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FItch affirms Uganda at B+ with negative outlook
Fitch Ratings has affirmed Uganda's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Negative Outlook. The rating agency attributes the status to Uganda’s solid medium-term growth outlook, while the negative outlook reflects downside risks to public finances. Krisjanis Krustins, Director at Fitch Ratings joins CNBC Africa for more.
Fri, 02 Jul 2021 10:31:16 GMT
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AI Generated Summary
- Uganda's long-term foreign-currency issuer default rating has been reaffirmed at 'B+' with a negative outlook by Fitch Ratings, highlighting the country's solid medium-term growth prospects amidst economic uncertainties.
- The dichotomy between the near-term risks, such as the impact of the pandemic and government budget constraints, and medium-term potential, including the approval of oil developments, presents challenges and opportunities for Uganda's economic recovery.
- High fiscal deficits, driven by the pandemic and government spending, pose risks of increased debt accumulation and funding challenges, requiring strategic borrowing decisions and careful fiscal management to ensure economic stability.
Fitch Ratings has affirmed Uganda's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Negative Outlook. The rating agency attributes this status to Uganda's solid medium-term growth outlook, with expectations of a 4% growth rate in the current year, gradually rising to 6% over the medium-term. Krisjanis Krustins, Director at Fitch Ratings, emphasized the dichotomy between the near-term and medium-term outlook for Uganda. Despite the recent challenges posed by the resurgence of coronavirus cases and government budget constraints, certain sectors like manufacturing and construction offer a ray of hope for the country's economic recovery. In the medium-term, the approval of oil developments promises to bring a significant uplift to Uganda's growth prospects as related infrastructure is developed and oil production commences. However, the negative outlook on Uganda's rating is attributed to the high fiscal deficit, estimated at nearly 10% of GDP in the past fiscal year, posing risks of increased debt accumulation and funding challenges. The government's ability to bring down this deficit and finance its needs through traditional sources of concessional borrowing will be crucial in mitigating these risks. Despite the potential of oil infrastructure development to drive growth to 6% in the medium-term, uncertainties remain regarding the project's financing and implementation. Overall, Uganda faces a challenging economic environment amidst the ongoing pandemic and revenue collection constraints, necessitating careful fiscal management and strategic borrowing decisions to sustain its economic stability.
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