As Pedson Mumbere reports, there is a number that the Ministry of Finance, Planning and Economic Development is understandably proud of.
In February 2026, the government raised UGX 1.61 trillion from the domestic market through Treasury Bills and Bonds — UGX 615.98 billion through the short-term bills and UGX 997.19 billion through the longer-dated bonds.
All T-Bill auctions were oversubscribed, with investors bidding more than double what was on offer, producing an average bid-to-cover ratio of 2.16.
Yields fell sharply across the board. By any reading of the headline figures, this is a well-functioning market doing exactly what it is supposed to do.
The yield declines are particularly striking. The 91-day T-Bill fell from 11.2 percent in January to 11.0 percent.
The 364-day bill dropped from 14.0 percent to 12.3 percent. In the bond market, the movement was even more dramatic — the 3-year bond eased from 15.90 percent to 13.30 percent, while the 10-year and 20-year bonds settled at 14.50 percent and 15.49 percent respectively, down from 16.75 percent and 17.63 percent.
The Ministry attributes this to improved macroeconomic stability, reduced political risk following the recent general elections, and sustained interest from offshore investors hunting for returns in emerging markets.
All of this is true, and it matters. Falling yields reduce the government’s cost of borrowing, which in theory frees up fiscal space for development.
Because government securities serve as a pricing benchmark for the broader financial sector, lower yields should, over time, pull commercial lending rates down too — easing access to credit for businesses and ordinary Ugandans.
The direction of travel is welcome.
But here is the question that the celebratory framing tends to obscure: why is the government borrowing this much in the first place?
Of the UGX 1.61 trillion raised in February, UGX 759.98 billion — nearly half — went straight to refinancing maturing domestic debt. Not to roads, health care, or education.
To paying off old borrowing with new borrowing. This is the quiet admission buried in the report, and it deserves more attention than it typically receives.
Debt rollover at this scale is not debt management. It is a treadmill; the government runs hard each month simply to stay in the same place – borrowing from Philip to pay Michael, as it were.
The remaining UGX 853.19 billion was applied to budgetary expenditures — but this too deserves scrutiny.
A government that consistently turns to the domestic market to fund its operating budget is, by definition, living beyond its tax revenues, or simply put, living beyond your means. Now, that is the textbook definition of fiscal indiscipline.
It may be dressed in the language of “strategic financing” and “debt management operations,” but the underlying reality is that the government is spending more than it earns, and the difference is being borrowed from the same pool of money that the private sector needs to grow.
This is the crowding-out effect, and it is the most consequential story in Uganda’s capital markets that almost nobody wants to discuss directly.
When institutional investors — pension funds, banks, insurance companies — can park their money in government paper that is safe, liquid, and now yielding north of 11 percent even at the short end, the rational thing to do is exactly that.
Why take the risk of lending to a small manufacturer in Jinja or a trading business in Gulu when the government offers a guaranteed return with zero credit risk?
The answer, increasingly, is that they do not. And so the private sector is quietly starved of the long-term capital it needs to invest, expand, create jobs and pay taxes.
The February numbers are a symptom of a structural problem that better yields alone cannot solve. Uganda’s domestic revenue mobilisation remains inadequate relative to its spending ambitions.
Until that gap is closed — through widening the tax net, tighter expenditure controls, and genuine efforts to eliminate waste — the government will continue to be the dominant borrower in its own market, and the private sector will continue to compete for whatever is left over.
None of this diminishes the genuine progress reflected in February’s data. A liquid, competitive securities market with falling yields and strong investor participation is an asset, not a liability.
But it is an asset that is currently being used to paper over a fiscal gap rather than to finance transformation. The market is working. It is the budget that needs fixing.
