From Oct. 1, only Absa Bank, Bank of Baroda, Centenary Bank, DFCU Bank, Housing Finance, Stanbic and Standard Chartered will be allowed to buy newly issued government bonds, in amounts of more than 200 million Ugandan shillings ($54,303.56) apiece.

"Competitive bidding in the primary market for government securities shall be limited to only primary dealer banks," Bank of Uganda said in a statement.

It said a secondary market that is more liquid, meaning securities are easier to sell if the holder wants, should attract more investors into Uganda's government securities.

Like other frontier markets, the East African nation has increased domestic debt issuance in response to demand from local and foreign investors, as well as to raise funds for a range of infrastructure projects.

Secondary trading of government bonds is limited, however: the central bank said only 41% of outstanding government securities were traded in the secondary market in the financial year that ended in June, with the rest being held by the original investor until maturity.

That is very low compared to more established markets like South Africa, where the value of bonds traded on the secondary market was 1,200% of total outstanding government securities, it added.

Market participants said the changes would also help the market price risk more accurately.

"The reforms point towards underwriting whereby the few eligible institutions will take up the entire offer," said Stephen Kaboyo, executive director of Alpha Capital Partners, a fund manager.

Both public and private debt securities in Uganda are traded on the Uganda Securities Exchange (USE), a small bourse with just 17 listed equities.

By Elias Biryabarema