Is Uganda falling into a deep domestic borrowing hole?

Is Uganda falling into a deep domestic borrowing hole?

Travellers wait for public transport in Uganda. The country’s road and bridge construction projects may be put on hold. PHOTO | AFP Uganda’s central bank has rescheduled Treasury bonds worth more than Ush1 trillion ($269.5 million) that are due to mature this month, raising questions about government cash flow and the country’s borrowing plans in the local debt market.

While maturing Treasury bills and bonds are paid out to investors who hold them in their principal value plus a final interest payment, experts say that central banks enjoy discretion over adjustment of maturity dates for the bonds during times of financial difficulty.

Under the bond rescheduling arrangement, the Bank of Uganda (BoU) has provided new maturity dates covering an extra two-19 years for various Treasury bonds set to expire this month.

Though many people holding bonds are optimistic about the rescheduling, it is not clear if other bond maturities gazetted in 2021 are likely to be subjected to the programme.

“Dear our valued PDS, As you are aware, government is planning a bond switch auction in order to manage the refinancing risk posed by a bond of Ush1,024 billion that matures on January 21, 2021.

“ BOU is therefore contacting you on behalf of Government to: (1) establish how much of your current holdings on the Jan 21,2021 paper you would be willing to convert (2) establish which destination bond(s) would be your preference from these possible ones: 11 percent 13-Apr-23; 14 percent 18 Jan-24; 16.625 percent 27-Aug-26; 17 percent 03-Apr-31; 14.25 percent 22-June-34; 16 percent 14 Nov 2030; 16.25 percent 08 Nov 2035; 17.5 percent 01-Nov-2040 (3) Request you to reach out to your other clients who are holding the source bond for their possible participation in the conversion.

“The conversion will be done at market prices in the first week of January 2021 as per bids of the current holders,” reads part of an e-mail sent by BoU to primary dealer banks last month.

Signs of financial stress affecting Uganda’s Treasury amid the Covid-19 pandemic and the coming elections have been evident in correspondence from the Finance ministry to officers since last year. For example, a memo issued by the Finance ministry in November 2020 cautioned accounting officers about the reduced number of funding priorities considered by the government, which included defence spending, election expenditure and Ministry of Health emergency requirements related to the pandemic, in addition to salaries and wages even with scarce […]

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