While Kenya’s government has a range of revenue streams enabling it to cover basic governmental functions without significantly relying on foreign aid, Uganda’s revenue sources are more limited, and aid makes up around 25% of the country’s budget. Thus the cuts to aid imposed by foreign donors following the recent embezzlement of funds in the office of prime minister are likely to cause significant cash flow difficulties.
The amount of funds collected by the Ugandan government in taxes is only 13% of Uganda’s GDP, the lowest revenue as a percentage of GDP in the region. Oil was discovered in Uganda a few years ago, and it is expected to bring in significant revenue, but commercial production is still some years away. Accordingly, the stopping of foreign aid is likely to lead to retrenchment of government employees, delays to infrastructure projects, and reductions in government services.
Recent events have highlighted the differences between the US and the UK in delivering aid. The UK prefers to give budget support, as in theory that helps the government to build institutional capacity, but it increases the opportunities for embezzlement. The US prefers to give direct support to projects, reducing the potential for embezzlement but also arguably creating long-term dependence as the recipient country does not get the opportunity to develop its own institutions.