The World Bank has postponed a $107 million loan to Uganda over its tough new anti-gay law, which has drawn criticism from around the world.
World Bank officials say they want to guarantee that the projects the loan was destined to support are not going to be adversely affected by the new law.
The loan was intended to help strengthen Uganda's health services by supplementing a 2010 loan that focussed on maternal health, newborn care and family planning.
The new law, enacted on Tuesday, strengthens already strict legislation relating to homosexuals in Uganda by stipulating life sentences for gay sex and same-sex marriage.
The BBC reports that it has been sharply criticised by the West, with donors such as Denmark and Norway saying they would redirect aid away from the government to aid agencies.
US secretary of state John Kerry has called the law "atrocious" and compared it to antisemitic laws in Nazi Germany or the apartheid regime in South Africa.
The World Bank's action is the largest financial penalty incurred by the Ugandan authorities since the law went into force.
In an editorial for the Washington Post, bank president Jim Yong Kim says legislation restricting sexual rights "can hurt a country's competitiveness by discouraging multinational companies from investing or locating their activities in those nations".
He says the World Bank will discuss how such discrimination "would affect our projects and our gay and lesbian staff members", adding that the elimination of all institutionalized discrimination is an urgent task.
Ugandan authorities have defended the decision, saying President Yoweri Museveni wanted "to demonstrate Uganda's independence in the face of Western pressure and provocation".