USAID Withdrawal in Tanzania

Key Takeaways

• Macroeconomic pressure will intensify. The loss of USAID inflows will strain foreign exchange reserves, weaken the shilling, tighten fiscal space, and increase borrowing costs, compounding existing debt sustainability risks.
• Government revenues are at risk. Job losses from USAID-funded programs will reduce PAYE, VAT, and corporate tax collections, weakening the government’s ability to service debt and fund essential services.
• Domestic consumption will decline. Reduced incomes among USAID-supported workers could affect over 20,000 people, cutting an estimated $4 million in monthly spending and dampening demand in local economies.
• Health and social services face funding gaps. The withdrawal threatens continuity of critical programs in HIV, malaria, tuberculosis, maternal health, and climate and conservation initiatives, forcing difficult budget reallocation decisions.
• SMEs and private sector growth will be constrained. The loss of SME-focused programs, including credit guarantees and investment facilitation, will restrict access to finance and undermine business sustainability.
• Trade and regional integration will be affected. Reduced support for trade facilitation and uncertainty around AGOA could disrupt exports, while higher cross-border trade costs may limit Tanzania’s participation in AfCFTA.
• Policy response is urgent but strategic. The report calls for swift action to stabilize the exchange rate, manage public debt, identify alternative funding sources, improve spending efficiency, and mobilize domestic and regional financing to reduce reliance on external aid.

Executive Summary

This report assesses the macroeconomic, fiscal, and sectoral impacts of the abrupt withdrawal of USAID funding from Tanzania. It finds that the withdrawal will place immediate pressure on the exchange rate, government revenues, and fiscal space, exacerbating existing vulnerabilities linked to rising debt and constrained external financing. USAID previously played a significant role in supporting health, agriculture, SMEs, infrastructure, energy access, and trade facilitation, with disbursements equivalent to around 6 percent of Tanzania’s total exports. The loss of these inflows is expected to weaken domestic consumption, reduce tax revenues, and increase borrowing costs at a time when Tanzania is already running a fiscal deficit.

Sectoral impacts will be most acute in healthcare, food systems, energy access, SME finance, and trade integration, including participation in AGOA and AfCFTA. While the withdrawal presents serious short-term risks, the report concludes that it also creates an opportunity for Tanzania to accelerate domestic resource mobilization, improve fiscal discipline, diversify financing sources, and strengthen regional economic partnerships through proactive policy action.