EU joins national donors in freezing aid to Uganda over graft

KAMPALA, Dec 4 (Reuters) - The European Union (EU) has

become the latest donor to suspend aid to Uganda alleging the

embezzlement of $13 million in aid funds by officials in the

Prime Minister's office.

The EU joins Britain, Germany, Ireland, Denmark and Norway

which have already frozen funds to the east African nation.

Uganda's government has said it is determined to punish all

the officials involved in the theft of money meant to help fund

the recovery of northern Uganda, ravaged by the Lord's

Resistance Army's two-decade insurgency.

Aid funds up to a quarter of the national budget.

The withholding of funds has also hurt the Ugandan economy

through the shilling currency which has lost close to 4 percent

of its value against the dollar, raising import costs, since

Ireland first cut its aid in late October.

Central bank Governor Emmanuel Tumusiime-Mutebile told a

news conference on Tuesday: "If all donors being reported to

have cut their aid do cut their aid, we think that this will

reduce the potential (economic) growth rate by about 0.7

percent."

Donors say a culture of impunity thrives at the heart of

government for cronies of Uganda's long-serving President Yoweri

Museveri.

"The recent corruption scandals and misappropriation of

funds in the government of Uganda are a breach of trust,"

Roberto Ridolfi, the EU's ambassador to Uganda, told civil

society groups in Kampala late on Monday.

EU officials in the Ugandan capital declined to say how much

aid the bloc was withholding. Ridolfi said it would not pay out

funds destined for budgetary support over the next six months

until Uganda took steps towards combating graft.

External financing was expected to account for roughly a

quarter of Uganda's 11.2 trillion shillings ($4.2

billion)budgetary spend this fiscal year (July-June), the

2012-2013 budget showed.

Cuts to budgetary assistance could hurt public investments

in health and education.

Ridolfi said the EU would initially suspend aid for six

months, giving the Ugandan government time to return the stolen

funds to donors, create a more robust public finance system and

prosecute officials guilty of theft.

"For the EU in practical terms this means that funds

earmarked as EU budget support to the Ugandan fiscal year

2012-13 will not be paid until satisfactory progress has been

confirmed on the points above," Ridolfi said in his speech.

Uganda's leading Daily Monitor newspaper on Tuesday quoted

Ridolfi warning that "Ugandan citizens are going to lose close

to $300 million in budget support" from eight development

partners.

At least 12 officials have been suspended since the

country's attorney general released a report in October

revealing the funds were missing.

($1 = 2680.0000 Ugandan shillings)

(Reporting By Elias Biryabarema; Writing by Drazen Jorgic;

Editing by Richard Lough/Ruth Pitchford)

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