Exchange Rate Fluctuation and Management of Foreign Donor-Funded Program Budget

Abstract

The study was about the effect of exchange rate fluctuation on the management of foreign donor-funded program budgets. Humanitarian and development agencies receive funding from foreign donors, who require the program budgets and financial reports in their respective country currencies although the actual utilization of the budget in the host country’s local currency during the program implementation. The study explored currency conversion methods and identified the best principles for effective management of the effect of exchange rate fluctuation. The research design used was both quantitative and qualitative where relevant literature related to exchange methods, donor requirements, and average monthly exchange rate data were reviewed. The sampling year used in this study is 3 years, 2021 to 2023 and the currency sample selected was Uganda Shillings (UGX) and United States Dollars (USD). First In and First Out (FIFO), Weighted average exchange rate methods, and daily spot rate methods were the most common currency conversion methods identified during the study. The study further noted the currency conversion method chosen should be documented in the written financial manual of the grant holder for reference. The study identified budget monitoring, requests for budget amendment, effective planning, provision for contingency reserves in the budget, and constant communication with the donors among the best ways to manage the effect of exchange rate fluctuation. The Study, therefore concluded that exchange rate fluctuation has either adverse or favorable effects on foreign donor-funded program budget and needed to be closely monitored and communicated to the donor for further guidance. Keywords: Exchange rate, Fluctuation, Foreign Donor- funded, Program and Budget.