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Uganda’s Debt ‘Manageable’ as S&P Cuts Rating, Kiwanuka Says

Coffee Processing Warehouse
A coffee buyer, left, and factory workers make notes at a coffee processing warehouse in western Uganda. ganda has followed larger East African peers Kenya and Tanzania by raising money to invest in roads, railways and energy to support growth. Photographer: Trevor Snapp/Bloomberg

Ugandan Finance Minister Maria Kiwanuka said the nation’s debt is “very manageable,” even as a spending increase prompted Standard & Poor’s to cut the credit rating of East Africa’s third-biggest economy.

“We are not relaxing, we are going on, using available money, trying to make sure we are more efficient,” Kiwanuka said in an interview at the World Economic Forum in Davos, Switzerland, yesterday. “We are not borrowing because we can. We borrow what we can absorb.”

Uganda has followed larger East African peers Kenya and Tanzania by raising money to invest in roads, railways and energy to support growth, while pushing out debt maturities to add to the confidence of bond buyers that their investments will be recouped. The Bank of Uganda sold half of the 15-year bonds it offered at an auction Dec. 4, with the coupon almost matching yields on notes due five years earlier, even as investors sought almost three times the amount for sale.

S&P lowered Uganda’s long-term rating on Jan. 17 to B, five levels below investment grade, on concern the nation’s budget deficit will widen as spending increases and after donors withdrew financial support in 2012 because of corruption.

The country’s budget deficit will increase to 5 percent of gross domestic product on average between the fiscal years of 2013 and 2016, compared with an average of 3.6 percent in the two-year period through 2012, according to S&P. International 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.

Shilling Gains

The Ugandan shilling has strengthened 0.7 percent since the S&P announcement and is Africa’s best-performing currency this year, after the Somali shilling. The shilling weakened 0.2 percent to 2,480 per dollar by 8:28 a.m. in the capital, Kampala.

While there’s still room for Uganda to borrow as the country works to reduce poverty and disease, the government does not plan to “mortgage” its oil resources, said Kiwanuka. Uganda, the country with sub-Saharan Africa’s fourth-largest oil reserves, is expected to begin producing oil in 2018, according to the government.

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