Government treasury bills and bonds grew by Shs4 billion in 2015 supported by the high interest rates and increased demand from both the domestic and offshore investors.
Because of the fixed income market in Uganda, like in many frontier markets, interest rates charged on treasury bills and bonds are higher than it is in the developed economies, which attracts high demand from both domestic and offshore investors.
Bank of Uganda (BoU) issues bills and Treasury bonds on behalf of the Ministry of Finance, Planning and Economic Development to finance government fiscal operations.
In the 2015/16 financial year, government was supposed to issue Shs1.384 trillion but due to a tight fiscal policy in place, it reduced to Shs900b.
Government securities are auctioned periodically through Primary Dealer System (PDS). PDS are the commercial banks licensed by the Central Bank to participate in the fixed income securities market in the primary market. There are currently six primary dealers in the country holding up to 41 per cent of government securities in the secondary market, while offshore investors hold 10 per cent; and the remainders are held by other investors.
BoU said remarkable progress in Uganda’s debt market has been supported by the introduction of the PDS which it introduced in 2003 with the main objective of promoting financial markets development and reducing the costs associated with issuing government securities. PDS also aimed at encouraging secondary market trading of government securities, and improving the quality of market information.
Presiding over an annual award giving ceremony to recognise the best primary dealer of the year 2015 in Kampala on Monday, the governor BoU, Mr Emmanuel Tumusiime Mutebile, said: “Primary dealers have contributed to the growth of the securities market by ensuring high demand during primary market auctions. In 2015, the ratio of primary dealer successful bids in the primary auction relative to the rest of the market was 61.33 per cent.”
Mr Mutebile added: “Primary dealers have also continued to enhance liquidity in the secondary market. The total turnover in the secondary market increased in the year 2015 by 12.5 percent to Shs3.6 trillion from Shs3.2 trillion in the year 2014.”
Although the country charged high interest rate in government securities at the beginning of this financial year, the market saw significant undersubscription, a development which in part reflected low investor interest.
Stanbic Bank Uganda was named the best primary dealer of the year 2015, an achievement of the commercial bank for five consecutive years since the start of the initiative 12 years ago.
Mr Mutebile said: “I wish also to acknowledge the role this year’s award winner has played, especially in their participation in the primary auctions, market making capabilities, consistent pricing as well as timely market intelligence.”
Uganda is still carrying out reforms in the financial market to make it attractive to investors. Among these reforms is bringing on board the non-bank institutions to participate in the primary market. Uganda’s longest tenor treasury bond is 15 years.