USAID Withdrawal in Kenya

Key Takeaways

• Significant pressure on currency and external balance. The withdrawal of US Government funding removes a major source of dollar inflows, putting downward pressure on the shilling and increasing the cost of servicing external debt and importing essential goods.
• Loss of government revenue and jobs. Over 40,000 US Government-funded jobs are estimated to be affected, leading to reduced PAYE, SHIF, VAT, and business tax collections, particularly in urban centers.
• Intensified fiscal space constraints. USAID’s direct fiscal impact is estimated at 0.3 to 0.7 percent of GDP, with demand-side multipliers likely amplifying the overall effect and worsening Kenya’s existing fiscal deficit.
• Risk to essential social and development programs. USAID-funded initiatives in healthcare, education, and infrastructure now face funding gaps, forcing difficult trade-offs between budget reallocations, emergency borrowing, or service disruptions.
• Private sector and SME financing will weaken. The withdrawal of credit guarantees and investment support could reduce SME financing availability by 15 to 20 percent, constraining business growth and job creation.
• Infrastructure, energy, and investment pipelines are at risk. Delays are expected in infrastructure projects and clean energy investments, including Power Africa-supported geothermal and wind initiatives, increasing operational costs for businesses.
• Trade and regional integration may slow. Reduced support for trade facilitation and AfCFTA-related programs could raise cross-border trade costs by up to 10 percent, limiting Kenya’s export growth and regional competitiveness.

Executive Summary

When $887 million in annual US Government funding, equivalent to around 12 percent of Kenya’s total exports, disappears abruptly, the impact goes far beyond a budget shortfall. The loss triggers immediate pressure on the exchange rate, weakens foreign exchange reserves, and tightens fiscal space.

The withdrawal of USAID and broader US Government support has already affected an estimated 40,000 jobs, reducing domestic consumption and eroding tax revenues from PAYE, VAT, and business activity. These effects are concentrated in urban centers and sectors closely linked to donor-funded programs.

The direct fiscal impact is estimated at 0.3 to 0.7 percent of GDP, with demand-side multipliers likely to amplify the shock. At the same time, the government faces higher borrowing costs as it seeks to finance emerging gaps amid a weaker shilling.

This report examines how Kenya can manage the immediate economic shock while safeguarding critical investments in health, energy, infrastructure, SMEs, and trade. It also explores pathways to strengthen domestic resource mobilization and build long-term economic resilience.