Ratio Magazine :: The Inside Track to East Africa’s Economies - Uganda: Press Releases: Standard & Poor’s Assign B+ Rating, Stable Outlook

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Uganda: Press Releases: Standard & Poor’s Assign B+ Rating, Stable Outlook

Wednesday, 10 December 2008

9 December 2008 --- Standard & Poor's Ratings Services today said it had assigned its 'B+' long-term and 'B' short-term foreign and local currency sovereign credit ratings to the Republic of Uganda. At the same time, a Transfer & Convertibility assessment of 'BB' was assigned. The outlook is stable. With this new rating, Standard & Poor's now rates 121 sovereign governments worldwide.

"The ratings are constrained by Uganda's low economic development, its dependence on donor funds, the lack of a track record of democratic government handovers, and the long-term challenges stemming from rapid population growth," Standard & Poor's credit analyst Remy Salters said. "They are supported by relatively unlevered fiscal and external balance sheets following debt relief, good fiscal-monetary policy coordination, strong relations with donors, and good growth prospects on the back of ongoing investments."

GDP per capita stood at about $400 in mid-2008, five times below the 'B' median but not out of line with some Sub-Saharan African peers' ratios.

In the shorter term, Uganda is well placed to maintain real GDP rates above 6% through the global downturn, rising back to high single digits by 2011 on the back of infrastructure investments and newfound oil production. Moreover, macroeconomic stability is underpinned by a Policy Support Instrument (PSI) with the IMF and strong relations with donors.

General government deficits have averaged a moderate 2% of GDP including grants over the past five fiscal years (ending June 30), and we do not expect them to rise above 3% in the period to fiscal 2010/2011 despite efforts to ramp up development expenditure, keeping public debt at no more than 25% of GDP (including guarantees).

The country's external balance sheet benefited significantly from the Multilateral Debt Relief Initiative. We expect narrow net external debt to remain no more than 5% of current account receipts (CARs) in the period to 2011, while the public sector should remain in a net external creditor position of more than 10% of CARs. External liquidity is comfortable, with usable reserves at about five months of current account payments, but this masks Uganda's substantial reliance on official and private transfers.

The stable outlook balances the strength of Uganda's key fiscal and external indicators against its development challenges, its still high donor dependence, and its untested democratic processes in a handover situation, which pose background risks to policy continuity.

"The ratings could come under downward pressure if donor relations deteriorated sharply, insurgency or instability returned to parts of the country, or the authorities failed to address the challenges posed by demographics," Mr. Salters said. "Upward movement would require a sustained period of growth in the double digits, combined with steadily improved development outcomes across the country, prudent allocation of oil production proceeds, and still prudent macroeconomic policies."

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