Uganda's credit rating up from stable to positive

By Samuel Sanya

Uganda’s Fitch ratings have improved to ‘B’ positive, indicating renewed confidence in the economy by investors.

The Bank of Uganda (BOU) is expected to auction treasury bills worth sh1.04 trillion to fund at least 8% of the national budget. The improved Fitch rating makes it easier to attract buyers.

“The decision by Fitch Ratings to revise Uganda’s credit rating upwards from stable to positive is a vote of confidence in the quality of Uganda’s macroeconomic management and the prospects for our economy,” BOU governor Emmanuel Mutebile said.

“It is only because we have been able to control inflation and maintain fiscal discipline that Uganda has a long track record of robust economic growth,” he added.

Fitch noted that credible macroeconomic management in Uganda has led to sustained and economic growth.

Uganda’s Gross Domestic Product (GDP) is expected to hit 6% this financial year from 5.1% before reaching 7% by 2015 supported by rising infrastructure investment and the development of the oil sector.

The ‘B’ positive rating means that there is very little likelihood of events that may lead to a rating downgrade such as any sustained deterioration in fiscal discipline, or political instability.

It, however, points out that the rating can be downgraded in the event of an extended slowdown in economic growth given the fast population growth. It assumes that there will be no significant drought in the next two years.

Fitch says that there needs to be a renewed commitment to address weak revenue mobilisation through tax reforms, governance, corruption, and structural weaknesses must be addressed to improve ratings.

The country needs to improve on the low GDP per capita ($633), human development levels, and improve the business environment.

It also notes that tax reforms, a higher ratio of government tax revenue to GDP in FY2013/14, and sustained investment in infrastructure could lead to a higher credit rating.

Uganda’s rating is the sixth highest on Fitchs 11 level rating system. The Highest rating ‘AAA’ is enjoyed by countries like Canada, Denmark, Finland, Germany, Norway and Switzerland.

Fitch assumes that growth in the Ugandan economy will be boosted by gradual recovery in the world economy.

“Uganda has a long track record of robust growth averaging 7% for more than a decade, above African peers, helping to lift two thirds of the population out of abject poverty,” Fitch says in a statement.

It notes that growth has been buoyed by strong export performance, completion of Bujagali hydropower station and improved monetary policy management.

Fitch points out that prudent fiscal policy has helped contain increases in government debt at 9.1% of GDP. It noted that the decline in Uganda’s aid dependence over the past decade, falling from 40% in 2002 to 12% of revenue in 2012 is a good thing.

“Commitment to a flexible exchange rate and an open capital account has enabled the economy to adjust to disruptions more quickly than its peers,” Fitch says in a statement.