Yesterday, we discussed Dfcu Bank as the first known bank in the recent past , where its financial statements indicated a preference for government securities over private sector loans.
Nice article, Alex. But isn't it interesting that the government is taking on too much debt from selling Treasury securities of recent? What has changed? Is it because they are not getting much from taxes? I understand that banks are leaning into it but don't you think that this increases the government's debt burden? Remember, our interest rates are high for Ugandan bonds so it means the government has to pay back quite a lot in interest over the years. Or have the bank analysts decided that foreign entities like the IMF and World Bank has higher interest than that offered on BOU's Treasury securities, and thus lending the government is somewhat safe. Do you think in our current state as a country there is an assurance that the governemnt will not default? Remember our bonds are B-rated. These are valid questions for an investor to ask. Some insight from you will be appreciated.
Your comment to @Kakande's post is broken down into two questions and the answers are given below;
1. Why is government priority in domestic debt better?
Because it helps the local economy. Eg. When the government pays back local banks and citizens, they can keep lending, investing, and spending money, which keeps businesses running and people employed.
2. Why can't the government default on domestic debt like Treasury bonds?
Because it would damage the whole economy. Eg. People and banks would stop trusting the government, stop buying its bonds, and may lose their savings. Also, the government can raise taxes or create money through change in interest rates to raise money to make the payments, so it has ways to avoid default.
Nice article, Alex. But isn't it interesting that the government is taking on too much debt from selling Treasury securities of recent? What has changed? Is it because they are not getting much from taxes? I understand that banks are leaning into it but don't you think that this increases the government's debt burden? Remember, our interest rates are high for Ugandan bonds so it means the government has to pay back quite a lot in interest over the years. Or have the bank analysts decided that foreign entities like the IMF and World Bank has higher interest than that offered on BOU's Treasury securities, and thus lending the government is somewhat safe. Do you think in our current state as a country there is an assurance that the governemnt will not default? Remember our bonds are B-rated. These are valid questions for an investor to ask. Some insight from you will be appreciated.
Your comment to @Kakande's post is broken down into two questions and the answers are given below;
1. Why is government priority in domestic debt better?
Because it helps the local economy. Eg. When the government pays back local banks and citizens, they can keep lending, investing, and spending money, which keeps businesses running and people employed.
2. Why can't the government default on domestic debt like Treasury bonds?
Because it would damage the whole economy. Eg. People and banks would stop trusting the government, stop buying its bonds, and may lose their savings. Also, the government can raise taxes or create money through change in interest rates to raise money to make the payments, so it has ways to avoid default.
Thanks for sharing with us… l found myself motivated by your articles.