With crucial decisions being made this week by several countries and the World Bank on whether or not to resume aid to Uganda, the country is walking a tightrope, offering donors deeper reforms while looking increasingly to sovereign wealth funds from China and elsewhere to finance major national projects.

The availability of direct project funds from sources like the Exim Bank of China, as well as the willingness of Uganda’s leaders to creatively leverage its future on oil reserves, has created a unique moment in the country’s relations with traditional donors.

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The EastAfrican can reveal that upcoming policy changes, especially a proposed revenue management law as well as a new foreign policy, indicate a determination to maintain tight control of oil revenues.

The proposed foreign policy emphasises “economic nationalism.” In a section on “Oil and Gas Diplomacy,” the Foreign Ministry is mandated to gather economic intelligence on “all prospective international players and development partners,” identify the “right investors and funding” and eventually support Ugandan membership of the Organisation of Petroleum Exporting Countries (Opec).

Funding shortfalls, however, have forced the government to bargain with donors by proactively driving financial controls to restore confidence that corruption-related losses that occasioned the aid cuts will end.

Uganda’s development partners, including the European Union, Austria and the World Bank, have, since last December, indefinitely withheld nearly $300 million in aid due to runaway corruption.

The cuts, according to economist Fred Muhumuza, who advises the Minister for Finance, had a “ripple effect” on the economy, slowing activities and affecting tax revenues.

On March 11, Deputy Secretary to the Treasury Keith Muhakanizi announced deep cuts to the 2013/14 budget.

In order to raise resources for increased production and investment, he said, the government had made a policy decision to slash consumptive expenditure. He saved Ush36 billion ($13.6 million) across all government ministries and agencies.

READ: Uganda government plans budget cut after aid freeze

Earlier, the government had in a face-saving gesture agreed to pay back some of the aggrieved parties, including the governments of Ireland, Norway, Sweden and Denmark.

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Within days, the Cabinet had produced an inter-ministerial High Level Government Financial Management Reform Action Plan. Mr Muhakanizi on January 18 wrote to the Accountant General to authorise repayment to the four countries Ush38.3 billion, roughly the same amount of money he sought to squeeze out weeks later in budget cuts.

On February 27, led by Ministry of Finance technocrats, the government sought to charm donors back to the table with a mix of reforms that included promises of better financial management, investigations, indictments and prosecutions of culpable civil servants.

The central bank, for example, promptly locked out 165 “dormant accounts” that were being used to launder money to the private accounts of civil servants.

Former principal accountant in the Office of the Prime Minister Godfrey Kazinda is currently on trial in connection with this.

On February 14, Local Government Minister Adolf Mwesige wrote to his counterpart in Finance Maria Kiwanuka agreeing to rotate accounting officers by mid 2013.

The Uganda police also attempted to seize property of the indicted permanent secretary at the Public Affairs Ministry, who is accused of stealing millions of dollars. To do so, the police sought to match his official declarations of wealth required by law each year to his known holdings in, among others, real estate, hardware, insurance and ranching.

While kept mostly quiet, the decision to attempt recovery under the Leadership Code Act, a law that demands such declarations, is the most aggressive attempt yet to go directly for illicitly accumulated wealth.

The Finance Minister has also requested a special audit of her ministry and the central bank where a senior banking officer Milton Opio has been sent on forced leave. In total, 101 case files for possible criminal action have been reportedly opened.

With the reforms under way, Ms Kiwanuka on March 7 told Roberto Rodolfi of the European Union delegation and Ahmadou Moustapha Ndiaye, the country head of the World Bank, of donors who give budget support: “I hope [these reforms] will pave the way for your consideration to unblock the flow of development assistance this financial year.” The World Bank announces its review of the situation later this month.

But donor sources say a wholesale return to the table will not be possible before the end of the year. Donors worry that the reforms proposed are too little and perhaps too late, they say.

“It’s more of the same. Real reform may only be possible if donors stay away much longer to allow for the liquidity problem to really hurt,” one advisor said, arguing that cuts did not affect the “imperial presidency,” referring to the cost of running the President’s Office and itinerary.

State House requested a supplementary budget of Ush129 billion (over twice the combined budget cuts and repayment bill) that was left out of the proposed cost savings.

While low-level civil servants are paying, some going without salary since the aid cuts were announced, the battle between Uganda and its donors shows how flexibly the government views its own position and its funding options.

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