Amidst mounting concerns about Uganda’s economy’s debt crisis, the total value of refinanced government securities exceeded 50% of all Treasury Bills and bonds issued in the fiscal year 2023–2024. This scenario portends higher borrowing prices.

Rolling over maturing Treasury Bills and bonds by extending their expiration date, paying outstanding interest, and applying new pricing terms are all considered forms of refinancing government debt securities.

According to the Finance Ministry’s most recent data, the entire projected value of refinanced securities was estimated at Ush8, 358.5 billion ($2.2 billion) during the same period, while government-issued Treasury Bills and bonds were valued at Ush15,021.3 billion ($4 billion) in the fiscal year 2023–2024.

The remaining Ush6, 662.8 billion, or $1.78 billion, was set aside to pay for regular budgetary expenses.

The data shows that Treasury bonds worth US$ 893.4 billion ($238.5 million) were refinanced in June 2024, whereas Treasury bonds worth Ush599.7 billion ($160 million) were refinanced in May 2024.

July 2024 saw the raising of a total of Ush1, 576.3 billion ($420.9 million) from the domestic debt market.

According to the statistics, budget expenditure for the first quarter of 2024–2025 was allotted Ush1,048.6 billion ($279.9 million), with the remaining Ush527.7 billion ($140.9 million) going towards debt refinancing.

Financial market sources quoted by The East Africa that the primary objective of the refinancing operations is Treasury Bonds with high interest rates and a five- to 15-year lifespan.

“Whenever the government announces a refinancing exercise for some government securities, interest rates on Treasury Bills and bonds tend to go up because investors feel the government is desperate for money. However, the increase in government debt servicing costs tied to refinancing is not big. It could be less than one per cent to date.

When the total amount of maturing Treasury Bills and bonds plus investor interest exceeds available tax revenues, refinancing of government securities becomes essential. In such a case, paying debt redemption costs and interest might leave the government with no money left over for other budgetary goals.

Conversely, refinancing reduces the amount of debt owed by deferring redemption charges and paying off investor interest commitments.

Foreign investors are extremely concerned about inflation and exchange rate fluctuations in the local economy, while local investors are keenly interested in inflation movements and their impact on returns on investment,” according to Dr Kenneth Egesa, Communications Director of the Bank of Uganda (BoU).

“Refinancing involves rolling over maturities of government debt securities for a longer duration in the domestic debt market. Through refinancing, the government can borrow old money and take care of existing needs.

For example, the Ministry of Health recently requested cash of US$ 35 billion ($9.3 million) for the deployment of medical intern doctors, but this request has not been met due to severe budget cuts across all sectors.

“It has crippled government operations as there is limited liquidity. Some investors are looking at only short-term lending to government of not more than three years,” noted Dr Fred Muhumuza, a local economist.