The general objective of the study was to determine the effect of donor funding on the performance of local
governments in Uganda. The specific objectives were; to determine the importance of donor funding on the
performance of WDLG, to determine the challenges associated with donor funding at WDLG and to determine the
performance of local governments in Uganda. The study employed a descriptive correlation and cross-sectional
survey design. The study mainly used primary data collected by the use of questionnaires. The findings revealed
that donor funding has a great importance towards improving the performance of local governments as all the
statements were generally accepted, findings also gave evidence the most challenges faced by donor funding are
corruption, political influence and limited supervision and it is less affected by the interest of donors. Furthermore,
the findings revealed that the performance has improved except that the employees do not ensure monitoring and
evaluation and that massive education of local people has not been done. It was also found that there is a strong
linear relationship between donor funding and the performance of local governments in that as donor funding
increases, the performance of local governments also improves. The study recommended that since donor funding
is important, the government should formulate favourable policies like tax holidays and reductions that can stimulate
donor funding to enhance the performance of local governments in Uganda. The government should also formulate
policies that can regulate corruption in order to aid the smooth running of the projects, the donors should ensure
constant supervision in order to achieve the set goals of donor funding, and the responsible employees should ensure
monitoring and evaluation of all the projects and that there should be massive education of the local community in
order for them to benefit from donor funding. The suggested areas for further studies included political influence
and donor funding and the Impact of supervision on donor funding.