Standard & Poor’s maintains Uganda’s credit ratings

Standard & Poors has affirmed Uganda’s long-term and short-term credit ratings at ‘B/B’, citing the country’s solid growth prospects backed by high spending on public infrastructure projects.

A debtor rated ‘B’ is “more vulnerable to nonpayment than obligations rated ’BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation.” However, the debtor is at risk of not meeting its financial commitments on the obligation in the event of adverse business, financial, or economic conditions.

The agency also has a stable outlook on Uganda.

Related: Why credit ratings matter and why they can’t be ignored

The government’s investments in hydropower projects – the 183MW Isimba and 600MW Karuma dams, expected to be complete by the end of 2019 – will boost power supply in the medium term and spur stronger GDP growth, S&P said.

The ratings agency said on Friday that the decision was constrained by Uganda’s low average income rates and large but falling fiscal deficits.

“Although we expect strong economic growth over 2017-2020, we forecast that per capita real GDP will rise more modestly at an average 2% because the population is increasing by a high average of 3% per year,” the agency said. “Wealth levels, measured by GDP per capita, are likely to remain below US$1,000 over 2017-2020, despite rapid growth.”

It added that the government’s ability to spend on improving shortfalls in basic services and infrastructure to shore up low wealth levels is limited by low revenues.

“Since 2015, Uganda’s net annual general government borrowing has been sizable because it has implemented several large infrastructure projects (hydropower plants, roads, and the rail networks) over 2016-2018, ” the agency said. This, combined with spending on last year’s general elections, saw the government deficit rise to 5% of GDP in 2015/15 from 4% in the previous year.

The agency also expects the government’s debt to increase to 32% of GDP over 2017-2020, while the interest-to-revenue ratio will average about 14%.