Government Seeks Better Credit Ratings Through Climate Adaptation Investments

Uganda is integrating climate adaptation and resilience investments into its debt sustainability analysis as it seeks to strengthen its credit profile and unlock affordable financing for development.

The Ministry of Finance, Planning and Economic Development said the move aims to show how investments in resilience contribute to economic growth, improve fiscal outcomes and enhance a country's creditworthiness.

The initiative is detailed in an interim report that outlines a practical approach to making the economic returns from resilience investments visible in sovereign debt dynamics and credit assessments.

The ministry noted that climate-related risks are increasingly influencing debt sustainability analyses and sovereign credit ratings worldwide. As climate risks grow, countries often face higher borrowing costs and reduced fiscal space.

For Uganda, the stakes are particularly high because agriculture and agro-industrialisation, which are central to the government's Tenfold Growth Strategy, remain vulnerable to climate change and environmental degradation.

Permanent Secretary and Secretary to the Treasury, Dr Ramadhan Ggoobi, said Uganda must invest in climate adaptation and resilience to protect its development gains and maintain its creditworthiness.

He said such investments are critical for building long-term resilience against climate shocks, environmental degradation and fluctuations in global trade conditions.

"The international financial system does not yet adequately recognize adaptation and resilience investments. Sovereign risk assessments, which influence investment decisions, access to finance and the cost of capital, often capture only the upfront fiscal costs of these investments, without fully reflecting on their long-term benefits," Dr Ggoobi said.

He argued that this creates a challenge for developing countries because borrowing costs can increase and fiscal space can shrink at the very time governments are investing to reduce future risks.

"As a result, borrowing costs may rise and fiscal space may shrink precisely when countries are making investments that reduce future risks. This makes it harder for countries like Uganda to finance resilience on affordable terms," he added.

Dr Ggoobi expressed hope that other countries would adopt similar approaches and work together to encourage global financial institutions to recognise resilience investments as drivers of sustainable growth and economic stability rather than merely fiscal expenditures.

Uganda, which serves as Co-Chair of the Coalition of Finance Ministers for Climate Action, is the first country to apply the approach. The government says the initiative provides evidence that the benefits of adaptation and resilience measures can be reflected in sovereign risk assessments and credit ratings.