The City of London rarely pays attention to African inaugurations. But when Yoweri Museveni, now 78, takes the oath of office for a seventh term, capital markets take note. Not because of the ceremony in Kampala, but because of what it signals: political stability at the cost of democratic evolution. For investors, stability is a double-edged sword. It reduces short-term risk but often masks long-term institutional decay. The UK’s call for democratic reform is admirable, but the bond market cares more about debt sustainability and rule of law than electoral cycles.

Since taking power in 1986, Museveni has overseen a period of economic growth averaging 6-7% per annum, with inflation largely under control. Uganda’s external debt, however, has climbed to 50% of GDP, and the shilling has weakened by 20% against the dollar over the past five years. The government’s reliance on Chinese infrastructure loans raises questions about future fiscal space. A president who stays too long can become a political risk, especially if succession planning remains opaque.

The UK’s Foreign Office statement urging reforms is standard diplomatic boilerplate, but it carries weight given London’s role as a hub for Ugandan diaspora remittances and investment. Any perception of political instability could accelerate capital flight, which reached $1.2bn in 2020 according to Global Financial Integrity. The Bank of Uganda’s ability to defend the currency is limited by foreign exchange reserves equivalent to just four months of imports.

From a market perspective, the real story is not the constitutional controversy but the economic trajectory. Museveni’s government has maintained fiscal discipline, running a deficit of around 5% of GDP in 2023. However, the rising public debt and slow progress on tax revenue mobilisation (tax-to-GDP ratio of 16%) are concerns. The next budget will be watched for signs of pre-election spending if term limits are further adjusted.

In the end, the City’s verdict will depend on whether Museveni’s longevity translates into policy continuity or policy fatigue. For now, the yield on Uganda’s 10-year Eurobond at 8.5% suggests the market is pricing in moderate risk. But the margin for error is slim. Any breakdown in law and order, or a disputed succession, could trigger a sell-off. The UK’s call for reform might be ignored, but the bond market’s message will be loud and clear.