Implications of World Bank cutting funding to Uganda’s economy

Uganda’s economy is expected to witness major economic disruption following a letter by the World Bank Group affirming to freeze funding to development projects after the country enacted an anti-gay law. The decision by the World Bank to cease any new financing to Uganda has raised concerns about the country's economic stability and the implications this move may have on its financial landscape. The World Bank's regional vice president for Eastern and Southern Africa, Victoria Kwakwa, highlighted the key points in the statement, emphasizing the need for additional measures to be tested, third party monitoring, and grievance redress mechanisms to ensure inclusivity in all funded projects. This decision is a direct response to the passing of the anti-gay law by the Ugandan government and parliament. Daisy Anthea Nitwe, Lead Derivatives and Structured Solutions for Global Markets at Stanbic Uganda, shed some light on the potential impacts of this decision in an interview with CNBC Africa. Nitwe clarified that the existing portfolio of $5.4 billion in funding to Uganda remains unaffected, including approved projects that are yet to be disbursed. However, any new projects will face increased scrutiny to ensure inclusivity and minority rights. She also mentioned that conversations are ongoing between the World Bank and the Ugandan government to find a middle ground that satisfies both parties' interests. Nitwe pointed out that the World Bank does not offer budget support but focuses on project-related financing, which will continue for ongoing projects. She reassured that the impact on Uganda's economy is not a cause for immediate concern, as market reactions have been driven by sentiment rather than fundamental economic factors. The initial knee-jerk reaction in the market, such as currency depreciation and bond market concerns, is expected to dissipate over time as the situation is clarified. Nitwe highlighted the potential opportunities for investors amid the market uncertainty, particularly in the bond and equity markets. She noted that the bond market has remained stable due to Uganda's strong performance compared to other emerging economies. In terms of currency fluctuations, Nitwe attributed the recent depreciation to the market response to the World Bank's decision rather than global financing conditions. Looking ahead, she forecasted a mild depreciation of the Uganda shilling in the short term before potential gains from oil-related infrastructure investments in the long term. Nitwe addressed the potential impact of El Nino on the region's agrarian economies, emphasizing the need to monitor its effects on GDP growth. She also highlighted the positive outlook for Uganda's economy based on the Stanbic PMI data, indicating a strong performance in private sector sentiment and business conditions. Despite challenges, such as the impact of the World Bank's funding suspension and global economic uncertainty, Uganda's economic fundamentals, including inflation rates and policy direction, remained stable. Overall, Nitwe expressed confidence in Uganda's economic resilience and positive growth prospects despite the current challenges. The interview provided insight into the economic implications of the World Bank's decision on Uganda and offered a balanced perspective on the country's economic outlook amidst evolving global conditions.