Determinants of balance of payment position in Uganda: the monetary approach

Abstract

This study applied the monetary approach to examine the determinants of Uganda’s balance of payments position using the ARDL model from 1983 to 2020. The study results revealed the presence of short and long-run relationships between Uganda’s balance of payments position and the regressors. Specifically, the results demonstrated that domestic credit, real effective exchange rate, inflation rate, real interest rate and trade openness are the long-run determinants of Uganda’s balance of payments position while inflation rate is the short-run determinant of Uganda’s balance of payment position. This study recommends policies that are fastened towards ensuring a stable balance of payments position. In particular, policies supporting export promotion strategies and providing short-, medium and long-term credit to productive investments are deemed to fetch high foreign exchange earnings and thus offsetting the country’s balance of payments disequilibrium.