Fitch affirms Uganda’s rating at ’B’ with stable outlook

Investing.com -- Fitch Ratings has affirmed Uganda’s Long-Term Foreign-Currency Issuer Default Rating at ’B’ with a Stable Outlook, citing favorable growth prospects balanced against fiscal challenges.

The rating agency projects Uganda’s real GDP growth to rise to 6.5% in 2025 and 7.5% in 2026, up from 6.3% in 2024. This growth will be driven by oil sector development, agricultural recovery, strong coffee exports, and continued public infrastructure investment. Oil production is expected to begin in the second half of 2026, potentially reaching 230,000 barrels per day around 2028 and boosting growth to approximately 9% in 2027.

However, the start of oil output depends on completing a $5 billion pipeline that faced previous delays due to environmental and social concerns. While the first financing tranche was secured in March, two more are expected, though the timeline remains uncertain.

Fitch estimates Uganda’s budget deficit widened to 6.1% of GDP in the fiscal year ending June 2025, up from 4.7% in the previous year and exceeding the 5.7% target. This increase was primarily due to overspending on security, interest payments, and capital projects. The deficit is projected to remain high at 6.7% of GDP in FY26 before narrowing to 5.7% in FY27 as oil revenue begins flowing.

Limited access to external concessional financing has increased Uganda’s reliance on costlier domestic borrowing, pushing up debt servicing costs. Domestic interest costs rose to 21% of revenue in FY25 from 17% in FY24. Total (EPA:TTEF) interest payments are expected to consume 30% of revenue in FY26 before declining as oil revenues increase.

Uganda is currently negotiating a new arrangement with the IMF after failing to conclude its last program. The World Bank resumed lending earlier this year after suspending projects due to Uganda’s 2023 Anti-Homosexuality Act, though new financing will be project-based rather than direct budget support.

General government debt is estimated to have risen to 52.5% of GDP in FY25 from 48.6% in FY24, with Fitch expecting it to stabilize at 53% in the medium term. The share of external debt in total public debt has declined to under 50% from 60% in FY23.

The current account deficit is projected to narrow from 7.5% of GDP in 2024 to 6.0% in 2025, with robust exports partially offsetting high import demand. Coffee exports in the first half of 2025 have already surpassed 82% of the 2024 total. The deficit is expected to decline further to 5.4% in 2026 and 2.2% in 2027 as oil production increases.

Foreign exchange reserves increased to $4.3 billion at end-June 2025 from $3.3 billion at end-2024, but are expected to decline in the second half of 2025 to cover imports and debt service obligations.

Political tensions are anticipated ahead of the January 2026 presidential election, with President Yoweri Museveni, 80, seeking another term after 40 years in office. While this may increase risks to public finances and macroeconomic stability, Fitch does not expect significant impairment to foreign funding or investment.

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