A view of the Ugandan parliament. PHOTO | FILE  NATION MEDIA GROUP
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Uganda's tough new anti-gay law prompted stiff criticism and aid cuts by Western donors, and the East African nation is now facing a heavy diplomatic and economic fallout despite its role as a key regional ally, experts say.
Annual foreign aid to Uganda accounts for a fifth of Uganda's 12 billion dollar annual budget, but while several European nations have cut some aid, they appear unwilling to totally undermine veteran President Yoweri Museveni.
"It is not going to push Uganda into a huge recession, but it could shave off one or two percent off GDP growth," said Harry Verhoeven, who teaches African politics at Britain's University of Oxford.
"The resolve of the EU countries to hold up aid is stronger than President Museveni thinks," Verhoeven said. "I would not underestimate what the long term damage could be." (READ:Uganda, EU hold talks over anti-gay law)
Museveni last month signed off on one of the world's most severe anti-gay laws, which states that "repeat homosexuals" should be jailed for life, outlaws the promotion of homosexuality and requires people to denounce gays to the police.
Diplomats and rights groups had been hoping the president, who is already under fire from key Western donors over alleged rampant graft and for stifling opposition groups and media, would refuse to sign the legislation into law.
US Secretary of State John Kerry likened the new law to anti-Semitic legislation in Nazi Germany and warned it could damage ties with Washington.
The World Bank froze a loan of $90 million, while Denmark, the Netherlands and Norway have halted or changed aid programmes.
The aid cuts will impact the poorest, many warn.
Francois Audet, from Canada's Research Institute on Humanitarian Crisis and Aid, warned that the "resources the country receives are indispensable to its survival."
"If aid is cut it would be very hard on services," said Bildard Baguma, deputy chief of Uganda's Red Cross.
"Even if it is just cut to government aid, it will certainly have an impact since so many programmes are funded with donor money. It would end up affecting mostly the poor."
Museveni's support for the law was seen as a move to bolster popular domestic support ahead of presidential elections scheduled for 2016, which will be his 30th year in power.
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In a blunt speech after signing the law, Museveni warned Western nations not to meddle in Uganda's affairs and said he was not afraid of losing cash.
"The West can keep their 'aid' to Uganda over homos, we shall still develop without it," government spokesman Ofwono Opondo said in defiant message after cuts were announced.
But cuts could still hit Museveni, one of Africa's longest-serving leaders, politically.
"It will harm some of the patronage instruments that President Museveni has for 2016 and that re-election campaign," Verhoeven said. "There will be less money to throw around. That will hurt, for sure."
However, the role of Uganda's army in international military missions will cushion diplomatic criticism.
Ugandan troops are a key part of the UN-mandated African Union force in Somalia, battling Al-Qaeda-linked Shebab insurgents.
Ugandan troops are also working with US special forces in the hunt in the Central African Republic for fugitive warlord Joseph Kony, whose Lord's Resistance Army is accused of rape, murder and the kidnapping of children.
Despite Kerry's comments, Washington this week said it was sending more elite commandos to Uganda to bolster US support for the operations against Kony.
Others warn the laws will damage Uganda's international reputation, a worrying factor with tourism the country's second largest foreign exchange earner, estimated to be worth $662 million a year.
Sweden's Finance Minister Anders Borg, who was visiting Uganda when the law was signed, warned it presented an economic and "reputational risk" for the country, especially for investments and the tourist industry.
One tourist operator, who asked not to be named, said that some visitors at the top end of the market had cancelled.
"The concern is going on in all our minds," the operator said. "We are all talking among ourselves and trying to figure out what will happen."
For Verhoeven, the experienced and wily Museveni will try to "look for a way out to have the best of both worlds" -- scoring political points at home by playing up to homophobic sentiment, but also trying to allay the concerns of the West.
Museveni will say "he supported the bill, for his domestic constituency, but in the end he is not applying it, or there is a problem with it," Verhoeven said.