The total value of refinanced government securities exceeded half of the entire amount of Treasury Bills and bonds issued in the financial year 2023/24 in a development that promises higher borrowing costs amidst growing fears of debt distress surrounding Uganda’s economy, The EastAfrican has learnt.

Refinancing government debt securities refers to the rollover of maturing Treasury Bills and bonds through the extension of the duration of expiring securities, payment of outstanding interest charges, and application of fresh pricing terms for those securities.

Latest data published by the Finance Ministry shows government-issued Treasury Bills and bonds valued at Ush15,021.3 billion ($4 billion) in the financial year 2023/24 while the total value of refinanced securities was estimated at Ush8, 358.5 billion ($2.2 billion) during the same period. The balance of Ush6, 662.8 billion ($1.78 billion) was allocated to funding mainstream budget activities.

Treasury bonds worth Ush599.7 billion ($160 million) were refinanced in May 2024 compared to Ush893.4 billion ($238.5 million) of Treasury Bonds that were refinanced in June 2024, according to the data. A total of Ush1, 576.3 billion ($420.9 million) was raised from the domestic debt market in July 2024.

A sum of Ush1,048.6 billion ($279.9 million) was allocated to funding budget expenditure for the first quarter of 2024/25 while the balance of Ush527.7 billion ($140.9 million) was devoted to debt refinancing, the data revealed.

The refinancing transactions are mainly targeted at Treasury Bonds with a duration of five-15 years that bear high interest rates, financial market sources indicated.

“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 percent to date.

Refinancing of government securities is necessary in times where the stock of maturing Treasury Bills and bonds plus the final interest due to investors are much bigger than available tax revenues. Clearing debt redemption bills and interest due in such a situation might leave the government with nothing to spend on other budget priorities.

Refinancing on the other hand, minimises the debt burden by clearing interest obligations due to investors and pushing forward redemption costs. While local investors are keen on inflation movements and their effect on returns on investment, foreign investors are very cautious about inflation and exchange rate movements in the local economy,” explained Dr Kenneth Egesa, Communications Director at 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 instance, a recent Ush35 billion ($9.3 million) funding requirement generated by the Ministry of Health for the deployment of medical intern doctors remains unfulfilled on account of sharp budget cuts experienced in many 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.