The Electoral Commission has already kicked off the voter register update for the 2026 elections. Trends show that government tends to borrow more as elections approach. The borrowing is sometimes viewed as desperate, thereby offering investors an opportunity to demand better yields. Photo / File
You love money, don’t you? Of course, you do. So does everyone - your sibling eyeing a flashy car, your friend saving for their dream vacation, and that colleague who insists on "treating themselves" every other Friday.
Just like people, governments need money to thrive.
But here is the twist; while we work for our money, governments collect and borrow theirs -and when they are short of cash, things get interesting.
In Uganda, government, just like elsewhere, borrows domestically through treasury bills and bonds. But lenders aren’t exactly the forgiving kind - if they smell desperation, they crank up the price.
This brings us to last Wednesday’s bond auction – where government needed Shs990b and offered tasty interest rates - 14.125 percent for the three-year bond, 14.25 percent for the 10-year bond, and 15 percent for the 20-year bond. The market’s reaction? A financial feeding frenzy.
The 20-year bond was the most juicy of all, drawing bids worth Shs987.6b for just Shs430b on offer, while the three-year bond attracted Shs324.8b for Shs230b. The 10-year bond raked in Shs453.1b against Shs330b.
Investors were practically throwing their wallets at government. Why? Because yields are rising faster than before. For the first time in years: The three-year bond hit over 16.5 percent, the 10-year bond crossed 17 percent and the 20-year bond soared to 17.8 percent.
“It was an investment bonanza,” says Alex Kakande, a financial consultant.
“With rates like these, if you have got cash sitting in a bank - or worse, under your mattress – you are doing money wrong. Treasury bonds are where the real action is,” he says
And here is the cherry on top. Bonds were going for a discount. The three-year bond was priced at 94 percent, 10-year at 87 percent, and the 20-year at 85 percent.
Thus, a Shs105m 20-year bond cost just Shs89m, Shs52 million in a 10-year bond bought Shs60m and Shs30m in a 20-year bond got you Shs35m.
Investors, savvy as ever, are snapping up these deals now fully aware that when yields eventually dip, they will be cashing in.
These yields are irresistible, and investors know it, because when government is strapped for cash, the power shifts. Investors sense the leverage, and premiums follow - debt’s age-old play.
Bond yields are largely shaped by the average yield of accepted auction bids. But here is the kicker; government often opts for less competitive bids with lower rates, skipping over the more aggressive ones.
Why? To dodge an unsustainable debt spiral, of course. It’s like walking a tightrope - fund the budget without scaring away folks holding the purse strings.
“There is increased government borrowing, and several dynamics are driving this,” says Delick Manishimwe, a research analyst at Crested Capital.
“The Finance Ministry is scrambling to plug the fiscal deficit ahead of next year’s elections. They are relying on a mix of tax revenue and domestic borrowing because, frankly, the domestic market offers some perks: easier access, no exchange rate drama, and better inflation control,” he says.
But there is more. Government also needs cash to fund Umeme’s buyout. On Thursday, Moses Kaggwa, acting director of economic affairs at the Ministry of Finance, said: “We are waiting for the Auditor General to finalise the buyout amount. Once we have it - hopefully by month-end – we will seek a supplementary budget because, well, we are borrowing.”
How much are we talking? Between $150m and $250m, according to Energy State Minister Sidronius Okaasai Opolot.
Toss in the rising costs of public infrastructure development, and it’s clear why the borrowing taps are wide open.
But that’s not the whole story
Movement of bond yields in election years since 2008: Source / Crested Capital
“Election cycles stir up perceived political risks,” Manishimwe says: “Investors get cautious and demand higher returns at bond auctions to cushion against uncertainties. The result? Higher yields, thanks to a mix of election jitters, strategic borrowing, and government’s balancing act between cash needs and economic stability.”
So, here we are - bond rates climbing, driven by politics, strategic funding, and a dash of uncertainty.
