As the National Social Security Fund (NSSF) prepares to hold its 11th Annual Members Meeting next week, experts foresee a return to double-digit interest rate on the back of improved economic conditions.

In the financial year 2021/2022, NSSF paid a 9.65% interest rate on members' savings, the lowest rate paid in the past decade. However, experts are predicting a notable shift, with expectations of a return to double-digit interest rates of between 10% to 14%.

Speaking in Kampala on Wednesday, NSSF's managing director, Patrick Ayota, acknowledged the challenges posed by declining yields on bonds. Despite these challenges, NSSF reported a 15% increase in total realised income, surging from sh1.9 trillion to sh2.2 trillion for the fiscal year ending on June 30, 2023.

Ayota attributed the growth in earnings to interest income, which climbed from sh1.79 trillion to sh2 trillion, and dividend income, which grew from sh84b to sh139b.

L-R: Stevens Mwanje, CFO NSSF, MD Patrick Ayota, Deputy MD Gerald Kasaato and the Head of Marketing & Communications Barbara Arimi responding to questions raised by the journalists. (Photo by Mpalanyi Ssentongo)

“Although inflation remained under control at 4.8%, the reduction in the value of the stock markets in Uganda and Kenya, the appreciation of the Uganda Shilling against the regional currencies, and the reduction in long-term bond yields increased pressure on the Fund’s performance. For us to post a 15% increase in revenue shows our resilience and an astute investment risk balance,” Ayota said.

Expert insights

However, experts who spoke to New Vision are optimistic about NSSF's ability to deliver a double-digit interest rate in the face of declining bond yields. Factors such as signs of economic recovery, a stable Ugandan shilling, and decreasing inflation in the latter half of the previous year have fueled expectations of improved returns.

“Looking at the basis of the previous year’s rate of return year, provisioning for mid-term access and strong economic headwinds were major considerations. On the macro front, the economy showed signs of recovery with a relatively stable shilling and declining inflation in the second half of the year,” Stephen Kaboyo, managing director at Alpha Capital, said. 

“This year’s outturn from a number ‘s perspective looks much better and it is my expectation that rate of return is likely to be higher than last year’s and it would not be surprising to see a return to double-digit in the lower teens.”

A fund manager, who preferred not to be named, emphasised that while challenges of inflation among others still persist in the economy, the possibility of higher returns ranging between 10% to 14% maybe expected.

This year’s interest rate is expected to be announced by finance minister Matia Kasaija during this year’s annual member meeting on Tuesday next week.

“10 years ago, we committed to pay NSSF members a real return – at least 2 percentage points above the 10-year rate of inflation. We have consistently delivered on the promise and will continue to do so,” Ayota said.

(Standing L-R): Patrick Ayota, the Managing Director National Social Security Fund, Barbra Orimi , Head Marketing & Communications and Victor Karamagi Communcations Manager during the release of their performance results. (Photo by Mpalanyi Ssentongo)

The 10-year average inflation for Uganda is about 7%.

Other performance indicators

Data from the Fund indicates that the stock markets in Uganda, Kenya, Tanzania, and Rwanda suffered a reduction in value with the Uganda and Nairobi stock exchanges index reduced by 11.47% and 14.04% respectively.

On the other hand, the Tanzania Stock Exchange Share Index reduced by 4.02%, while the Rwanda Stock Exchange reduced by 2.27% respectively.

Additionally, the 10-year bond yield dropped from 15.6% to 14.7% on a year-on-year comparison as at the end of June, while the 15-year bond yield dropped from 16.1% to 15.3%.

The implication of these market dynamics, Ayota said, is that the interest earned by the Fund on these investments slightly dropped.

“If the stock markets drop in value, it means that the value we hold in equities will also show a reduction. The appreciation of the Ugandan Shilling affected the value of our investments that are based in Tanzania, Rwanda and Kenya,” he said.