ICRAT Implemented in Uganda

In July 2008, the Committee on the Global Financial System (CGFS) advised that credit rating information should support and not replace, investor due diligence process. A similar position has been maintained by the IMF in its Sovereign reserves management guidelines where it encourages member countries to put in place credit risk analysis systems to supplement the work of Credit ratings agencies.   Further, the BIS Committee on the Global Financial System  has found that prolonged periods of low interest rates might encourage risk taking, reduce resilience by lowering profitability (even on reserves) and weaken an investors ability to replenish capital after a negative shock. A loss of capital could jeopardize the principle objective of preservation of capital.

Within the Africa region, a study commissioned for SADC on trends in sovereign reserves management recommended that central banks reserves managers should put in place credit risk analysis systems to support their reliance on major rating agencies.

MEFMI had earlier developed a tool based on the 2015 paper by Ruíza, M., Cabralesa, A. & Cárdenasa, M. “A tool for measuring and managing credit risk in portfolios of foreign reserves”, which was published in Procedia Economics and Finance, 29:144-157. Central Bank of Colombia.   When the Bank of Uganda learnt of the Internal Credit Risk Analysis Tool developed by MEFMI, it sent through a formal request for assistance in implementing the tool at Bank of Uganda.

The ICRAT Implementation at Bank of Uganda was carried out from 4 to 8 November 2019. This implementation brings the number of countries that have implemented this tool to six.