KAMPALA – Bank of Uganda has announced new reforms aimed at increasing efficiency and enhancing liquidity in the financial market.
Governor Emmanuel Tumusiime-Mutebile on Monday announced that the Reforms which target primary dealership markets, include automation of the auction processes to enhance efficiency and price transparency, which has increased the global visibility of Uganda’s financial markets.
Prof Mutebile says the move also strengthens the country’s ability to withstand exogenous shocks to the economy, as offshore investors would be more assured of stability in prices as opposed to the expectation of heightened volatility in the markets.
He says financial market trading has remained persistently low in Uganda despite efforts to boost.
“In FY 2019/20, the turnover in the secondary market was recorded at 41 percent of the total outstanding stock of Government securities. This means that 59 percent of the total outstanding stock of Government securities was not traded at all, and was simply held till maturity. This is quite low compared to say, South Africa, where secondary market turnover amounts to 1,200 percent of the total outstanding stock of Government securities. This means that in South Africa, the total outstanding stock of Government securities changes hands 12 times in a year, which substantially increases liquidity in the market,” Mr Mutebile says.
In order to enhance liquidity in the secondary market, effective October 01, 2020, competitive bidding in the primary market for Government securities shall be limited to only Primary Dealer Banks.
The Central Bank has also ring fenced seven commercial banks including ABSA Bank, Bank of Baroda, Centenary Bank, and DFCU Bank as primary dealer banks.
“Investors should continue submitting their bids to their respective commercial banks as usual, where they will be well served. All commercial banks will continue to access the primary market for noncompetitive bids (below UGX 200 million). However, for competitive bids 3 (those above UGX 200 million), Non-Primary Dealer Banks will access government securities from the Primary Dealer Banks in the secondary market. I would like to take this opportunity to congratulate the new Primary Dealer Banks and to say that the Bank of Uganda looks forward to a more vibrant secondary market for Government securities in Uganda,” Mr Mutebile says.