The US is reportedly cutting $100m (£75m) in aid to Ethiopia over a controversial mega dam being built on a tributary of the River Nile.
A government source said the move had been triggered by Ethiopia’s move to start filling the dam before reaching agreement with Egypt and Sudan.
Egypt has long been opposed to any development on the Nile that could reduce the amount of water it receives.
Ethiopia says it needs the dam to provide a reliable electricity supply.
Once fully operational, the Grand Ethiopian Renaissance Dam (Gerd) will be the largest hydro-electric plant in Africa and provide power to up to 65 million Ethiopians.
“Up to $100m or so will be affected, of which $26m is funding that expires at the end of the [financial year],” a US congressional source told Reuters news agency.
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The funding affected is linked to nutrition, regional or border security, political competition and consensus-building, the official said. Funding for projects connected to HIV/Aids, migration and refugee assistance and the food for peace programme would be unaffected.
A US state department official told Reuters Ethiopia’s decision to start filling the dam while negotiations with Egypt and Sudan were under way had undermined confidence in the talks and was inconsistent with commitments Ethiopia had made.
“The United States previously and repeatedly expressed its concern that commencing the filling of the Gerd before all necessary dam safety measures were implemented created serious risks,” the official said.
“We’ve asked them to reconsider and we’re waiting. We hope 117 years of diplomatic relations will not be damaged because of an issue not related to the two countries,” Fitsum Arega said.
Correspondents say the move is likely to be seen as US President Donald Trump punishing Ethiopia after the country rejected US-led mediation with Egypt and Sudan.
The talks have stalled over various issues including demands by Egypt and Sudan that any deal should be legally binding and how to manage the dam during periods of drought.
The Gerd sits on the Blue Nile upstream of Egypt and has the potential to control the flow of water that the country receives. The Nile is Egypt’s primary source of water for both drinking and agriculture.