By Sharon Tibenda

18^th June 2012:

The National Social Security Fund (NSSF) has, in a dramatic twist, revealed that it already lends funds to the government.  The news comes in the wake of President Museveni’s revelation in the State of the Nation address, in which he seemed to express a mere “intention” by the government to borrow money from NSSF.

The revelation by NSSF, the opposition says, shows that at the very least, Museveni was “misled” by his speechwriters, or at worst, that “…there are secret dealings between the government and institutions like the NSSF that the government deliberately keeps away from parliament’s oversight committees to avoid public scrutiny.”

In a statement, however, NSSF Managing Director Richard Byarugaba appeared to defend the Fund’s cooperation with the government, saying the Fund “…is keen to participate in the development of Uganda.”

Byarugaba’s full statement:

NSSF already lends to the Government through its participation in regular Treasury bond auctions and is keen to participate in the development of Uganda. In the spirit of transparency and public accountability, NSSF wishes to clarify to the public the nature of its current and future investment in publicly issued government debt.

The NSSF participates in Treasury auctions overseen by the Bank of Uganda on a regular basis. This is in keeping with the recognized norm all over the world of allocating a portion of pension fund portfolios to fixed income instruments like treasury bonds, treasury bills, and infrastructure bonds.

Governments all over the world issue treasury securities for various reasons including fiscal policy as well was monetary policy purposes and Uganda is no exception. In essence the government is already borrowing from the public and other institutional investors including NSSF by issuing Treasury bonds.

As the custodian of private savings with a mandate to ensure that there is secure, profitable and effective financial management of the Fund, we strongly believe that judiciously investing in publicly issued government debt is one of the safest ways to earn a steady return at zero risk since these instruments are considered to be risk free because they are backed by the full faith and credit of the Government of Uganda.

Government debt is a recognised asset class globally because of the steady coupon payments and guaranteed principal repayment at maturity with minimal risk of default.

In fact, an allocation to treasury bonds is a major feature of all pension funds in the world and that is why NSSF has been regularly participating in Treasury bond auctions together with other institutional investors including banks, insurance companies, private pension schemes, individual investors and offshore investors.

The yields on these instruments are determined by the market through a competitive bidding process conducted by the Bank of Uganda, which acts as the fiscal agent of the Government of Uganda.

We believe the President’s State of the Nation address is a timely announcement which will provide NSSF and other long term investors yet another investment alternative which is a vehicle to participate in the country’s development and relatively long term to match the Fund’s investment horizon.

The recently passed Uganda Retirement Benefits Regulatory Authority (URBRA) Act prohibits any lending except through securities traded in the open market. It is standard procedure for the Fund to undertake extensive credit analysis before investing in any debt instrument.

In conclusion, the NSSF wishes to reiterate its commitment to participate in Uganda’s development by judiciously deploying the pool of local savings to initiate and sustain domestically financed public projects.

We believe infrastructure bonds will provide a real opportunity to diversify NSSF’s investments given the dearth of opportunities in the Ugandan market that can absorb the Fund’s cash flows. END.  Login to www.ugandacorrespondent.com every Monday to read our top stories mid-week for our updates

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