The National Social Security Fund (NSSF) is ready to lend more funds to government for developing roads and railway.
In a statement signed by NSSF's chief Richard Byarugaba yesterday, NSSF welcomed the President's State of the Nation address, describing it as a "timely announcement which will provide NSSF yet another investment alternative which is a vehicle to participate in the country's development."
Byarugaba said NSSF is ready to deploy the pool of local savings currently at over sh2 trillion 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.
"It is standard procedure for the Fund to undertake extensive credit analysis before investing in any debt instrument," said Byarugaba.
Last week, President Yoweri Museveni said the Government plans to borrow sh1trillion shillings from the NSSF for infrastructure development, mainly the broken down roads and railway network.
In the wake of the President's announcement, there was outcry from the public on several fora, including online social media about the safety of pensions money were government to borrow from the fund.
NSSF already lends to the Government through its participation in regular treasury bonds where it allocates a portion of pension fund portfolios to fixed income instruments like treasury bonds, bills, and infrastructure bonds.
Byarugaba said governments all over the world issue treasury securities for various reasons including fiscal policy as well as 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," said Byarugaba, adding that NSSF is 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."
He said 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," said Byarugaba.
The recently passed Uganda Retirement Benefits Regulatory Authority Act prohibits any lending except through securities traded in the open market.