Monday, December 15, 2008

Uganda attains B+ credit rating

By Sylvia Juuko, The New Vision, 14/12/2008

STANDARD & Poor (S&P) has assigned Uganda a single B+ sovereign credit rating (a stable outlook) but warns this would come under downward pressure due to governance issues and donor dependency.

Remy Salters, the S&P’s credit analyst, noted that another risk to the rating was the return of insurgency to some parts of the country and the challenges posed by high population growth.

“The ratings are constrained by Uganda’s low economic development, its dependence on donor funds, a lack of record of democratic government hand-overs and the long-term challenges stemming from rapid population growth,” said Salters in a statement.

But Elias Kasozi, the executive director of operations at the central bank, said the rating was a vote of confidence in Uganda’s economic policies.

“This is a Christmas present. This helps buttress investor confidence, which can come in form of Foreign Direct Investments or portfolio investments,” he told journalists during a press briefing on Friday.

“If you are to borrow on the international market and your rating is good, then the cost of borrowing is reduced,” Kasozi added.

This is an improvement from another rating agency, Fitch, that assigned Uganda a “B” with a stable outlook in June.

Kasozi said the rating had put the country in the league of countries like Ghana and Mozambique. The highest rating by S&P is AAA.

The ratings were supported by the country’s strong fiscal and external balance sheets following multilateral debt relief and good growth prospects.

Going forward, S&P said upward movement of the country’s rating would require a sustained period of growth in double digits, combined with steadily approved development outcomes across the country, prudent allocation of oil production proceeds and prudent macro-economic policies.

Economists said the ratings confirmed that the economy was making progress but was still weighed down by challenges.

“Progress has been made at the structural and policy level but it underpins the recognition that there are challenges to move into double digit growth and get this growth replicated across the country,” said an economist.

According to S&P, Uganda was poised to maintain real gross domestic product growth above 6% during the global ou turn, rising back to high single digits by 2011.

This growth would be supported by infrastructure investments and new found oil production.

“Moreover macro-economic stability is underpinned by a policy support instrument with the International Monetary Fund and strong relations with donors,” Salters noted.