The impact of a poor country credit rating amid the covid19 crisis

Capital hates uncertainty like that caused by a coronavirus. The good news is that COVID-19 is affecting the whole world. First, it was Asia,

Capital hates uncertainty like that caused by a coronavirus. The good news is that COVID-19 is affecting the whole world. First, it was Asia, mainly China, South Korea, and Japan. Then it went to Europe. Italy was at the center of the storm, and slowly the virus spread to Spain, the United Kingdom, and then to Germany. Then it went to the United States of America. And spread out to South America, with Mexico in the frying pan. And now India is feeling this monster that is always hungry for blood.

All global leaders were so worried for Africa, due to the less developed health systems that characterize the continent. What the coronavirus has so far saved us from, we are likely to experience in terms of the economy struggles.

For Uganda, here is the Credit Risk Outlook, to quote Fitch Credit Rating the report, dated June 2020:

“Fitch Ratings changed its outlook on Uganda’s ‘B+’ sovereign credit rating to ‘negative’ from ‘stable’ on June 24th, 2020, saying the decision reflects downside risks to public finances and growth from the coronavirus shock amid a build-up of government debt and persistent twin deficits, which are expected to continue into the medium term. The agency considers relatively high the current government’s budget deficit estimate of 7.5% of GDP in 2020 (from 5% in 2019) and projects it to widen to 9.4% in 2021. Meanwhile, the GDP growth is seen slowing sharply to 3% in 2020 from 5.6% in 2019 because of sweeping coronavirus-related disruptions. Standard & Poor’s credit rating for Uganda stands at B with a stable outlook. Moody’s credit rating for Uganda was the last set at B2 with a stable outlook.”

As explained, a credit rating for a country is used by sovereign wealth funds, pension funds, and other investors to gauge the creditworthiness of Uganda thus having a big impact on the country’s borrowing costs.”

In times like these, the economy needs foreign capital inflows to ease any pressure on the Ugandan shilling exchange rate against major currencies. Businesses need funds to improve their liquidity. And that is what makes the coronavirus pandemic a bad one.

Where to get funds to create capabilities to win?

What lessons have you learned?

The COVID-19 pandemic has created a lot of uncertainty and shaped business winners and losers. Some businesses have thrived (despite being declared non-essential), while some have remained closed, for months now. Some will not open again.

Here is my question to you:

To separate the businesses that have struggled or closed from those that have survived and thrived, what factors matter the most?

Please comment below to answer.

Copyright Mustapha B Mugisa, 2020. All rights reserved.

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