Uganda's foreign exchange reserves shrank 4.3% in the three months to the end of July from the previous three months, extending a recent downward trend, the central bank said in a report published on Wednesday.

At the end of July, the country's stock of reserves was $3.3 billion, equivalent to about three months of imports, down from $3.5 billion at the end of April, the Bank of Uganda said.

The drop was caused by "higher external debt service payments, inability to secure external loans at affordable terms, and limited forex purchase," the bank said.

The central bank has started purchasing gold to help boost and diversify the reserves.

"This reduction in reserve assets underscores the need for improved public debt management and strategies to enhance foreign exchange inflows," the central bank said.

While still sustainable, Uganda's public debt faces a "moderate risk of debt distress" and planning is needed to mitigate potential vulnerabilities, the bank said.

The economy is forecast to grow at between 6.0-6.5% in the 2024/25 (July-June) financial year, partly supported by stronger private sector investment and the start of oil exports, which are expected to commence next year, the bank said.

(Reporting by Elias Biryabarema; Editing by Hereward Holland and Mark Potter)