Bank of Uganda, the country’s central bank has said it is waiting on cabinet to approve the proposed Diaspora bond before it could be presented before parliament and eventually introduced to Ugandans living and working abroad.
Government expects to introduce the bond among the Diaspora in a bid to secure an alternative innovative source of funding it could use to bridge a shortfall estimated at over 15 billion dollars. A bond is an arrangement in which one loans money to an entity such as government for a defined period of time at a fixed interest rate.
Jan Tibamwenda, the Head of Communications at Bank of Uganda, told the media that a recent study found that up to 68 percent of money remitted by Ugandans in the Diaspora is used for consumption meaning there is yet no mass for a purely international Diaspora bond. As a result, he said the study proposed that government should issue a hybrid Diaspora bond comprising government issued local, regional and Euro bonds with a specific portion dedicated to retail Diaspora investors instead of a purely international Diaspora bond.
According to the United Nations Development Program, Ugandans abroad remitted 768 million dollars in 2010, a sign that government could target the Diaspora with the a bond whose proceeds would facilitate investment in priority sectors of the economy to aid development.
Tibamwneda explained that government is considering a three phased approach for issuing the Diaspora bonds. He said a local infrastructure Bond with a Diaspora component would be introduced in the short term followed by regional and Euro infrastructure Bond with a Diaspora Component in the medium-term before an International Diaspora Bond in the international financial markets in the long-term.
He said phase one of the Diaspora bond plan is scheduled to run from June 2013 to January 2016. He however added that Bank of Uganda was still working with partners such as commercial banks to incorporate a Diaspora component in all government bonds currently issued by the central bank before a fully fledged pure Diaspora bond is considered in future.
Tibamwenda explained that the bank also plans to register all Diaspora investors and provide sensitization on the need to invest in government securities. According to Job Elogu, the head of the Diaspora Unit at the Ministry of Foreign Affairs, there are about 1.5 million Ugandans living and working abroad.