The true financial impact of reducing funding for USAID
The closure of the United States Agency for International Development (USAID) has caused a major shock to the global development and foreign aid landscape. As the largest state sponsor of international aid for decades, USAID was responsible for 38% of global humanitarian aid, and its dismantling has resulted in severe funding gaps in critical areas such as food security and disease control.
Earlier this year, the Trump administration pulled almost all funding for USAID, leading to immediate humanitarian crises and long-term health and mortality impacts. The closure has put 27 million people at risk of hunger during a severe drought, and thousands of additional deaths from TB and other diseases are projected annually if funding is not replaced. Refugee camps and vulnerable populations have been seriously underfunded, exacerbating conflict situations like those in Sudan.
USAID, established in 1961 by John Kennedy to consolidate all foreign assistance programs, played a crucial role in providing brain power and strategies for US assistance. Its closure has disrupted humanitarian aid delivery, increased mortality risks, and fragmented the global development system. The withdrawal weakens coordinating bodies such as the OECD Development Assistance Committee (DAC), leading to reduced effectiveness, coherence, and legitimacy in the international development cooperation system.
The long-term consequences include a shift in donor landscape and geopolitical realignment. Alternative donors have increased commitments, but they generally follow different models focused on infrastructure, regional security, or market-based investments rather than broad-based health, education, and governance programs traditionally supported by USAID. This spending saved millions of lives, and its absence has led to a reduction in global Official Development Assistance (ODA), with major traditional donor countries, led by the U.S., cutting aid budgets significantly.
The U.S. reduction in foreign aid marks a decline in its global leadership and influence in development cooperation. Some actors in the Global South are welcoming greater independence, but they also face new geopolitical vulnerabilities and fragmentation. Potential increase in geopolitical coercion and dependencies may complicate development goals for countries gaining room for maneuver through South-South cooperation and closer ties with China and Russia.
George Ingram and David Pilling, in virtual conversations with representatives from the global south, discussed the end of serious foreign aid and its potential impact on the world order. They noted that the conversation is at the beginning of a shift from old aid to new aid, and it will take many years for the dust to settle, with no consensus yet. Some African governments have been talking about trade instead of aid, and there has been surprisingly little pushback against the closure of USAID.
Core interventions like medicine distribution are continuing, but peripheral interventions like outreach programs and mobile clinics are at risk. There have been "stop work" orders for projects funded by USAID, causing panic and uncertainty. The closure of USAID has led to a lack of U.S. soft power, leaving the U.S. without a tool to collaborate with governments and civil society around the world.
Some voices from the global south argue that the withdrawal of U.S. aid demonstrates what they've been saying all along - that aid is a new form of economic colonialism, and they need to be more independent and develop their own sources and capabilities to advance their own development. George Ingram suggested that the shift in aid should move away from siloed projects into scale, focusing on a few global challenges like climate, health, and digital development, and focusing assistance on those global public goods that will make a difference around the world.
In a discussion emphasizing that we live in a global world, and mutual learning and support are what is desired, Aime Williams, the FT's US trade and climate correspondent, discussed the specific pros and cons of reciprocal tariffs. Increased revenue is the main pro for the US government, while inflation is a potential downside. For US trading partners, there are no apparent pros to these tariffs, and they will make products more expensive in the US market.
It remains to be seen which governments will step in to fill the gap left by USAID. The risks of blowback and potential regrets in the future for dismantling aid systems that not only served people in developing countries but also helped developed countries should not be underestimated. The conversation also highlighted the need for developing countries to build a better social contract between governments and the governed because they'll be offering services. Washington spent billions of dollars on medicine, research, and agriculture in the poorest countries, representing about 60% of US assistance before it was gutted. Reports estimate 410,000 deaths due to the withdrawal of US humanitarian and health assistance.
In summary, the closure of USAID has disrupted humanitarian aid delivery, increased mortality risks, fragmented the global development system, reduced overall aid funding, shifted donor priorities and geopolitical influence, and weakened established mechanisms of global development cooperation. The world is moving into a new era, and it will take many years for the dust to settle, with some countries taking advantage of the shift, while others will be left behind.
- The closure of USAID has caused a significant shock to the global development landscape, with USAID being responsible for 38% of global humanitarian aid.
- Earlier this year, the Trump administration's decision to pull funding for USAID led to immediate humanitarian crises and projected thousands of additional deaths from diseases annually due to underfunded refugee camps and vulnerable populations.
- The dismantling of USAID has resulted in severe funding gaps in critical areas such as food security and disease control, placing 27 million people at risk of hunger during a severe drought.
- The withdrawal of USAID has weakened coordinating bodies like the OECD Development Assistance Committee (DAC), leading to reduced effectiveness, coherence, and legitimacy in the international development cooperation system.
- Alternative donors have increased commitments in response to the closure of USAID, but their focus is generally on infrastructure, regional security, or market-based investments rather than broad-based health, education, and governance programs.
- The shift in aid donors could lead to geopolitical coercion and dependencies, complicating development goals for countries gaining room for maneuver through South-South cooperation and closer ties with China and Russia.
- The closure of USAID has left the U.S. without a tool to collaborate with governments and civil society around the world, potentially reducing U.S. soft power and influence in global development. In addition, the withdrawal of US aid has been linked to the estimation of 410,000 deaths due to the withdrawal of US humanitarian and health assistance.
