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NSSF Reports Significant Foreign Exchange Losses in 2022/23 Financial Year


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The National Social Security Fund (NSSF) has reported substantial foreign exchange losses in its annual report for the 2022/23 financial year, with a total loss of Shs1.05 trillion. These losses were primarily attributed to economic uncertainties, particularly in Kenya and the wider East African region.

The report reveals that foreign exchange losses increased significantly from Shs13.4 billion to Shs1.05 trillion during this period. This surge in losses was the result of a combination of capital flight and restricted cash flows from cross-border equity investments.

The largest portion of these losses, as noted in the report, stemmed from amortized debt instruments, which rose from Shs18.99 billion in June 2022 to Shs831.67 billion.

Internally managed equity securities also incurred losses, increasing from Shs3.6 billion to Shs200.8 billion, while income from dividends from externally managed equity securities performed well, rising to Shs13.16 billion from Shs4.39 billion.

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The main reason behind these foreign exchange losses was the depreciation of foreign currencies against the Uganda shilling, particularly the devaluation of the Kenyan shilling. NSSF acknowledged that these losses present market risks in its business model, impacting the income from its financial instrument holdings.

These losses are primarily the result of market risks associated with fluctuations in equity prices, interest rates, and foreign exchange rates. Despite these challenges, NSSF remains focused on its long-term investment strategy and is confident in the resilience of its investments.

NSSF’s investments include holdings in companies such as Safaricom, Tanzania Breweries, Bank of Kigali, East African Breweries, Trade and Development Bank, Twiga, CRDB Tanzania, and Equity Group, among others. However, these investments have exposed the Fund to currency risks, leading to foreign currency gains or losses.

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To manage these risks, the Fund matches foreign currency assets to liabilities when deemed necessary, maintaining an acceptable level of net exposure with regard to monetary assets and liabilities in foreign currencies.

NSSF also addressed concerns from members regarding the holding of stocks like Uganda Clays, explaining that the losses from such companies are often offset by dividends from better-performing companies, demonstrating the essence of diversification in its investment strategy.

Due to the requirement to provide savers with an interest rate 2 percentage points higher than the 10-year inflation rate, NSSF has reduced its investment in equities to mitigate potential losses. For the period ending in June 2023, the interest rate exceeded 3 percent above the 5.8 percent 10-year average.

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NSSF’s investments are diversified both within and outside Uganda, with 12.51 percent in equities, 9.01 percent in real estate, and 78.48 percent in fixed income. Despite the foreign exchange losses, the Fund reported an increase in investment income, rising from Shs1.9 trillion to Shs2.2 trillion during the review period.

Additionally, the Fund’s assets under management increased from Shs17.26 trillion to Shs18.56 trillion. NSSF has set a goal to grow its assets to Shs20 trillion by June 2024, a year earlier than initially planned, serving more than two million savers.