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Uganda's President Yoweri Museveni has ordered the suspension of a multi-million dollar European Union fund operating in the country that supported local democracy and governance groups.

It follows the European bloc's decision to recommend sanctions against Uganda in light of arrests and a crackdown on political opponents since President Museveni's contested re-election in January.

In a letter to his finance minister, President Museveni said funds paid by the EU to the Democratic Governance Facility (DGF) ended up being "used to finance activities and organizations designed to subvert Government under the guise of improving governance".

The EU has yet to comment.

But Denmark's ambassador to Uganda told AP news agency that, although the DGF hadn't received any formal communication from the government, as development partners they "remain open to dialogue with the government".