What Awaits Uganda as World Bank Suspends Funding

by Christopher Kiiza
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The World Bank announced on Tuesday, August 8, 2023, that it was suspending any new funding of projects in Uganda, and would review the ongoing projects over Uganda’s passage of the anti-homosexuality law.

“Immediately after the law was enacted, the World Bank deployed a team to Uganda to review our portfolio in the context of the new legislation. That review determined additional measures are necessary to ensure projects are implemented in alignment with our environmental and social standards. Our goal is to protect sexual and gender minorities from discrimination and exclusion in the projects we finance. These measures are currently under discussion with the authorities. No new public financing to Uganda will be presented to our Board of Executive Directors until the efficacy of the additional measures has been tested,” the World Bank announced in a statement.

The international financial institution said Uganda’s anti LGBTQ Act fundamentally contradicts its “values.”

The move will negatively affect projects valued at over 6.7 trillion shillings.

Projects within the Bank’s sh6.7 trillion portfolio in the country will continue moving forward only if they are determined to be both inclusive and free from discrimination.

Some of the affected projects that will be subjected to review for nondiscrimination include; ones aimed at improving urban infrastructure, like the $566 million program known as the Greater Kampala Metropolitan Area Urban Development Programme. This program is dedicated to enhancing roads and drainage systems in the densely populated urban area surrounding the city.

Additional projects that are not immediately impacted, but will now undergo assessment for nondiscrimination encompass a $355 million project aimed at enhancing the agricultural sector’s ability to withstand climate change as well as a $217 million undertaking focused on fostering economic prospects for women entrepreneurs.

REVISION OF THE BUDGET

It is crystal clear that the World Bank’s decision to withdraw funding poses a significant challenge to Uganda’s ambitious economic transformation plan, which aims to elevate the country to an upper-middle-income status by 2040.

This stems from the fact that, just two days after the World Bank’s decision, Government announced that it was going to revise the country’s 52,7 trillion budget downwards.

The State Minister for Finance in charge of general duties, Henry Musasizi informed members of the finance committee of Parliament that this step is a rigorous effort aimed at protecting the economy from the repercussions of the suspension of new financial assistance from the World Bank. 

State Minister for Finance in charge of general duties, Henry Musasizi

“We took a firm decision, and we agreed that we would face the consequences. We shall be coming [to you MPs] soon. I want to prepare your minds that very soon we are going to revise the budget downwards, and we shall be coming to you for support. Even the emoluments are going to be affected given the preliminary results we are seeing. We shall be coming in one week or so to tell you the consequences and ask for your approval on how we shall move forward with the current challenges,” Musasizi said.

It was worth noting that this happens just one month into the 2023/24 Financial Year.

DEPRECIATION OF UGANDA SHILLING

Uganda’s currency, the shilling, is on track to experience its largest decrease in value in almost eight years over the revision of the budget.

Ugandan currency banknotes

The shilling’s value dropped by 1.76% against the US dollar, reaching a rate of 3,729.35 per dollar on Thursday.

This decline is the most significant one-day drop since December 2015, and it marks the fifth consecutive day of losses for the currency.

OTHER CONSEQUENCES FOR UGANDA

This World Bank decision involves various developmental projects and initiatives aimed at improving infrastructure, education, healthcare, and other key sectors.

The Bank’s portfolio of International Development Association (IDA) funding plays a crucial role in supporting Uganda’s developmental goals. The $5.4 billion (19.4 trillion shillings) funding at the end of 2022 reflects the financial assistance that Uganda relies on to implement projects that drive economic growth and enhance the overall well-being of its citizens.

Withdrawing this funding could lead to a variety of consequences that include, stalled development projects: The lack of funding will result in the delay or even cancellation of ongoing and planned projects. This will hinder the improvement of critical infrastructure, education, healthcare, and other sectors that are central to Uganda’s economic transformation.

Additionally, without the financial support provided by the World Bank, Uganda will most likely experience an economic slowdown as it struggles to achieve the desired economic growth rates. The World Bank funding contributes to the creation of jobs, investment, and overall economic stimulation.

The withdrawal of funding will have direct consequences on the well-being of Ugandan citizens. Programs focused on poverty alleviation, healthcare access, and education improvement will be curtailed, affecting the overall quality of life.

In light of these potential consequences, Uganda might need to explore alternative sources of funding or reconsider its developmental priorities to ensure it can continue its journey toward becoming an upper-middle-income country by 2040.

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