Medical professionals are being told to stop enrolling new patients into the program, and some already enrolled patients are unable to receive treatment.
Some red tape and mistakes are delaying release of the funds, and the Global Fund says the money will now arrive early next year.
From All Africa, writer Esther Nakkazi explains what happened.
"As I speak now, I have a letter asking me to stop enrolling children. Even if all factors remain constant we still need the government to help or we shall not achieve universal access," said Prof Addy Kekitiinwa, the executive director of Baylor Uganda Children's Foundation.
The latest cut is by the US President's Emergency Plan for Aids Relief (Pepfar), the largest funder of HIV programmes in Uganda, which announced that from April next year it will slash close to $1 million from the $7 million annual contribution it have been making to the paediatric HIV programme.
Although the Global Fund kitty is available, it is not yet accessible.
Officials from the Ministry of Health say the money has been disbursed from New York to the Bank of Uganda, but there are administrative problems that are hindering its use.
"The Global Fund at first disbursed it to the wrong account. When the signatory to that account was changed, there was further delay," said Commissioner of Planning and Development Dr Francis Runumi.
The signatory, Mary Nannono, the former Health permanent secretary, was interdicted and replaced in an acting capacity by Dr Sam Zaramba.
The $4.2 million, which was supposed to be a stopgap measure, is now expected to be disbursed early next year.
According to records, at least 70 per cent of the people who had not accounted for the funds have already been cleared, recovering at least $1 million from institutions and individuals implicated in the misappropriation.