Overview:
According to a letter written by Finance Minister Matia Kasaija, the government is inviting possible lenders to structure medium-term and long-term financing, including a possible Eurobond issue.
The Government of Uganda is seeking to borrow 500 million euros (about Shs2 trillion) to fund its budget through international creditors, including a Eurobond.
According to a letter written by Finance Minister Matia Kasaija, the government is inviting possible lenders to structure medium-term and long-term financing, including a possible Eurobond issue.
“Government is, therefore, seeking financing partners to structure medium-term and long-term financing, using all available financing options including the eurobond,” Kasaija said in the letter.
The minister says the credit proposals should have minimum 10-year terms and must be submitted by November 18, the minister said.
A Eurobond is a debt instrument that’s denominated in a currency other than the home currency of the country or market in which it is issued.
“Government is, therefore, seeking financing partners to structure medium-term and long-term financing, using all available financing options including the eurobond,”
matia kasaija, finance minister
Uganda in 2014 considered eurobonds for government funding but later abandoned the idea, saying it was costly and opted for credit from low-interest bilateral lenders such as China.
Then Bank of Uganda governor Emmanuel Mutebile said Uganda would use concessional loans for its development because the lending rates are lower and the loans are usually accompanied by grants of up to a quarter of the borrowed amount.
“We should not be complacent about the dangers of big projects built on sovereign debt because it would be unwise for African countries, which will never again get debt relief. From what we are seeing in Ghana, we are not yet ready to issue sovereign bonds,” Mr Mutebile said.
The popularity of Eurobonds as a financing tool reflects their high degree of flexibility as they offer issuers the ability to choose the country of issuance based on the regulatory landscape, interest rates, and depth of the market.
They are also attractive to investors because they usually have small par values or face values providing a low-cost investment. Eurobonds also have high liquidity, meaning they can be bought and sold easily.
But the main drawback of eurobonds is that they’re not regulated in their home country. This could increase their risks.
The letter comes as the country struggles to repay its debts, with public debt now just short of 50% of gross domestic product.
The World Bank has warned that Uganda needs to control the rising public debt.
Mathias Mpuuga, the Leader of the Opposition in Parliament, says the letter is evidence of the dire economic state the country is facing amidst denials and unabated extravagance.
“This letter is the equivalent of solicitation from street money lenders – in Parliament speak; ew’Omuyindi! It’s very clear that more reliable and cheaper multilateral and bilateral lenders have declined to finance on well known friendly terms given the misrule and abuse of public resources,” he said on Saturday.