New credit rating shows confidence in economy

By Faridah Kulabako

Uganda has received a second approval as a good investment destination in just two months, after Fitch, an international credit agency, improved its rating.

The agency upgraded the country’s rating from ‘B’ to ‘B+’ indicating that the economy presents huge opportunities for investors seeking to get good returns on investment.

Prudent macroeconomic policies and robust economic growth resulting from tight monetary policy stance and infrastructure investments, make the country stand out from its peers in the region, whose rating stands at B.

According to the Governor, Bank of Uganda, Prof. Emmanuel Tumusiime-Mutebile, “the rating is a clear indication of the prudence with which macroeconomic policies are formulated and implemented in Uganda and further re-affirms the strong prospects for the economy.”

The report, released on Friday, indicates that the implementation of effective monetary policies has helped contain inflation, which fell to 4.3% last year, from 18.7% in 2011.

The improved rating means that Uganda is less vulnerable and it is unlikely that it can default on its sovereign debt obligations.

The agency projects Uganda’s revenue as a percentage of Gross Domestic Product – the total value of a country’s goods and services – to increase to 13.2% in the current financial year, from 11.2% in the previous year, due to measures undertaken to make the country less dependent on aid, such as increasing the taxable base.

The Uganda Revenue Authority also cut tax exemptions, thereby improving tax collections.

Grants as a percentage of revenue fell to 8% in the 2013/14 financial year from 15% in 201/12 and 40% in 2001/02.

Last month, Standards & Poor’s (S&P), another rating agency, maintained the country’s credit rating at ‘B/B’ with a stable outlook on the back of robust economic growth due to investment in infrastructure, coupled with a stable political system.

Both agencies project Uganda’s real Gross Domestic Product as expected to grow at an average of 6.4% annually, over the next few years, owing to public sector infrastructure investments and increased electricity production.

This is expected to help keep fiscal and external debt dynamics in check over the next year.

Alpha Capital Partners managing director Stephen Kaboyo said the rating reflects that Uganda has pursued sound macroeconomic policies of free market, flexible exchange rate regime, and open capital account, which enables the economy to adjust to disruptions quickly. He added that the rating is expected to boost investor confidence.

“Investors closely follow these opinions in order to make proper assessment of where to invest, so this is a positive for Uganda,” Kaboyo said.