The growth rate of Uganda's economy will decline by 0.7 percent over the next 12 months due to foreign aid cuts to the East African country over corruption allegations, the country's central bank governor has warned.
Emmanuel Tumusiime-Mutebile, Governor Bank of Uganda, told reporters here that the economy will grow at 4.3 percent from the projected 5 percent.
Several European countries have cut aid to the country over financial and corruption scandals that have led to the loss of over 13 million U.S. dollars meant for post war recovery in the northern part of the country that is recovering from a two -decade war and semi arid northeastern Uganda.
"It's too early yet to tell what will happen on the economy. But if all the donors being reported to have cut their aid, we think that this will reduce the potential growth rate by 0.7 percent," said Tumusiime-Mutebile while releasing the monetary statement for the month of December.
Cuts by Ireland, Norway, Sweden, Denmark, Britain and Germany mean that government will have to reduce its expenditure."There is need to cut government expenditure in response to donor aid cuts and the difficult financial global economic outlook, " Tumusiime-Mutebile said.
He said the main constraints to the economic growth in the short term include the weakness on the demand side of the economy and lack of growth in private sector borrowing.
He said the Bank's monetary policy will continue to focus on stimulating aggregate demand in order to boost real economic growth without jeopardizing the medium term inflation target of 5 percent for core inflation.
In order to support recovery in real growth, the Bank will reduce its lending rate by 50 basis points to 12.0 percent in December 2012.