Uganda quest for $919m loan could raise interest on treasury bonds by 2 percent

A decision by Uganda’s Treasury to obtain Ush3.5 trillion ($919.5 million) in loans from commercial banks to finance the supplementary budget is expected to boost interest rates earned on treasury bonds by around two percent in the short term, alongside constrained social service delivery, weak tax revenue collections and a modest growth forecast.

The loans are meant to finance various infrastructure projects and contingent and classified expenditure items attributed to state house and security agencies. This package appears significantly higher than the Ush2.5 trillion ($656.8 million) loan previously obtained from Stanbic Bank Uganda in 2020 for paying salaries and wages to public employees during the Covid-19 lockdown period.

The financial year 2023/24 has been characterised by poor tax revenue performance, slow business activity and weak exchange rate.
Tax revenue collections posted a shortfall of Ush600 billion ($157.6 million) between July and November 2023, a figure projected to hit Ush1 trillion ($262.7 million) by close of June 2024. Lower tax revenues usually translate into higher government borrowing levels.

Source: East African