Election cycle
Election years are like a financial soap opera, with investors glued to the screen, tracking every twist in government spending. Their focus? Treasury bills, fiscal policies, monetary policy moves, and, of course, the country’s political environment.
Reading these signals allows them to prepare their expectations.
If you track Treasury bill yields since 2000, a pattern emerges - rates spike around election time and cool down once the ballots are counted.
“It’s déjà vu as we approach 2026,” says David Bateme, a team lead at Crested Capital: “We are seeing this trend play out, signalling similar movements in upcoming bond auctions.”
Take the most recent bond auction, where discounted bonds paired with high yields became a siren call for investors.
Bateme says government is leaning into longer-term bonds, but predicts short-term treasury bills could soon follow suit.
A look at interest curves since 2000 confirms a steady trend - rising rates often hint at increased borrowing needs.
Pain for government, yes, but pure gold for savvy investors.
Data from the Finance Ministry adds weight to this trend - Treasury bill yields are inching toward 18 percent, with 91-day Treasury bills alone boasting a 19 percent year-on-year jump.
Across the board - short-and long-term papers - investors are locking in impressive returns.
“The coupon rates are very attractive,” says Bateme: “By mid-year, after the budget is read, we might see a shift. Government has signalled a preference for domestic debt, but I have seen hints in recent reports that rates abroad are dropping. If borrowing abroad becomes cheaper, it could ease local borrowing needs - but that is still a big ‘if.’”
Local borrowing, he says, gives government control over the money, because government can issue bonds or, if absolutely necessary, print more shillings, but with foreign debt, particularly in dollars, there i’s no such luxury, which means that the debt burden gets heavy.
While investors revel in the current climate, government shoulders the growing debt burden. Yet it seems unfazed, leveraging its ability to set rates, manage the shilling, and lure investors with enticing returns.
The question is, how long can this dance continue before someone trips?
Investors’ play
Investors are playing it smart, parking their money in treasury bills and bonds - the calm harbour in the stormy seas of investment. With yields historically rising during election years, these securities are basically a gift that keeps on giving.
The strategy? Milk the opportunities.
For short-term treasury bills - anything under a year – you are locking in a risk-free return. Why? Because government doesn’t default on its own currency.
“If you buy a treasury bill before February, it will mature just before the elections,” says Bateme: “Even if uncertainty clouds the horizon, your money is already back in the bank.”
And starting isn’t daunting - auctions happen every two weeks, and with as little as Shs100,000, you can dip your toes into the game.
Medium-term bonds, spanning up to 10 years, are becoming the sweet spot - the Goldilocks of government securities.
They balance risk and reward perfectly. “Investors holding these bonds stand to gain when yields cool off post-election chaos,” Bateme says.
Then there are the long-term bonds - the bold choice for those ready to go big or go home. Spanning over a decade (think 15 years or more), these bonds are beloved by high-stakes investors.
With returns often exceeding 16 percent and attractive tax perks, they are the superstars of the auction.
But tread carefully - long-term bonds aren’t for the faint of heart. Inflation and long-term uncertainty are risks you can’t ignore.
A dent on government
In the 2025/26 financial year, Uganda’s domestic revenues are projected to hit Shs33.6 trillion, up from Shs31.9 trillion. Of this, 90.8 percent will be tax revenues.
The National Budget Framework Paper outlines a medium-term game plan to boost revenues significantly, all in pursuit of the grand vision; expanding the economy tenfold. The recipe? Sharper tax administration and relentless anti-corruption efforts.
On the spending side, government is pencilling in Shs46.5 trillion - slightly lower than last year’s Shs48.4 trillion budget.
External financing is set to rise to Shs5.7 trillion, with total project loans amounting to Shs9.8 trillion - nearly half (Shs4.9 trillion) coming on concessional terms.
Meanwhile, domestic borrowing will see a sharp drop, from Shs8.9 trillion to Shs4 trillion, to ease private sector credit access woes, according to the National Budget Framework Paper.
Debt servicing, however, is edging up, with external debt amortisation projected at Shs4 trillion, while interest payments will hit a hefty Shs9.2 trillion.
