The credit profile of Uganda reflects weak debt affordability, with interest consuming more than 20% of revenue, and constrained financing options for the government, according to the latest Moody’s Ratings updates.

The latest ratings come amidst the Government’s greater reliance than in the past on costly domestic debt and non-concessional sources of external financing.

“Higher external debt servicing and lower new external financing inflows weigh on reserves, reflected in a rising external vulnerability indicator ratio. These challenges are balanced against a strong macroeconomic performance, expected to continue over the medium term with the onset of oil production,” reads part of the statement by Moody’s.

In addition, low institutional strength poses challenges to scaling up public infrastructure investments and development expenditure, as well as to budget management.

Economic growth

The Moody’s Ratings indicate that Uganda’s economic growth in fiscal 2024 has been strong, reaching 6.1%, projecting a growth of 6.2% in fiscal 2025.

“While medium-term prospects are bolstered by the future onset of oil production. Foreign exchange reserves, at $3.3 billion as of September 2024, have remained at lower levels amid rising public debt service and reduced external funding for the government.”

According to Moody’s, the government’s commitment to fiscal consolidation has relaxed ahead of the 2026 elections, with the budget for fiscal 2025 targeting a deficit of 5.7% of GDP. In addition, Interest payments would be equivalent to 27.6% of budgeted government revenue and grants, nearly double the 14.2% level realized in fiscal 2019.

“Reliance on comparatively expensive domestic borrowing has increased since the pandemic, although monetary policy easing by the Bank of Uganda is expected to gradually reduce domestic funding costs. Notwithstanding this year’s fiscal loosening, we expect the debt ratio to peak at around 51% of GDP in fiscal 2025 and decline gradually over the medium term”

Uganda’s economic strength at “ba3” reflects the economy’s low wealth levels and small size, indicating limited shock absorption capacity. These constraints are balanced against favorable medium-term growth prospects, bolstered by the expected onset of oil production.

The Fiscal strength, at “b2”, reflects a moderate debt burden that has increased over the last decade, and weak debt affordability. Susceptibility to event risk, at “b”, is driven by government liquidity risk.

Upward pressure on the rating would arise from sustained progress in strengthening revenue generation capacity and access to funding at moderate costs, reversing the deterioration in debt affordability.

“A significant and durable strengthening of Uganda’s external position that restored and preserved external buffers would also support a higher rating. Over the longer term, oil production being ramped up would also support creditworthiness by promoting growth and fiscal revenues, provided the oil wealth is managed prudently.”