UGANDA – Moody’s global rating agency has adjusted Uganda’s economic strength downwards by one notch to “ba3” from “ba2 stable’’ due to relatively low productivity and high transport costs.
In its annual annual credit analysis of Uganda done on October 7, 2020, Moody’s explained that Uganda’s economic strength is assessed as “ba3” to reflect the economy’s small size and low wealth levels and thereby its limited shock absorption capacity, balanced against favourable medium-term growth prospects.
COVID -19 pandemic crisis continues to weigh on the short-term outlook and a significant increase in domestic political instability that could jeopardise economic conditions would be negative credit.
Speaking about the report, Ms Daniela Re Fraschini, an assistant vice president at Moody’s said “this credit analysis elaborates on Uganda’s credit profile in terms of economic strength, institutions and governance strength, fiscal strength and susceptibility to event risks which are the four main analytic factors in our Sovereign Ratings Methodology.”
“We assess Uganda’s economic strength as “ba3” reflecting the economy’s small size and low wealth levels, indicating limited shock absorption capacity, balanced against favourable medium-term growth prospects, although the coronavirus crisis weighs on the short-term outlook”Daniela Re Fraschini, Vice President, Moody’s
“We have adjusted Uganda’s economic strength downwards by one notch to ‘’ba3” from ‘’ba2” to reflect an economic structure characterised by relatively low productivity, high transport costs because of the country being landlocked and low competitiveness,” she added.
Ms Daniela explained that Uganda’s economy is small with nominal GDP of around $35 billion in 2019, pointing out that its low level of development reflects an economic structure characterised by low productivity and a reliance on the agricultural sector.
“Agriculture, which accounts for around 25 per cent of GDP as of 2019 and employs two-thirds of the population mainly consists of subsistence farming and characterised by vulnerability to climate-related shocks that contribute to economic volatility. Notwithstanding a decline in agriculture’s share, the economy has experienced limited structural change with manufacturing output’s share of GDP stagnating over the past two decades of strong growth,” she said.
Ms Daniela further said that the size of the services sector has increased steadily accounting for close to 50 per cent of gross value-added in 2019.
However, high growth services subsectors such as finance and real estate rely on a low number of skilled workers.
She further stressed that as a result, the shift in output from agriculture to services has not increased the share of labour in formal employment and most of the workforce is employed in the informal sector.
Liked this article? Subscribe to DealStreet Africa News, our regular email newsletter with the latest news, deals and insights from Africa’s business, economy and more. SUBSCRIBE HERE