Moody's maintains Uganda's rating at B1
Mar 11, 2015
International rating agency, Moody’s, has reaffirmed that Uganda is still a good investment destination and is unlikely to default on its loan obligation when it maintained its rating at B1, with a stable outlook in its latest report.
By Faridah Kulabako
International rating agency, Moody’s, has reaffirmed that Uganda is still a good investment destination and is unlikely to default on its loan obligation when it maintained its rating at B1, with a stable outlook in its latest report.
According to Moody’s, the rating was informed by the country’s favourable growth prospects, continued foreign investment and moderate government debt levels, while the stable outlook reflects the country’s prospects for continuing economic growth and fiscal reforms, supported by improving trade conditions and public investment.
This is the third rating after Fitch upgraded the country’s rating from B to B+, stable while Standard & Poor’s (S&P) maintained the country’s credit rating at ‘B/B’ with a stable outlook recently.
The agencies note that prospects of robust economic growth resulting from the ongoing investment in key sectors of the economy, infrastructure investments and a stable political system ensured that Uganda would remain a good risk for investors.
Moody’s notes that despite the fiscal deterioration expected prior to the 2016 elections, government continues to reinforce fiscal policy predictability and attract significant donor support.
It, however, notes that while Uganda’s tax revenue is lower than that of regional peers due to the large size of the informal economy and tax exemptions, it is rising faster than and exceeds current expenditures.
Despite its impressive performance, however, Moody’s says Uganda’s real growth rate has been volatile, falling from 10.4% in 2008 to 2.6% in 2012, due to heavy reliance on rain-fed agriculture.
The 2015 World Bank Doing Business report, a reflection of the business environment of a particular country, ranked Uganda at 150th out of 189 global economies.
But, despite the ranking, Moody’s believes Uganda is susceptible to political risk, banking sector risk and external vulnerability risk, with the country expected to suffer fiscal deterioration ahead of the 2016 general elections.
The high rate of non-performing loans and a few banks controlling about half of the banking industry pose a risk to the banking sector.
RELATED STORIES:
Uganda's credit rating up from stable to positive