Improving Public Debt Management
In the OIC Member Countries
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The average time to refixing (ATR) is expected to decrease from 12.2 years in 2015 to 11.6
years in 2016, mainly due to new external debt contracted on variable interest rates. Interest
rates remain moderate as the portfolio is constituted of a large share of longterm concessional
loans with fixed interest rates (MoFPED 2016). Higher concerns arise with respect to
refinancing risk. The average time to maturity (ATM) is expected to decline from 12.2 years in
2015 to 11.9 years in 2016 (see Table 44). This follows from the changes in the external debt
portfolio, too. Another indicator for a slightly increased refinancing risk is the share of debt
which matures within one year. With 22.4% in 2015, this share lies far above the benchmark of
15%. However, it is only considered to be a shortlived problem, as the country faces a single
peak of debt which matures in 2016. Due to the relatively high share of debt denominated in
foreign currencies, the exchange rate risk remains present. The PDMS mentions explicitly the
vulnerability concerning U.S. Dollar denominated debt, which represents the largest share of
external debt (see also Figure 410).
For the next years, the PDMS outlines an expansionary fiscal policy to finance the large amount
of infrastructure projects, which are expected to drive growth in the medium and longrun
(MoFPED 2016). Most of the investments will be financed by foreign sources. Although
concessional loans are preferred, nonconcessional loans are probably necessary in the
medium term given the external finance constraints of Uganda. However, they will be only
used if the expected return on the financed projects substantially outweighs the financing costs
of the loan (MoFPED 2016). Other restrictions indicate that loans for social service delivery
and development have to be contracted on highly concessional terms (grant element < 50%),
while productivity enhancing investments can be contracted on less concessional terms (grant
element < 35%).
Borrowing and Related Financial Activities
Operations (incl. Islamic finance)Currently, the BoU issues TBills with maturities of 91, 182 and 364 days (AFMI 2016).
Treasury securities are issued for the purpose of cash and liquidity management, which not
only helps to separate monetary from fiscal policies, but also encourages the overall
development of the domestic financial sector (MoFPED 2013). Treasury securities are held
predominantly by commercial banks (45.8% at the end of 2014) followed by pension funds
(24.8%) and offshore investors, which account for 13.2% (AFMI 2016). TBonds are available
with maturities of two, three, five and ten years (AFMI 2016). In 2013, a first 15year bond was
issued, which reflects the goal of the government to lengthen maturities (Ojambo 2013). In
2014, there were considerations to issue a $ 1 billion bond in the Eurobond market (Giokos
and Ojambo 2014). However, these plans were suspended due to the stronger U.S. Dollar,
which has made it more expensive for Uganda to borrow in Dollardenominated debt (Ojambo
2015). However, there are no restrictions for the participation of foreign investors in the
domestic bond market (AFMI 2016).
The yields on TBonds and TBills have been on an upwards sloping trend since 2006 (see
Figure 411). For instance, the yield on the oneyear TBill increased from around 10% in 2006
to 14.9% in August 2016. This raise in interest rates can be attributed to the increasing general
government debt levels (see Figure 410). During the first quarter of the financial year
2015/16, some issuances were highly undersubscribed, which forced the government to
borrow cautiously from the domestic market and might have been the trigger for the increase
in yields in 2015 (MoFPED 2016). As of August 2016, both the yield curve of TBonds and TBills exhibited the classical expected form, which means that debt with longer maturities has
higher yields (see Figure 412).