The government of Uganda is planning to issue an infrastructure bond to fund infrastructural projects without borrowing from local banks.
A bond is an instrument issued by the government or a company that needs to borrow money.
Basically, the person who gets the bond invests in the said project and is paid after the date of maturity with interest.
The government can decide to buy back the papers before the date of maturity.
Mr Samson Muwanguzi Joash, the Acting Assistant Commissioner in the Domestic Debt Office at the Ministry of Finance, said the plan is on to issue the bond, but the government has not yet decided on the date for issuing it.
He made the call last Friday at a dialogue with civil society organisations.
This came after it emerged that the amount of debt that the government has acquired from the domestic market has gone up to 6.8 trillion Shillings which is more than 1 percent of Gross Domestic Product (GDP), initially set as the maximum.
The total debt, foreign and domestic will grow to 52 percent by the end of the financial year, which is also above the 50 percent ceiling that Uganda agreed on with the other East African Community countries, with the support of the International Monetary Fund.
But Muwanguzi said domestic debt cannot be avoided because of its benefits over foreign debt.
He said much as foreign debt interest rates are lower, the loans carry other costs like conditions and the risks associated with changes in foreign exchange rates over the loan period.
Domestic loans are also easy to get since they are acquired from within the country, which makes them good for emergency case borrowing.
Local currency bonds can serve as an alternative avenue for infrastructure financing.
Experts say bonds are an ideal tool for financing long-term infrastructure projects, and can thus help to fill the region’s infrastructure investment gap.
Given the limited ability of local banks to provide long-term funding and the shrinking international assistance, the report encourages project sponsors to turn to domestic institutional investors by issuing infrastructure project bonds.
Muwanguzi says the government had projected the domestic debt level to rise to 6.3 trillion Shillings, but this will go to 6.8 trillion when it acquires the loan for the initial investment in the East African Crude Oil Pipeline this month.