The third major credit rating agency, Fitch Ratings, has maintained its assessment of Uganda’s capacity and willingness to honour its debt obligations, a decision it said was supported by the country’s strong growth outlook and relative macroeconomic stability.
Fitch kept Uganda’s credit rating at B+ — categorised under the speculative grade, and on par with Nigeria, Rwanda, Kenya, and Sri Lanka — and on a stable outlook. The decision was announced last week.
The rating reflects “Uganda’s strong medium-term growth outlook and track record of relative macroeconomic stability, balanced against persistent twin deficits,” Fitch said, and is “constrained by low GDP per capita, a weak business environment, and political risks related to the lack of a clear succession plan for the long-serving President Museveni.”
Fitch’s decision follows a similar one by Standard and Poor’s which in June affirmed its ‘B/B’ long- and short-term sovereign credit ratings on Uganda with a stable outlook. The B category is considered speculative grade, according to S&P’s rating definitions.
Standard and Poor’s said the ratings were supported by Uganda’s still-moderate government debt stock and monetary policy credibility and constrained by its low GDP per-capita and “still large, albeit narrowing, fiscal deficits.”
The two agencies expect Uganda’s economy to expand at a faster rate than in the previous year, with Fitch predicting growth of 5.8% in the financial year ending June 2019 and 6% in 2020, while Standard and Poor’s said it will accelerate to 6.0% per year over 2018-2021.
Fitch said growth will be boosted by oil production which it expects after the financial year starting July 2022, while Standards and Poor’s based its prediction on the greater availability and efficiency of power generation following the completion of the government-led hydropower projects.
Both, however, identify rain-dependent agriculture as a risk to growth. Fitch adds that “low levels of private-sector credit growth will continue to act as a drag on economic growth.”
The two agencies also draw attention to Uganda’s increasing public debt, driven by public investments in infrastructure, even as they note that its composition is favourable – “long-dated, concessional or near-concessional”, according to Fitch. Uganda’s government debt rose to 36.8% of GDP from 26.8% between 2012/2013 and 2016/2017 as external borrowing replaced grants in financing deficits, Fitch said.
It forecasts debt to rise to 38% of GDP by the end of this financial year, peaking at 46% of GDP in 2021/2022. “Although this is in line with the authorities plan to keep debt under 50% of GDP, rising levels of debt limit the country’s ability to deal with shocks,” it said.
Standard and Poor’s added that Uganda’s debt will also change from the current predominantly long-term concessional debt from multilateral and bilateral lenders as it gains greater access to Chinese loans.
Imports will also increase over the next five years due to higher oil prices and public investments in infrastructure, widening the country’s current account deficit, the two agencies said.