Fitch Ratings gives Uganda ‘B’ on capacity to pay its forex obligations

September 2, 2025 in Finance by Editor

President Yoweri Museveni’s government has placed considerable stock in future oil revenues. Fitch ratings analysts expect oil production to start in the second half of 2026, peaking at 230,000 barrels a day around 2028, propelling growth to around 9% in 2027. They forecast oil exports to reach $3.6 billion in 2027, from around $850 million in 2026.

Fitch Ratings, the US-based international credit rating company, has affirmed Uganda’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a stable outlook.

The ‘B’ signifies a highly speculative credit risk where the issuer has a limited margin of safety, faces a material risk of default, but is still capable of meeting its financial commitments in foreign currency.

The company says its latest sentiments on Uganda published in August, are supported by favourable medium-term growth prospects, a record of relative macroeconomic stability helped by the central bank’s inflation targeting framework, and Fitch’s expectation that government debt/GDP will stabilise in the medium term.

However the country is constrained by low gross domestic product per capita, weak governance, a low government revenue base and twin budget and current account deficits (CAD) higher than peers.

Fitch said, “We project real GDP growth to rise to 6.5 pc in 2025 and 7.5 pc in 2026, from 6.3 pc in 2024, led by oil sector development. This will also be supported by a recovery in agriculture, strong coffee exports, and continued public infrastructure investment.”

Fitch gives opinions on the capacity of countries, companies and public institutions, to pay their financial obligations, and many investors use Fitch’s credit ratings as an indicator of the risk involved in lending money or investing in debt securities, aiding their decision-making processes.

However, Fitch ratings analysts expect oil production to start in the second half of 2026, peaking at 230,000 barrels a day around 2028, propelling growth to around 9 pc in 2027. They forecast oil exports to reach $3.6 billion in 2027, from around $850 million in 2026.

The rating note added that the start of oil output is contingent on completion of the $5 billion pipeline for which funding was previously delayed by environmental and social concerns. The first tranche of financing was secured in March 2025, with two more expected, but the timeline is uncertain, posing a downside risk to their forecast.

Fitch estimates the budget deficit widened to 6.1 pc of GDP in the fiscal year ending June 2025 financial year 2025, (FY25) from 4.7 pc in FY24, above the 5.7 pc budget target, mainly due to overspending on security, interest payments and capital projects.

The company said, “We project the deficit will remain high at 6.7 pc of GDP in FY26, above the government’s target of 6.5 pc, before narrowing to 5.7 pc in FY27, driven by oil revenue.”

Rating analysts assume revenue collection will fall short of budget targets due to delays in rationalising tax exemptions and grant shortfalls, while overspending on security and welfare is also likely during the election year.

Uganda’s limited access to external concessional financing, due to persistent creditor concerns about democracy, human rights and corruption, has increased reliance on more costly domestic borrowing, raising debt servicing costs.

Domestic interest costs surged to 21 pc of revenue in FY25, from 17% in FY24. Rating analysts expect total interest payments to absorb 30 pc of revenue in FY26 (25 pc in FY25), before declining as oil revenues bolster government income.

According to Fitch, Uganda failed to conclude the last IMF programme and is currently negotiating a new arrangement, the size and timeline of which is uncertain. “Reaching an agreement is an upside to our baseline, which does not incorporate new IMF financing through 2027,” the analysts said.

The World Bank resumed lending earlier this year after suspending projects due to the enactment of the 2023 Anti-Homosexuality Act. New financing will be project-based loans and grants, with direct budget support unlikely.

Fitch said, “We estimate that general government debt rose to 52.5 pc of GDP in FY25, from 48.6 pc in FY24, including domestic arrears and the substitution of central bank overdraft liabilities with government securities. We expect general government debt to stabilise at 53 pc in the medium term.”