Uganda gets ‘B’ economic rating
Oct 18, 2010
INTERNATIONAL credit rating agency Fitch has assigned Uganda a “B†rating with a positive outlook, though the country’s growth momentum is dampened by the ongoing tax dispute that has pitted the Government against exploration company Heritage Oil.
By Sylvia Juuko
INTERNATIONAL credit rating agency Fitch has assigned Uganda a “B†rating with a positive outlook, though the country’s growth momentum is dampened by the ongoing tax dispute that has pitted the Government against exploration company Heritage Oil.
The rating issued on Friday was lower than last year’s outlook of “B+.â€
Purvi Harlalka, the associate director at Fitch’s sovereigns group, explained that the agency’s positive outlook was based on Uganda’s two billion barrels of discovered oil that will have a large positive impact on its growth potential, balance of payments and public finances, once they come on-stream.
“However, the commercial development of the oil has stalled temporarily, pending the resolution of a tax dispute with the exploration companies and finalisation of plans to build a refinery.
“Failure to decisively settle these issues would push the production timeline back further and dampen the positive momentum,†Harlalka argued.
Fitch noted that the ratings was based on a robust growth performance and a track record of prudent macroeconomic management against low per capita incomes and a poor business climate.
“The ratings are also underpinned by the cautious administration of public finances, which has contained Uganda’s fiscal deficit (including grants) to an average of 2.1% of GDP over the last 10 years,†the agency said.
The highest rating for Fitch is AAA considered an investment grade.
Fitch pointed out that the fiscal discipline and low debt levels gave the country room to accommodate increased infrastructure spending that will lead to widening of the fiscal deficit to 3.9% of GDP in financial year 2011 from 1.7% in 2009.
Fitch indicated increasing domestic revenue collection that has stagnated at12-13% of GDP for over a decade as one of the areas that needed improvements.
It said revenue mobilisation efforts had yielded limited success in the past despite improved administration.
“This suggests that achieving the targeted 1.5% of GDP increase in the revenue ratio over the life of the new three-year policy support instrument signed with the International Monetary Fund may be difficult and Uganda may have to increase borrowing.â€
The ratings are supported by stability under President Yoweri Museveni, who has ruled for the last 24 years.
Fitch expects him to be returned to power in the 2011 presidential polls for a fourth term though his prolonged rule highlights the importance of an orderly succession.
African countries are looking to ratings as an important precondition to accessing international markets.
INTERNATIONAL credit rating agency Fitch has assigned Uganda a “B†rating with a positive outlook, though the country’s growth momentum is dampened by the ongoing tax dispute that has pitted the Government against exploration company Heritage Oil.
The rating issued on Friday was lower than last year’s outlook of “B+.â€
Purvi Harlalka, the associate director at Fitch’s sovereigns group, explained that the agency’s positive outlook was based on Uganda’s two billion barrels of discovered oil that will have a large positive impact on its growth potential, balance of payments and public finances, once they come on-stream.
“However, the commercial development of the oil has stalled temporarily, pending the resolution of a tax dispute with the exploration companies and finalisation of plans to build a refinery.
“Failure to decisively settle these issues would push the production timeline back further and dampen the positive momentum,†Harlalka argued.
Fitch noted that the ratings was based on a robust growth performance and a track record of prudent macroeconomic management against low per capita incomes and a poor business climate.
“The ratings are also underpinned by the cautious administration of public finances, which has contained Uganda’s fiscal deficit (including grants) to an average of 2.1% of GDP over the last 10 years,†the agency said.
The highest rating for Fitch is AAA considered an investment grade.
Fitch pointed out that the fiscal discipline and low debt levels gave the country room to accommodate increased infrastructure spending that will lead to widening of the fiscal deficit to 3.9% of GDP in financial year 2011 from 1.7% in 2009.
Fitch indicated increasing domestic revenue collection that has stagnated at12-13% of GDP for over a decade as one of the areas that needed improvements.
It said revenue mobilisation efforts had yielded limited success in the past despite improved administration.
“This suggests that achieving the targeted 1.5% of GDP increase in the revenue ratio over the life of the new three-year policy support instrument signed with the International Monetary Fund may be difficult and Uganda may have to increase borrowing.â€
The ratings are supported by stability under President Yoweri Museveni, who has ruled for the last 24 years.
Fitch expects him to be returned to power in the 2011 presidential polls for a fourth term though his prolonged rule highlights the importance of an orderly succession.
African countries are looking to ratings as an important precondition to accessing international markets.