Kampala — UGANDA'S balance of payments surplus hit $19m in June compared with a deficit of more than $100m in the same period of the previous year on informal trade, the central bank said on Thursday.

The Bank of Uganda has predicted that economy's 2009/10 balance of payments will run a deficit of $134.77m after a $21.84m deficit in the previous financial year.

Total exports rose nearly 50% in June to $333.29m from $223.6m in June 2008 driven by informal cross border trade especially industrial products, it said.

"The economy continued registering a trade surplus in June 2009, driven largely by robust performance in the informal cross border trade," the bank said in a monthly report.

Informal trade soared 193 percent to $219m in June from $74.75m in the same month last year, the bank said. Total imports fell 5.3% to $314.28m in June compared with $331.77m in the same month last year, it said.

Government imports rose 69% to $14.48m and private sector imports fell 7.2% to $299.8m. Official aid inflows, excluding project aid, came to $51.9m in June, and net private sector transfer inflows were $55.4m.

Foreign exchange reserves decreased to $2.44b in June compared with $2.68b in June last year and $2.47b in May this year, the bank said. Import cover for goods and services also fell to 5.1 months from 5.6 months in June 2008.

Meanwhile, Uganda and the World Bank signed three pacts worth a total of $325m on Thursday to fund infrastructure, education and peace and recovery projects in the east Africa nation, the lender said.

The World Bank said it would extend credit to Uganda to fund universal primary education programmes, develop the north as it recovers from two decades of war and rural energy projects.

Uganda's aid to gross domestic product ratio has averaged around 10% annually for the past decade, according to a central bank report.

Reuters

East Africa's third largest economy has been trying to scale back donor support for its budget, which currently stands at around 30 percent

Uganda's central bank plans "frequent" interventions mainly with repos from September to help stabilise short term money market rates, its director of financial markets said on Thursday.

Short-term rates in east Africa's third largest economy usually run on a two-week cycle, rising one week and falling the next, and rates creep up during a crunch following the end of the fiscal year and another mini-tightening in December.

"The purpose is to create more stability in the short term money markets rates," Stephen Kaboyo told reporters. "The repo instrument will be the principle instrument."

"(It's a) proactive approach ... Liquidity will be more stable ... this will lead to stability in short term rates," he said, adding that the frequency would be on a daily basis.

The new policy will take effect on September 1 and will be based on projections of government operations, reserves, the reserve money path and interbank interest rates, the bank said.

"There's definitely going to be more action in government securities ... rates will definitely crash," a fixed-income dealer said. Yields for 364-day government paper fell to 12.936 percent on Wednesday from 13.409 percent at the last auction.

End of year taxes in June and slow government expenditure at the start of the July-June year traditionally create a liquidity shortfall, and rates also rise in December due to Christmas spending and mid-year taxes, traders say [ID:nLE296172].

The Bank of Uganda said that it hoped the policy would iron out the liquidity issues facing Uganda's markets. It said that pricing of repos would remain unchanged.

Kaboyo said that scheduled auctions of government securities would be unaffected by the policy. He told Reuters last Friday the central bank was mulling a ten-year domestic bond and that yields on government paper were expected to fall. [ID:nLL43435]

Uganda usually holds bi-monthly treasury bill auctions and has a domestic debt strategy with a 40:60 ratio of treasury bills to bonds.

Fitch, the ratings agency, upgraded the country's outlook to positive last week from stable. [ID:nLJ51783]

Editing by Toby Chopra