Fitch Affirms Uganda at B+; sees GDP growth accelerating to 5.8%

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By Stephen Kaboyo

The Uganda shilling traded in a tight range, slightly weakening on account of commercial banks squaring positions.
Inflows were sufficient to keep the volatility in check. Trading range was 3785/3795.

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In the interbank money market, overnight funds traded at 6% while one week traded 10%.
In the fixed income market, there was no primary auction. Trading activity was confined to the secondary market.

In other notable economic news, Fitch ratings affirmed a B+ rating, with a stable outlook for Uganda. The rating was underpinned by the strong medium term growth outlook and a track record of relative macroeconomic stability balanced against persistent twin deficits. Fitch sees GDP growth accelerating to 5.8% in fiscal year ending June 2019.

the recovery follows an acceleration to 5.5% in FY18 after growth dropped to 3.9% in the previous year owing to drought conditions and lower government expenditure. The recovery in overall growth has been supported by strong growth in the services sector and by a rebound in agriculture following improved rainfall. Under-execution of the capital budget presents a downside risk to the growth outlook. Moreover most of Uganda’s agriculture is rain-fed, a fact that will leave agricultural output varying with weather conditions, and low levels of private-sector credit growth will continue to act as a drag on economic growth.

In regional currency markets, the Kenya shilling held steady as markets kept a closer watch on the Central Bank monetary policy signal expected on 30th July 2018. Trading was in the range 100.40/60.

In international currency markets, the greenback steadied against its peers as markets awaited the US economic growth data, which could give a fresh catalyst amid wider focus on global monetary policy and bond yield direction.
Going forward the dollar will remain between the lift from fundamentals factors and the downward pressure from political factors.

Forecast for the shilling indicate trading in a stable range backed up by end month flows that will shore up the volatile unit after it sank to record lows earlier in the month.

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