S&P Global affirms Uganda's B/B foreign and local currency

S&P Global Ratings recently affirmed Uganda's B/B foreign and local currency long- and short-term sovereign credit ratings, despite the country facing significant fiscal challenges. The affirmation comes in the wake of East African countries presenting their respective FY2021/22 budgets, including Uganda, Tanzania, and Kenya. In a recent CNBC Africa interview, Ridle Markus, Africa Strategist for Absa Corporate & Investment Banking, discussed key points from the budget presentations and the IMF's assessment of the region. Markus highlighted the difficult task faced by finance ministers in presenting budgets amidst weak economic growth and lingering uncertainties. While attempting to balance fiscal consolidation with economic support, Uganda, for example, aims to reduce its deficit from nearly 10% to 6.5%, illustrating the challenge of meeting ambitious targets in the current climate. Tanzania, on the other hand, is targeting a more optimistic 1.8% fiscal deficit, leaving room for potential slippages in both expenditure and revenue. Despite these challenges, the IMF recently conducted a virtual mission to Cote d'Ivoire, praising the country's resilience in the face of the pandemic. Cote d'Ivoire has shown strong economic growth over the past decade, with multilateral support playing a crucial role in propelling the economy. The IMF remains optimistic about Cote d'Ivoire's outlook but cautions against significant downside risks, emphasizing the need for an effective response to the pandemic and fiscal consolidation. When discussing the sources of economic growth in Cote d'Ivoire, Markus pointed to a strong focus on public and infrastructure investment, as well as the robust performance of the agriculture sector. Structural reforms aimed at improving the business environment are also expected to drive economic growth and return the country to pre-recession levels. In the context of Uganda's credit rating affirmation by S&P, Markus noted that while most downgrades in the region occurred last year, credit rating agencies are now likely to maintain ratings and potentially seek opportunities for upgrades. However, Uganda faces significant fiscal challenges, including a large current account deficit and fiscal deficit, equivalent to 50% of GDP. The IMF's proposed program, pending approval, could serve as a policy anchor to address these challenges and put Uganda's growth on a more sustainable path. Overall, the affirmation of Uganda's credit rating by S&P Global comes at a critical juncture for the country, as it navigates economic uncertainties and strives to overcome fiscal hurdles in the midst of the ongoing global pandemic.