Western Countries Redirect Uganda Aid After President Signs Anti-Gay Law, Ugandan Currency Plummets

Ugandan President Yoweri Museveni signed a law imposing life sentences for some homosexual acts on Monday. On Tuesday a local paper published a list labeling dozens of people as gay.

By Wednesday the country’s currency had tumbled more than 2 percent as Western countries denounced the law and made plans to redirect their foreign aid funds.

Foreign aid accounts for about 13 percent of Uganda’s gross domestic product, according to Shilan Shah, Africa economist at Capital Economics.

“Even if part of this cut, it would mean Uganda would be unable to finance its fiscal deficit without issuing more debt to the private sector, which of course raises concerns over their ability to pay,” he said. “It’s therefore no surprise that the shilling has weakened since the announcement, he added.”

The Ugandan shilling had gained nearly 3 percent this year, but fell about 2.4 percent this week to reach a rate of 2,508 per U.S. dollar on Wednesday, from 2,448 on Monday, according to Reuters.

“We cannot distance ourselves too strongly from the law, and the signal the Ugandan government now sends to not only persecuted minority groups, but to the whole world,” Danish Trade and Development Minister Mogens Jensen told The Guardian.

Norway will be withholding $8 million in development aid, while Denmark will divert $9 million to private projects. Swedish Finance Minister Anders Borg said on Tuesday that the law was a “financial risk” for Uganda.

Meanwhile, Britain, Uganda's former colonizer, won’t be withholding its planned $163 million in support to the government, but will redirect the money through alternative routes such as international aid agencies. Britain is the country’s second-largest aid provider after the United States.

On Tuesday, U.S. Sen. Patrick Leahy, D-Vt., called for a freeze in American aid to the country, according to Raw Story.

American contributions to Uganda are greater than $456.3 million every year, and the money is spent on food, education and military training programs.

White House spokesman Jay Carney told reporters that “we are undertaking a review of our relationship with Uganda in light of this decision.”

But the country’s economy depends on more than aid to the public sector.

“In the long run, foreign-direct investment could be withdrawn, which will have a bigger impact than the donor aid,” Jacques Nel, an economist at NKC Independent Economists in South Africa, told Bloomberg.