LONDON, February 21 (Fitch) Fitch Ratings has affirmed Uganda's
foreign and local currency Issuer Default Ratings (IDR) at 'B'
Outlooks. Fitch has also affirmed Uganda's Short-term rating at
'B' and Country
Ceiling at 'B'.
KEY RATING DRIVERS
The affirmation reflects the following factors:
Prudent macroeconomic policies combined with a renewed focus on
investment have enabled Uganda to outpace 'B' peer growth of
4.2% over the past
five years, with the economy expanding on average 5.6%. Fitch
accelerated infrastructure investment and renewed foreign
investment into the
oil sector to lift growth to 7% by 2015. Despite impressive
growth, per capita
income remains low - less than one-third of the 'B' median - due
in part to high
population growth of 3.2%.
The decision to move ahead on the long-delayed 600MW Karuma and
hydropower dams, costing USD2.3bn, is positive for long-term
Weak infrastructure investment, even compared with regional
peers, is one of the
factors curtailing the country's growth potential. In a further
infrastructure investment gaining momentum, the
commercialisation of oil
production has moved one step closer with the signing of a
understanding between oil companies and the government. Fitch
risk to government finances if project and public financial
management is weak.
The development of the hydropower projects has resulted in an
upward revision of
the budget deficit for FY13/14 to 7.1% of GDP from 5.3%. The
strips out the impact of the new loan (net lending), which
should ultimately be
repaid from the project's cash flow, providing a more accurate
assessment of the
government's fiscal stance with the deficit increasing slightly
to 3.6% of GDP
in FY14 from 3.4% of GDP in FY13.
Total government debt as a percentage of GDP has risen steadily
received debt relief in 2006, rising to 33.9% in FY13 from 21%,
but remains well
below the 'B' median of 39.4%. Debt issuance to fund
is expected to lead to debt as a percentage of GDP rising to
35.1% in FY14.
Government deposits are high at 20% of GDP, due to past issuance
of debt for
monetary policy purposes. Consequently, net debt as a percentage
of GDP is a
The current account deficit is forecast to increase to 12.9% of
GDP in 2014, up
from 10.4% in 2013 driven by a sharp increase in capital imports
for the two
large hydropower dams. The import-intensive phase of these
projects is expected
to last for two years, with about 75% of the USD2.3bn value of
the project being
The rating remains constrained by weak governance and a weak
environment, both below the 'B' median.
The main factors that could lead to an upgrade are:
- A continued recovery in economic growth supported by further
infrastructure and a continued track record of prudent economic
- An increase in the ratio of government tax revenue to GDP in
combined with further reforms to improve the tax take.
The current rating Outlook is Positive. Consequently, Fitch's
analysis does not currently anticipate developments with a
of leading to a downgrade. However, any sustained deterioration
discipline, macroeconomic stability and/or political stability
adverse consequences for the rating, as would an extended
slowdown in growth
given the fast population growth.
Fitch assumes that growth will recover to 7% by 2015 supported
infrastructure investment and the development of the oil sector.
will start outside of the forecast horizon. No drought is
Fitch assumes that the pace of structural reform will continue,
in addition to
the authorities' commitment to prudent economic policies.
Political stability is maintained.
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Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 09 August 2013, are available at
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