Uganda’s Credit Rating Cut by S&P as Budget Gap Set to Widen

Standard & Poor’s cut Uganda’s credit rating on concern that the East African nation’s budget deficit will widen as spending increases and after donors withdrew financial support in 2012 because of corruption.

The country’s current account shortfall will probably also remain “large” and gross external financing requirements will rise, the New York-based company said in a statement today.

The long-term rating was lowered to B, five levels below investment grade and on a par with countries including Ecuador, Albania and Ghana, from B+. The outlook remains stable, reflecting the benefits of political stability, investment in infrastructure and “solid” medium-term growth prospects that will offset the risks from fiscal and external imbalances over the next two years, S&P said.

Donors including the World Bank, the U.K., Ireland, and Norway, which provide about a quarter of Uganda’s annual budget, suspended their support in 2012 after government officials were accused of stealing aid money. The country last year agreed to refund 38.3 billion shillings ($15.3 million) to donors.

The Ugandan shilling weakened 0.2 percent to 2,501.50 per dollar at 12:16 p.m. in the capital, Kampala. The currency has gained 1 percent this year, the best performer among 24 African currencies monitored by Bloomberg after the Somali shilling.

“The Ugandan shilling will get some pressure and any new debt market issues will have to be priced higher because of that lower rating,” Vimal Parmar, head of sub-Saharan Africa research at Burbidge Capital in Nairobi, said in an interview.

Economic growth in Uganda, Africa’s biggest coffee exporter, is forecast to accelerate to 6.5 percent this year, from an estimated 5.6 percent in 2013 and 2.8 percent a year earlier, according to the International Monetary Fund.

Uganda is expected to begin producing oil in 2018, according to the government, after London-based Tullow Oil Plc (TLW), discovered crude in the country in 2006. Tullow, China National Offshore Oil Corp. and France’s Total SA are developing finds estimated at 3.5 billion barrels.

To contact the reporter on this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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