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USAID Withdrawal in Tanzania

Ahfia

Published: May 26, 2025

Executive Summary

The sudden cessation of USAID and broader U.S. Government (USG) funding represents a significant macroeconomic and fiscal disruption for Tanzania and Rwanda. In 2023, USAID disbursed $454 million to Tanzania and $126 million to Rwanda, supporting critical health, agriculture, and infrastructure sectors. The withdrawal of these dollar inflows, which equate to 6% of Tanzania’s total exports and 11.8% of Rwanda’s 2023 mining export value, exerts immediate downward pressure on national currencies and threatens foreign exchange reserve stability.

The fiscal implications are profound, as the funding freeze triggers job losses that directly erode government revenue from PAYE and VAT. In Tanzania, an estimated 20,000 people could be affected, resulting in a $4 million monthly expenditure loss. For Rwanda, the withdrawal could impact approximately 1.01% of GDP. Beyond immediate revenue shortfalls, the loss of grant funding increases the pressure to borrow in an environment of rising costs and a strengthening U.S. dollar, further straining debt sustainability. Decision-makers must now prioritize domestic resource mobilization, optimize public spending efficiency, and explore innovative financing like debt-for-nature swaps to bridge these gaps and maintain essential social services

Key Takeaways

  • Macroeconomic Volatility: The loss of substantial dollar inflows threatens exchange rate stability and increases the difficulty of procuring essential dollar-based imports like medical supplies and agricultural inputs.
  • Fiscal Deficit Expansion: Tanzania faces a potential decline in economic output of 0.5% to 0.8% of GDP, while Rwanda’s nominal GDP could be impacted by roughly 1.01%.
  • Debt Sustainability Risks: Tanzania’s $42 billion external debt and Rwanda’s debt service obligations (15.32% of 2023 exports) face increased pressure from rising borrowing costs and currency depreciation.
  • Infrastructure Setbacks: Critical projects are at risk, including Tanzania’s $470 million Rural Roads Program and solar/hydro investments totaling over $655 million under the Power Africa initiative.
  • Rising Trade Costs: The withdrawal of trade facilitation support could increase cross-border trade costs by 10% in Tanzania, potentially hindering regional integration through the AfCFTA.
  • Social Service Vulnerability: Gains in public health, such as Tanzania’s 80% reduction in maternal mortality, are jeopardized as the government must weigh budget reallocations against potential service reductions.
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