Sweden suspends some aid to Uganda over anti-gay law

KAMPALA, March 6 Thu Mar 6, 2014 12:41am EST

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KAMPALA, March 6 (Reuters) - Sweden has suspended some of its financial aid to Uganda over a law that toughened punishment for gays, becoming the fourth donor to do so.

Ugandan President Yoweri Museveni signed an anti-gay bill in late February that strengthens already strict laws against homosexuals by imposing a life sentence for certain violations and making it a crime to not report anyone who breaks the law.

"Swedish aid is not unconditional. The Government is therefore now choosing to suspend government-to-government payments still due under our current strategy for Uganda, with the exception of research cooperation," Swedish Minister for International Development Cooperation Hillevi Engström, said in a statement late on Wednesday.

Sweden follows the World Bank, Norway and Denmark, who have withheld or diverted aid totalling about $110 million. The United States, the biggest Western donor, says it is reviewing ties.

Sebastian Tham, spokesman for the ministry, said Sweden would immediately cut planned aid worth 6.5 million kronor ($1 million) to the Ugandan government.

Continued donor cuts to east Africa's third biggest economy are stirring fears of capital flight and are forcing Uganda to look to alternative sources for funding its budget, for which donors make up 20 percent.

The aid suspensions have rattled the Ugandan shilling , prompting the central bank to intervene and sell dollars to the market on three occasions after Museveni signed the law.

The central bank has also said a decline in foreign aid was a source of uncertainty for the economy, and that it would continue to intervene in the foreign exchange market to stem volatility as it had sufficient reserves to do so, amounting to about $3 billion. (Reporting by Philippa Croome; Editing by George Obulutsa and Eric Walsh)

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