KAMPALA, UGANDA – Uganda’s government has witnessed a surge in investor interest in its debt securities over the last three months, driven by increasing interest rates. The interest rates on government debt have risen to 16% from 15% in July, prompting investors to capitalize on the government’s growing need for funds to address budget deficits.
Last week, the government successfully raised Shs1.1 trillion through three bond issuances with maturities of two, five, and 15 years, offering yields of 15.5%, 16%, and 16.5%, respectively. The 15-year bond attracted the most interest, with investors tendering Shs702.9 billion, surpassing the initial target of Shs430 billion.
This development comes as interest rates have been rising, with an average increase of 50 basis points since July. The surge in yields has intensified competition for securities in the bond market.
The increased borrowing is attributed to higher tax revenues and lower spending in July, which led to reduced borrowing of Shs29.95 billion, down from the planned Shs975.5 billion. However, borrowing increased in August and September, with the government accepting Shs140 billion more than planned in the September auction.
Experts warn that recurring debt rollovers exacerbate the situation, emphasizing the need for strengthened fiscal consolidation measures and enhanced parliamentary oversight of domestic borrowing and debt management.
According to financial markets consultant Alex Kakande, Uganda’s government is projected to borrow at least Shs6 trillion in the next 90 days, an unprecedented level of borrowing. The government’s reliance on domestic borrowing has increased, with over Shs5 trillion raised in bonds and treasury bills in the past three months alone.
This aggressive borrowing has sparked concerns about the country’s fiscal stability, with growing debt servicing burdens diverting resources from critical sectors like health and education.
