The determinants of the balance of payment in Uganda

Abstract

The purpose of this study was to find out the key determinants of balance of payment and also to determine the impact of each determinant on the Balance of payment in Uganda using secondary data for the period from 1993-2021 obtained from World Bank Development Indicators. The study adapted a VAR model that had lag four as the maximum lag to determine the impact of each determinant selected on the BOP in Uganda. The VAR model showed that The VAR model showed that all variables were highly significant in determining the balance of payment in Uganda. The study found a positive relationship between balance of payment, interest rate and Real GDP and also found a negative impact of inflation and exchange rate on the BOP. The study recommended the government of Uganda, central bank of Uganda, all financial institution and all other stake holders whose activities influence real GDP, real effective exchange rate, and interest rate investment and inflation rate ought to apply relevant measures for better management of Uganda’s balance of payment.