Tuesday, November 24, 2015


You can win the election all you want but end up with a broke country and then what?  How will you pay for all the things you are promising Ugandans?

In the last 7 days, some articles have appeared about Uganda.  If you missed them, it is your fault. Follow me on Facebook.

1) The IMF downgraded Uganda's growth from 5.8% to 5%.

2) Moody's downgraded Uganda rating from stable to negative. In fact this one is loaded so I am including the text of the article at the end here.

3) IMF and World Bank were analysed by a researcher at MUK. Their ratings on the global economic environtment is not good for Uganda. Low commodity prices. Then we have the shilling vs. the dollar and you need to keep up with my daily updates on that.

Effectively, Uganda is bankrupt. No one is coming out to say it but since when was afraid to talk?

Some links follow.
Martha Leah Nangalama
Bududa Hospital has no water or medicine.

Global Credit Research - 20 Nov 2015

London, 20 November 2015 -- Moody's Investors Service has today changed the rating outlook on Uganda's B1 issuer rating to negative from stable and affirmed the rating.

The key drivers for the negative outlook are:

1. Deteriorating fiscal and debt metrics, driven by high capital spending and rising debt-servicing expenditures;

2. A continued weakening in Uganda's external payments position, as evidenced by the large depreciation in the Ugandan shilling; and

3. The expected increase in inflation and reduced growth prospects, potentially diminishing a key source of historical support to sovereign credit quality.

The affirmation of the B1 rating acknowledges Uganda's key credit metrics remaining in line with peers at the B1 level should these credit-negative trends dissipate or reverse in the next 12-18 months. Key credit supports include: a track record of growth above the B median, lower growth volatility, continued donor and IMF support and a mostly concessional debt structure.

Moody's has left the local-currency bond and deposit ceilings unchanged at Ba1 and left the foreign-currency bond ceiling unchanged at Ba2 as well as the foreign-currency deposit ceiling at B2.


The first driver of the negative outlook is the deteriorating trend evident in Uganda's fiscal and debt metrics. The fiscal deficit is now expected to average 6-7% of GDP for the next few years, nearly double its average since 2011. Combined with the sharp weakening of the exchange rate, we expect that this will drive up the government debt burden to an estimated 39% of GDP in 2015. Domestic interest rates, meanwhile, have risen sharply: yields on 365-day T-bills rose to 19.1% in October 2015, up from 12.1% in December 2014.

The 2015/16 fiscal deficit will likely be higher than in previous years reflecting higher capital expenditures; about 3% of GDP will be dedicated to the financing of two hydropower plants although we expect the government to continue underspending on other capital expenditures as donor project disbursements remain low. The fiscal deficit also reflects higher current expenditures in the run-up to the 2016 elections, such as spending on security personnel, while currency depreciation and higher yields on local-currency securities impact debt-servicing costs.

Partly offsetting this increase in expenditures, a number of additional revenue-generating measures were introduced during the last fiscal year, demonstrating the government's capacity to reverse recent credit negative fiscal trends. We expect these measures to gradually increase tax revenue, although it will remain weaker than B1 peers. Development projects will be financed through a combination of enhanced domestic resource mobilization, external borrowing and private investment under PPP arrangements. However, economic headwinds and political dynamics point to high implementation risk and the likelihood of budgetary slippage this fiscal year and next.

The second driver supporting the negative outlook is the continued weakening in Uganda's external payments position. Since the start of 2015, the currency has lost approximately 22% of its value against the US dollar, driven by the repatriation of profits by foreign companies, outflows of nonresident investment in government securities and an increase in the current account deficit. Trade disruption in neighboring countries and the high import content of projects are likely to maintain the current account deficit above 10% of GDP going forward. The current account deficit is only partially balanced by foreign direct investments, which we expect will equal 4.6% of GDP this year, leaving a large external borrowing requirement.

Increased political uncertainty as the presidential elections approach has exacerbated external vulnerability, accelerating capital outflows in an already volatile emerging market environment. The stress on Uganda's balance of payments has weakened its reserve buffers. At around $2.7 billion in September, foreign exchange reserves have fallen below the threshold of four months of imports for the first time since 2011.

The third driver of the negative outlook is the knock-on effect of the currency depreciation and monetary tightening on inflation and growth prospects, diminishing one of the main sources of support that has historically underwritten Uganda's credit profile. The effect on inflation has begun to take hold, with CPI core inflation moving up to 6.3% in October from 2.7% in December 2014, above the Bank of Uganda (BoU)'s target of 5%. We expect headline inflation to peak above 10% in 2016.

Monetary tightening is constraining growth prospects and raising debt-servicing costs. The BoU has raised its policy rate by 600 basis points since April, to 17%, and in October lowered its fiscal 2016 real GDP growth forecast to 5.0%.


Despite the persistence of credit-negative pressures in recent years, Uganda's key credit metrics for the time being remain in line with those of similarly rated sovereigns. Uganda's average real GDP growth is in line with the B1 median and the volatility of its growth is lower than the B1 median. Uganda scores better than the B1 median in governance indicators such as rule of law.

Uganda's main credit strength lies in its relatively solid fiscal standing, combining moderate (albeit rising) deficits and debt. Uganda has benefited from debt-relief initiatives and continued donor support over the last decade, hence the country's relatively low public sector debt level, with a mostly-concessional debt structure and long tenors. Nevertheless, debt is rising with an increasing recourse to non-concessional, domestic debt for deficit financing, increasing vulnerability to adverse interest rate dynamics.


A downgrade to B2 could result from: (i) an indication that fiscal credibility is impaired, leading to an increase in prospective fiscal deficits; (ii) a further, sharp depreciation in the Uganda shilling, which would increase debt and debt-servicing costs; or (iii) election-related violence, signaling an increasingly polarized political scene that could further reduce its growth prospects and increase the country's external vulnerability.

Conversely, a clear path towards fiscal consolidation and a stabilization of the debt trajectory that would instill investor confidence, could lead to a return to a stable outlook.

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