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Moody’s Downgrades Uganda’s Economy As Public Debt Bites

Moody’s Ratings (Moody’s) has downgraded the Government of Uganda’s long-term foreign-currency and local-currency issuer ratings to B3 from B2 and changed the outlook to stable from negative. The downgrade of the ratings reflects diminished debt affordability and increasingly constrained financing options, amid greater reliance than in the past on comparatively costly domestic and non-concessional sources of external financing.

External vulnerability risk also remains elevated, a reflection of a more challenging external debt servicing profile, the persistence of tighter global financial conditions, and diminished foreign exchange reserve adequacy.

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The stable outlook reflects Moody’s assessment that, at the B3 rating level, Uganda’s credit challenges and strengths are incorporated. Downside risks relate to the debt affordability and external vulnerability challenges mentioned above. Gradual improvements in revenue mobilization capacity would, if further sustained, support fiscal consolidation efforts and could eventually provide relief to the debt affordability challenges faced by the government, but face execution risks.

Concurrently, Uganda’s local and foreign currency country ceilings have been lowered to Ba3 and B1 from Ba2 and Ba3, respectively. The local currency country ceiling is three notches above the sovereign rating to take into account the low footprint of the government in the economy, notwithstanding relatively high external imbalances and exposure to domestic and geopolitical risk.

The foreign currency ceiling maintains a one-notch gap from the local currency ceiling to reflect Moody’s assessment of limited transfer and convertibility risks in view of Uganda’s open capital account and a moderate level of external debt, notwithstanding constraints to policy effectiveness.

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