In response, government is gravitating towards concessional loans to cushion the debt burden.
The total resource envelope for the 2025/26 financial year is projected at Shs57.4 trillion, a marked decline from Shs72.1 trillion the previous year.
Net domestic borrowing will halve to Shs4.011 trillion, signalling a commitment to private sector growth.
Yet, discretionary resources will shrink by Shs3.94 trillion, squeezed by higher external debt repayments, project funding for infrastructure like the East Africa Crude Oil Pipeline and the Standard Gauge Railway, and ballooning interest payments.
Domestic refinancing (roll-over) will also dip by Shs5.4 trillion, thanks to a strategic pivot towards longer-term securities.
Movement of Treasury bills' yields during election years since 2000. Source / Crested Capital
History shows government’s borrowing spikes during election years. Case in point; the borrowing surges in 2020/21 and 2021/22, officially chalked up Covid-19 response efforts.
Yet whispers persist that election-related expenditures played a part, with borrowing patterns during such periods always mirroring election fever.
Seatin’s public debt research, shared by Hilda Tumuhe, a public finance expert, sheds light on Uganda’s debt journey.
External debt saw major relief thanks to the Highly Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative, slashing it from $4.5b in 2005/06.
But domestic debt has since spiralled, pushing up the cost of servicing and draining resources from critical sectors such as health and education.
Covid-19’s economic slowdown and the social spending binge only worsened the fiscal deficit, driving the borrowing spree - northwards.
Concerned
The World Bank has raised an eyebrow at Uganda’s public debt sustainability, cautioning that the country’s “moderate” risk of debt distress leaves little wiggle room for absorbing economic shocks.
Much of government’s borrowing is now going toward refinancing maturing debt and tackling immediate cash flow crunches - a bit like using one credit card to pay off another.
In an effort to boost sustainability, government rolled out tax amendments in 2020, slashing the tax rate on government securities with maturities of 10 years or more from 20 percent to 10 percent.
This move made long-term instruments far more appealing to investors, sparking fresh energy in the securities market.
But here is the catch; with yields climbing and government’s borrowing appetite growing - particularly in the lead-up to elections - the pressure on domestic debt sustainability isn’t going anywhere.
“Government is increasingly relying on domestic securities, where yields continue their upward march,” says Tumuhe: “If this appetite persists throughout the election cycle, we are likely to see yields soar even higher, things that make debt unsustainable.”
Government’s stand
Bank of Uganda and Ministry of Finance are brainstorming solutions to tame surging interest in the domestic debt market by tilting towards non-competitive bids - those with more forgiving rates - over cutthroat competitive ones, as seen in a recent bond auction.
The goal? Duck the steep rates investors are currently demanding.
“We are keeping a close eye on bond market yields, and while they have reached eye-watering levels, we are ready to walk away from bids asking for unsustainable returns,” says Kaggwa: “We are also broadening our horizons and heading back to the external debt market this year to ease the heat locally.”
Uganda’s external debt adventures hit a snag last year when the World Bank pulled the plug on new project financing and an IMF programme ran its course, leaving $130m of a $1b extended credit facility untapped.
The facility, signed in 2021, disbursed $870m before expiring in June 2023 after Uganda missed key programme targets.
Now, with external debt rates softening, the Finance Ministry is eyeing this market as a lifeline.
Kaggwa expresses optimism about securing funds from alternative lenders such as African Development Bank, Islamic Development Bank, and bilateral partners.
“We are hopeful the World Bank suspension will lift soon, but we are not putting all our eggs in one basket – we are exploring other avenues,” he says.
On the home front, government is determined to dial back its reliance on pricey domestic borrowing.
“We will still borrow locally, but we are prioritising non-competitive bids that offer reasonable rates. Excessive yields from competitive bids will only be considered when absolutely necessary,” Kaggwa notes.
For investors, this is a blinking neon sign; seize the moment because snagging bonds at today’s elevated yields could mean big gains down the line if rates drop, as suggested by the government’s shift in strategy.
