Donors may cut aid to Uganda in corruption protest

KAMPALA

Donors will suspend aid to Uganda to protest at escalating corruption unless the government undertakes urgent measures to curb the vice, the donors warned government in a letter.

Uganda's economy has maintained a powerful growth momentum over the last decade, riding on liberal reforms and rising entrepreneurial energy.

However, mounting corruption and government's reluctance to combat it have stoked fierce criticism and analysts have warned the vice may dampen the country's otherwise bright growth prospects.

Kundhavi Kadiresan, World Bank's representative in Uganda and current chair of the donors' group that presented the statement to the government, said Kampala's tolerance of corrupt public officers was deepening a culture of impunity.

"The undeniable lack of government action to follow up on cases of grand corruption is a key area of development partner concern," she said in the letter seen by Reuters on Thursday.

"Donors ... are currently considering a range of actions. This may include withholding disbursements, reductions in aid or reprogramming away from direct budget support."

The east African country has also faced intense pressure from Western governments and human rights groups over a draft anti-gay law that would prohibit sexual relations between people of the same sex as well as the recognition of homosexual relations as an acceptable lifestyle.

Although economic expansion has enormously boosted Uganda's domestic revenue base and allowed the country to accelerate reduction of donor-dependence, aid still accounts for about 30 percent of its annual budgetary resources.

Closure of aid taps would imperil delivery of key public investments in crucial sectors like health and education.

"Corruption in Uganda is endemic and we have seen no sign of improvement," Kadiresan said.

She cited recent cases of embezzled funds totaling about $33.2 million without anyone getting prosecuted. A state-run body that regulates public procurement estimates that Uganda loses $100 million annually in procurement-related graft.

There was no immediate comment from the government.

Kadiresan said donors were skeptical of government's claim that it would spend oil dollars effectively and suggested proceeds were likely to disappear in an environment where corruption already reigns supreme.

"Only effective and accountable states are able to turn oil into a blessing for a country ... Uganda could easily become the next African country where oil has become a curse," she said.

The country discovered large deposits of oil in Lake Albert basin in 2006 and exploration firms have estimated reserves at 2 billion barrels.

The World Bank estimates Uganda will be earning $2 billion from a daily crude output of about 150,000 barrels. Tullow Oil one the exploration firms in Uganda, has said initial production will start later this year.

Reuters