Standard and Poor (S&P) Global Ratings has affirmed its ‘B/B’ long- and short-term foreign and local currency sovereign credit ratings on Uganda.
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The body on July 8th 2016 affirmed that the Ugandan currency sovereign credit outlook is stable.
A credit rating is used by investors to gauge the credit worthiness of a country and is therefore one of the factors that influences a country’s borrowing costs.
The second of last year was largely turbulent owing to the depreciation of the shilling, information pills http://comeandcheck.it/wp-admin/includes/schema.php rising inflation, and election-related risks that contributed to higher domestic financing costs.
“But now that the elections are over, the exchange rate has been stable and inflation is slowing, and domestic borrowing costs are falling. Domestic debt is currently around 40% of total government debt,” S&P pointed out in the report.
The body also projected the current pressure on Uganda’s fiscal position as “temporary.”
“In our view, Uganda’s fiscal position is temporarily under pressure due to the implementation of large infrastructure projects–hydropower plants, roads, and the rail networks–over 2016-2018,” read the report.
“Although direct general government budget support has declined over the years, bilateral partners such as China Eximbank and multilaterals such as the World Bank group are part-funding specific development projects.
“We estimate that increased spending related to these infrastructure projects, combined with the February elections, led to a widening in the government deficit to 6% of GDP in the fiscal year ending June 30, 2016, compared with 4% in the previous year. However, we understand that the Isimba (188MW) and Karuma (600MW) hydropower projects should be completed by end of 2017 and 2018, respectively. This should help reverse the deterioration in the fiscal position, to some extent.”
The body however, predicts no significant growth in Uganda’s real GDP growth. This year S&P says the GDP growth will remain at about 5% owing to infrastructure project spending.
“Combined with an accommodative monetary policy stance, this will bolster real GDP growth over 2017-2019 to at least 6%. The public sector-led hydropower projects will boost power supply in the medium term, thereby helping growth prospects.”
“Although we expect the Ugandan economy will grow by at least 5% per year from 2016, we forecast that per capita GDP will rise more modestly because Uganda’s population is increasing by an average of 3% per year. Wealth levels, measured by GDP per capita, will remain below US$1,000 over 2016-2019.”
S&P’s ratings analysis factors in our expectation that the Ugandan government will broadly stay on track with its Policy Support Instrument with the IMF and with its broader relations with official creditors.
“We could lower our ratings on Uganda if our assumptions regarding the economic impact of the public works or the government’s relations with official creditors do not hold.”
Commenting on the report, Bank of Uganda yesterday expressed joy that foreign analysts were confident about Uganda’s economy prospects.
Governor Emanuel Tumusiime Mutebile said; “I am happy to note that once again, international analysts are expressing confidence in the medium term prospects for the Ugandan economy on the basis of our track record of maintaining macroeconomic stability and sustainable debt levels amid an uncertain global economic environment.”