S&P Global Ratings has revised Uganda’s sovereign credit outlook from stable to positive, citing robust economic growth, improving external finances, and the potential fiscal boost from upcoming oil production.
The global ratings agency affirmed the country’s long- and short-term sovereign credit ratings at ‘B-/B’.
The move reflects growing confidence in Uganda’s economic trajectory despite lingering fiscal pressures and political uncertainties. The rating agency also upgraded Uganda’s transfer and convertibility assessment to ‘B’ from ‘B-’, underscoring improving foreign exchange resilience.
“Uganda’s economy continues to exhibit strong momentum compared with peers,” S&P said in its statement. “We revised our outlook to positive, reflecting expectations of stronger growth and per capita income in the next 12 to 18 months.”
According to S&P, Uganda’s real GDP growth averaged 5.6% over the past three fiscal years through June 2025, one of the highest among Sub-Saharan African economies.
The country’s growth has been underpinned by favorable terms of trade, rising foreign direct investment inflows, and stronger portfolio flows that have helped boost foreign exchange reserves.
The rating agency noted that Uganda’s fiscal position has been under strain due to supplementary budgets and elevated domestic borrowing costs.
However, it expects fiscal pressures to ease after the January 2026 presidential election, supported by renewed concessional financing and the completion of major oil projects.
One of the key factors behind the positive outlook is Uganda’s long-anticipated entry into oil production. S&P anticipates that major oil projects will begin operations between 2026 and 2027, bringing substantial foreign investment and export earnings.
Analysts say the oil sector could transform Uganda’s economy by expanding its revenue base, reducing fiscal deficits, and strengthening external buffers.
However, they caution that the benefits will depend on effective fiscal management and transparency in the use of oil revenues.
“Oil exports could play a decisive role in narrowing Uganda’s elevated fiscal deficit,” S&P added. “If growth proves stronger than forecast, ratings could be raised further.”
Despite the improved outlook, S&P warned that fiscal and external vulnerabilities remain significant.
Uganda’s government has relied heavily on domestic borrowing to finance spending, which has kept interest costs high. Persistent supplementary budgets have also placed pressure on the fiscal balance.
The rating agency expects that fiscal consolidation measures, including expenditure rationalization and enhanced revenue collection will gradually stabilize public finances after the 2026 elections.
However, downside risks could re-emerge if political tensions or external shocks disrupt the reform agenda.
S&P highlighted that any deterioration in Uganda’s terms of trade, particularly through lower commodity prices or higher import costs, could undermine growth and strain fiscal stability. “We could revise the outlook back to stable if growth faltered or refinancing pressures resurfaced,” the agency said.
Uganda’s political landscape will remain a key factor influencing its credit profile. The upcoming presidential elections are expected to test the country’s stability, with past polls occasionally sparking unrest.
However, S&P’s base scenario assumes that political conditions will remain manageable, allowing economic reforms and major investment projects to proceed.
Foreign investors have continued to show confidence in Uganda’s growth potential. Rising capital inflows and foreign exchange reserves have strengthened the shilling and enhanced the country’s ability to meet external obligations.
S&P’s upgrade of Uganda’s transfer and convertibility rating signals improving external liquidity and investor confidence.
Uganda’s upgrade comes amid broader optimism about East Africa’s economic prospects. Neighboring economies such as Kenya and Tanzania are also expected to benefit from infrastructure and energy investments.
Yet Uganda’s strong growth, coupled with its upcoming oil production, places it in a unique position to accelerate income convergence with regional peers.