.

Michael Atingi-Ego, BoU deputy governor, said in a virtual briefing on Monday that the country’s core inflation is projected to rise between 5.5% to 6% in the next 12 months, and will return to the 5% target in the second half of 2025.

“The evolution of inflation remains challenging, influenced by factors such as the shilling exchange rate, supply-side shocks, global inflation, and domestic food supply. Forecasts have been adjusted downwards to the previous round, largely due to [the] relative stability of the shilling exchange rate,” Atingi-Ego said.

The BoU’s raise is expected to continue shoring up the Ugandan shilling, which has been in a free fall since February. Atingi-Ego said that the shilling’s drop was caused by foreign investors withdrawing funds from Uganda to look for higher yields in other markets.

The local currency, one of the best performing in Africa at the start of the year, has dropped by 4% despite the central bank’s interventions. 

“The recent CBR increase has had a spillover effect of stabilising the shilling exchange rate. However, the shilling remains vulnerable due to outflows of short-term foreign investor funds from the domestic market in search of attractive yield in other markets and strong domestic demand by corporates,” Atingi-Ego said.

The BoU’s growth forecast for the country’s economy for the current fiscal year that ends in June remained at 6% despite the challenging macroeconomic environment.

The reclassification means the three banks can only accept customer deposits and hold savings accounts. However, they will not be able to open current accounts for customers or trade in foreign currency.

“The change of the status of the three commercial banks to credit institutions follows decisions by the respective boards of directors, to adopt a strategic shift and reposition these institutions to serve their core customer base,” BoU announced in a statement on Wednesday.

In 2023, Uganda’s finance ministry passed regulations requiring commercial banks operating in the country to have at least $38.6 million as a capital buffer, up from $6.4 million. The three lenders, fearing they could not meet the June 30, 2024 deadline, applied to be reclassified.

“These three institutions have been granted a transition period of three (3) months, starting from April 1, 2024, to June 30, 2024, during which they will make adequate arrangements to phase out products and processes that require a Tier I License,” BoU said.

The central bank added that GTBank, ABC Capital Bank and Opportunity Bank meet the capital requirements for a Tier II license.

In a statement seen by TechCabal, GTBank said it applied for the reclassification because it believes this is the right decision for the bank which is aligned with the objectives of its Holding Company, considering global economic realities.

“Continuing operations as a Tier 2 Credit Institution is within the Bank’s current capital base and will allow us play to our core strengths in Retail and SME Banking,” said Jubril Adeniji, Managing Director, of GTBank Kenya and Head of the East African region. “As we make this transition, we will continue to review our positioning within the Ugandan banking sector in line with our objective of maximising shareholder value.” 

Under the new regulations, the minimum capital requirement for a Tier II license is $6.4 million from $275,802. Other financial institutions affected by the new directives include microfinance deposit-taking institutions, which will now have to raise $2.5 million, and foreign exchange bureaus.

Overall, about seven banks have yet to meet the new capital requirements ahead of the deadline.

*Editors note: A previous version of this article showed that GTBank was downgraded. This has been adjusted.

Unknown individuals have made four attempts to illegally transfer US$24 million (UGX81 billion) from the Bank of Uganda to accounts located outside the country.

Officials within the Government of Uganda are believed to have shared passwords with tech-savvy individuals who then logged in to the financial management system and targeted the accounts of the Defence, Energy and Agriculture ministries and the Uganda National Roads Authority (UNRA). 

These accounts routinely handled large transfers, so the planned theft would have appeared as a normal transaction at the time.

The transactions were initiated through the Integrated Financial Management Information System (IFMIS) at the Ministry of Finance, an information system meant to keep track of transactions carried out by and on behalf of the Government.

The payments were to be processed through Bank of Uganda and wired to fictitious companies in Hong Kong and the United Arab Emirates.

US$8 million (UGX27 billion) was wired to banks in Hong Kong and the United Arab Emirates, but this has since been retrieved through inter-bank procedures and returned in February 2016.

The first of three attempted transfers happened in July 2015, when US$12 million (UGX40 billion) was targeted. The plot was foiled, but this did not deter the individuals, who then attempted to steal $2 million (UGX6.7 billion) in December 2015.

In January 2016, another attempt was made to withdraw US$2.3 million (UGX8 billion) but the transaction was detected and terminated.

The Ministry of Finance first notified Uganda Police of the breach of security when the first attempt was made in July. Three suspects have since been arrested and are in police custody.

While IFMIS as an information system is secure, it is unclear how the fake companies were registered on the system, raising suspicions of possible collusion between government officials and hackers outside the country.

The attempted fraud comes three years after Uganda instituted financial integrity measures to seal loopholes following the theft of US$17 million (UGX60 billion) in donor funds meant for northern Uganda from the Office of the Prime Minister.

Kenya has also seen similar losses through fraudulent transactions carried out on IFMIS. 791 million shillings (US$ 7.8 million) cannot be accounted for, and the circumstances around that loss are similar to what has happened in Uganda.

Systems such as IFMIS have been introduced as a means to eliminate corruption, but they are not entirely foolproof. Where there’s a will, there’s a way, especially when the will is to break into and steal from a system designed to prevent theft.

The major weak point appears to be shared passwords and remote access, meaning that individuals can log in and impersonate government officials, creating accounts and initiating transfers to these accounts. The theft is likely to continue as long as these transactions are carried out without oversight and approval.