(Bloomberg) -- Academic experts are questioning the role of the World Bank after its decision to halt new loans to Uganda following the introduction of harsh anti-LGBTQ laws in the country.

While Uganda’s new legislation is particularly severe, introducing life imprisonment and even the death penalty for certain acts, the organization’s decision stands in contrast to its relationships with other countries that also criminalize homosexuality. This has raised concerns over an inconsistent approach and whether countries may look to alternative sources of funding if the World Bank is seen to use its funds to influence political decisions around the world.

“This decision not to lend to Uganda clearly violates the World Bank’s Articles of Agreement that it not engage in political considerations in its operations,” said Susan Park, a researcher in global governance at the University of Sydney. “What is so striking about this decision is that it has no link to the Bank’s mandate for lending for economic growth and development whatsoever.”

The World Bank took the decision after meeting with a number of civil society organizations that lobbied for the move, according to a person familiar with the matter, who asked not to be identified without permission to speak publicly. The institution decided to take action on Uganda because while it isn't the only country that has made homosexual acts illegal, its laws are much more strict than any other nation, the person said.

Read More: Why Uganda’s LGBTQ Community Is Under Renewed Fire

The East African government’s latest legislation includes the death penalty for so-called “aggravated homosexuality,” defined in part as engaging in same-sex intercourse where the individual is HIV-positive or aged under 18, life imprisonment for individuals convicted of other LGBTQ acts, and a one billion shilling ($268,000) fine for legal entities that “promote homosexuality.” 

But it’s only one of around 60 UN member states that criminalize same-sex consensual sexual acts, according to data from ILGA World, an advocacy group.

For its part, the World Bank says it’s mandated to carry out due diligence to mitigate for any minorities that may be adversely affected  by projects on the basis of gender, sexual orientation or race. According to a statement earlier this month, the group said that in this instance, it was concerned that minorities and LGBTQ groups may be excluded from projects in Uganda that received funding. The group also held dialogue with the Ugandan government before taking the decision.

The decision does not affect the Bank’s portfolio of existing loans, valued at around $5.2 billion. LGBTQ staff at the Bank published an internal memo seen by Bloomberg that welcomed the decision and called for “clear and decisive actions against any laws that fundamentally contradict the World Bank Group’s values.”

The wider impact of the decision

Although Park said she doesn’t expect other international organizations to follow suit, civil society groups in the region fear the measures may push other development partners in that direction. “A lot of uncertainty lingers as to whether the IMF will take a similar decision,” Civil Society Budget Advocacy Group, a Uganda-based umbrella body of civil society organizations, said in a statement this month. 

The World Bank’s decision will have ripple effects across Uganda’s economy, the CSBAG said, including the potential to deter foreign direct investment, and increase economic inequality amid a push to transform the country into an upper-middle income nation by 2040. Already, the Ugandan currency headed for its steepest one-day drop in almost eight years after the decision was announced, and government officials said they are considering revising the 2023-24 budget to take into account the drop in financing.

An IMF spokesperson said that Uganda’s new legislation itself is likely to take an economic toll on the country in the form of less external funding, FDI and tourism, although its current financing arrangement with the country remains in place. 

Yet Uganda had clues this was coming. It faced similar dialogue with the World Bank in 2014, when the lender delayed a $90 million loan over anti-LGBTQ legislation, said Fabrice Houdart, a former World Bank senior country officer and researcher at Georgetown University, who advocated for the World Bank to halt its engagement with Uganda this year. The 2014 law was quashed by the country’s constitutional court on the basis of legislative flaws during its enactment.  “I don’t think it’s the World Bank penalizing the poorest in Uganda, it’s Museveni himself imposing a self-inflicted wound,” Houdart said in an interview, referring to the Ugandan president.

Read More: Uganda Cuts Rates, Vows to Act if World Bank LGBTQ Move Hits FX

The decision reflects a shift at the World Bank in its approach toward economic growth and development, said Mick Moore, a researcher at the Institute of Development Studies. “The heavy emphases they formerly placed on markets, competition and fiscal conservatism have to some extent given way to an emphasis on equality of all kinds.” 

In one example, the World Bank halted funding for projects in Afghanistan after the Taliban took control of the country in 2021. “That was not too controversial internationally. But Bank staff always suspected that they would face much more problematic cases,” Moore said. “The Uganda case is especially problematic, because it left the Bank facing strongly competing political pressures and little scope for finding a compromise.” 

Questions remain about the lack of consistency, said Park. “This will tarnish the image of the Bank in developing countries, who might begin to question what other policies might not fit this new vision,” she said. It may also  prompt Uganda to look elsewhere to fund development, she said, making the government “more likely to get financing from China and other ‘southern’ lenders, who do not impose any political conditionality, or from other multilateral lenders that remain apolitical,” she said.

In a statement this month, President Yoweri Museveni seemed to agree. “If there is absolute need for borrowing, there are a number of non-Bretton Woods sources from where we can borrow,” he said. 

--With assistance from Fred Ojambo and David Malingha.

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