USAID withdrawal in Rwanda

Key Takeaways

• Loss of a major source of dollar inflows. USAID disbursements of approximately $126 million in 2023 provided important foreign exchange support. Their withdrawal will weaken the external balance and increase pressure on the Rwandan franc.
• Debt servicing risks are rising. With debt service already at 15.32 percent of exports, a stronger US dollar and reduced grant inflows increase the fiscal burden of external debt repayment.
• Fiscal space is significantly constrained. The withdrawal of roughly $138 million in 2024 funding could reduce economic output by about 1.01 percent of GDP, before accounting for multiplier effects, intensifying Rwanda’s existing 6 percent of GDP fiscal deficit.
• Domestic consumption and tax revenues will decline. Job losses linked to USAID-funded programs in healthcare, agriculture, and education will reduce PAYE and VAT collections, particularly in urban areas.
• Critical social sectors face funding gaps. USAID-supported programs in HIV/AIDS, maternal health, education, and agriculture are at risk, forcing difficult choices between budget reallocations, emergency financing, or service reductions.
• SMEs, energy, and infrastructure investment will slow. Reduced access to credit guarantees, delays in infrastructure projects, and slower off-grid energy expansion will raise business costs and limit job creation.
• Urgent but strategic policy response is required. The report calls for early action to stabilize prices, secure alternative financing, strengthen local production of health commodities, improve spending efficiency, and accelerate domestic resource mobilization to build long-term resilience.

Executive Summary

This report analyzes the economic and fiscal consequences of the abrupt withdrawal of USAID and broader US Government funding from Rwanda. It finds that the loss of approximately $126 million in annual USAID disbursements, equivalent to nearly 12 percent of the value of Rwanda’s largest export sector (mining), will place immediate pressure on the exchange rate, foreign reserves, and government revenues. With debt service already at 15.32 percent of exports and a fiscal deficit of 6 percent of GDP in 2024, the withdrawal significantly tightens fiscal space and raises borrowing costs.

The report highlights risks to critical sectors including health, education, agriculture, SMEs, energy, and infrastructure, where USAID funding has played a stabilizing role. Reduced domestic consumption and job losses will further weaken VAT and PAYE collections, amplifying the fiscal impact beyond direct funding losses. While the shock is substantial, the report concludes that proactive policy action can turn this disruption into an opportunity to strengthen domestic resource mobilization, improve spending efficiency, and reduce long-term dependence on external aid.