Bank of Uganda warns loss of aid is ‘source of uncertainty’

The prospect of further cuts in the amount of foreign aid sent to Uganda is a "source of uncertainty" for the economy, the Bank of Uganda said today, as it held its key interest rate at 11.5% for the fourth successive month.

Annual CPI inflation edged down from 6.9% in January to 6.7% in February while GDP growth remains "relatively buoyant" – prompting the central bank to keep its "neutral monetary policy stance".

The Bank of Uganda is, however, concerned by the "potential risk of stronger inflationary pressures" surfacing over the next year, prompted indirectly by the government's decision to adopt a controversial anti-homosexuality law.

Last week Yoweri Museveni, the Ugandan president, approved a law that allows people found guilty of "aggravated homosexuality" to be sentenced to life imprisonment.

In response, a number of western countries announced they would withhold aid from Uganda. The World Bank, meanwhile, suspended a $90 million loan to the country.

The Ugandan shilling has gradually strengthened over the past year, but has dropped by around 3% against the US dollar since Museveni signed the law on February 27.

"The magnitude and timing of possible declines in foreign aid are… a source of uncertainty for the balance of payments and the economy," the Bank of Uganda warned.

The World Bank president, Jim Yong Kim, published an opinion piece arguing that discriminatory laws – such as in Uganda – were "bad for people and for societies" and also carried "economic losses".

"Legislation restricting sexual rights, for instance, can hurt a country's competitiveness by discouraging multinational companies from investing or locating their activities in those nations," he said.

"Eliminating discrimination is not only the right thing to do; it's also critical to ensure that we have sustained, balanced and inclusive economic growth in all societies."

Ofwono Opondo, the Ugandan government spokesperson, spoke out against the World Bank's decision on Twitter, arguing that it "should not blackmail its members, however small".