The Uganda government is struggling to raise money to finance its budget amid high loan rejection rates by commercial banks and offshore investors keeping away from the bond market.
The government had hoped that listing its securities on the FTSE Frontier Emerging Markets Index in June 2023 would open up taps for the flow of foreign currency.
Authorities had also hoped the listing would cut high government bond holdings by commercial banks preferring to lend to the government.
While the listing has been on the index for the past eight months and has made the government securities visible, Dickson Ssembuya, director for Research and Market Development at Uganda’s Capital Markets Authority (CMA) told The EastAfrican that Uganda is yet to reap the benefits.
The conscious approach offshore investors have taken has further increased government bond holdings by banks and the National Social Security Fund (NSSF).
The high concentration of government securities by banks and NSSF is highlighted by the Ministry of Finance data, which shows combined banks and NSSF government securities holding reached 80 percent of the USh59 trillion ($15 billion) last month.
The concentration of the securities in two institutional investors leaves the government with little room to bargain for the cost of the money it borrows.
There are also concerns that the concentration is also crowding out private sector credit, with the Ministry of Finance data showing that 41.4 percent of loan applications last month were rejected.
Financial markets experts say the concentration of the bond markets explains the current high-interest rates the government pays, highlighting the disadvantaged position the bond issuer is in.
Always running a deficit budget and donor funding, the government pays slightly over 15 percent interest on a 20-year tenor bond.
“When you have many investors in the market, chances are that you will be able to raise capital at a relatively low cost,” said Ssembuya.