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Urgent Domestic Revenue Mobilization Due to USAID Overhaul

Urgent domestic revenue mobilization has come to the minds of many as the reaction to the USAID overhaul. Many programs are missing funding!

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The Trump administration’s decision to dismantle the U.S. Agency for International Development (USAID) has sent shockwaves through the global development community. For decades, USAID has played a central role in funding humanitarian aid, economic development, and governance programs in some of the world’s most vulnerable regions. Now, with this abrupt shift in policy, many are left wondering how developing nations will fill the gap left by the agency’s withdrawal. Possible solution for them is to look in their own backyards and asses the possibility for urgent domestic revenue mobilization.

Beyond the immediate disruption to health, education, and food security programs, this move forces a serious conversation about the long-term sustainability of foreign aid and the pressing need for developing countries to strengthen their own financial systems.

5 Key Takeaways

  1. The Closure of USAID Will Have Far-Reaching Consequences: USAID’s withdrawal leaves a massive funding gap for humanitarian aid, health services, and economic development worldwide. Many countries, especially those in conflict zones, will struggle to replace lost resources, putting millions at risk. The sudden halt to funding will disrupt critical programs, from clearing landmines to preventing disease outbreaks, leaving vulnerable populations without essential support.
  2. U.S. Foreign Influence Will Be Weakened: The decision to dismantle USAID undermines Washington’s diplomatic reach and soft power at a time when global competition is intensifying. Without foreign aid as a strategic tool, America’s ability to maintain alliances and counter the influence of rival nations will diminish.
  3. Developing Nations Must Strengthen Their Own Financial Systems: While USAID’s exit presents an immediate crisis, it also underscores the long-standing need for developing nations to build self-sufficient economies. Relying on foreign aid has never been a sustainable solution. Governments must take urgent steps to modernize their financial infrastructure and expand their domestic revenue base to fund essential public services independently.
  4. Digitalizing Tax Systems is Crucial for Fiscal Stability: Modernizing tax collection through digital tools can help governments close revenue gaps left by foreign aid reductions. Implementing electronic invoicing, automated tax reporting, and transparent systems will improve compliance, reduce corruption, and create a reliable fiscal foundation.
  5. Strong Policies and Political Will Are Necessary for Success: Effective tax reform goes beyond technology. Clear regulations on cybersecurity, privacy, and data protection must accompany digital initiatives to build trust and prevent backlash. Governments must also engage with the public, demonstrating how improved tax compliance leads to better services. Without strong leadership and a commitment to reform, even the most advanced tax systems will struggle to gain acceptance.
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How much does USAID cost the US government?

According to government data, the US spent $68bn on international aid in 2023. That total is spread across several departments and agencies, but USAID’s budget constitutes more than half of it at around $40bn.

The vast majority of that money is spent in Asia, sub-Saharan Africa and Europe – primarily on humanitarian efforts in Ukraine. The US is the world’s biggest spender on international development – and by some margin.

A Strategic Misstep for U.S. Influence Abroad

The elimination of USAID threatens to significantly weaken America’s diplomatic reach at a time when geopolitical competition is only intensifying. For years, foreign aid has been a key tool for advancing alliances, stabilizing fragile states, and countering the growing influence of rival powers. However, with the sudden withdrawal of assistance, an opportunity arises for other nations to expand their presence in regions where the U.S. has traditionally been a dominant force.

Moreover, Washington’s decision to shut down USAID also risks damaging its credibility among allies and partner governments. Developing nations that have long relied on American support will now be forced to seek alternatives, some of which may come with political conditions that could undermine democratic governance. The loss of billions in funding for infrastructure, health initiatives, and education programs will not only slow economic progress but could also lead to further instability in regions already struggling with conflict and poverty. A weakened U.S. presence in global development efforts diminishes leverage in crucial policy discussions, making it far more difficult to promote democratic values and economic partnerships on the world stage.

Impact of Closing USAID

The consequences are already becoming evident. The 90-day freeze on overseas spending has put many programs in limbo, leaving beneficiaries uncertain about the future. Secretary of State Marco Rubio has insisted that every dollar must be justified by its contribution to U.S. security and prosperity. However, those on the ground—humanitarian workers, local governments, and vulnerable communities—see this as a dangerous gamble. In Syria, for instance, reports suggest that prison guards responsible for detaining thousands of Islamic State fighters nearly abandoned their posts when U.S. funding was temporarily cut. These are not just numbers on a spreadsheet; they represent real threats to global security.

Trump’s push to align foreign aid with his “America First” doctrine signals a shift that could reshape the entire landscape of international development. His administration, with Elon Musk at the helm of a government overhaul, is aggressively cutting billions from federal spending. As a result, the future of U.S. engagement abroad is uncertain, leaving many nations to grapple with the fallout. While Washington rethinks its priorities, the rest of the world is left questioning whether American leadership in global development is coming to an abrupt end.

Urgent Domestic Revenue Mobilization: The Growing Need

While the withdrawal of USAID’s funding creates immediate challenges, it also highlights an urgent reality: developing nations must strengthen their own revenue systems if they hope to achieve lasting financial independence. For too long, reliance on foreign aid has served as a temporary solution, but sustainable development depends on domestic resources. Now, more than ever, governments must take decisive action to modernize tax collection and expand their revenue base in order to support essential public services.

One of the most effective ways to achieve urgent domestic revenue mobilization is through the digitalization of tax systems. Through adoption of a transparent, technology-driven tax framework, governments can significantly reduce inefficiencies, minimize corruption, and broaden the tax base. Unfortunately, many countries still rely on outdated collection methods that depend heavily on manual processing, creating loopholes that enable tax evasion. Thus, the investment in digital infrastructure, such as electronic invoicing and automated reporting and monitoring, becomes essential. By doing so, governments can track transactions in real-time, improve compliance, and create a more sustainable fiscal foundation for the future.

Strengthening the Foundation for Financial Stability

For digital tax systems to truly succeed, governments must first invest in regulatory frameworks that facilitate smooth implementation. Clear policies on data privacy, cybersecurity, and interoperability between tax authorities and businesses are essential to creating trust in the system. Without these safeguards in place, digital tax initiatives may face strong resistance from both taxpayers and businesses wary of intrusive government oversight.

Equally important is strong political commitment. Leaders must understand that tax modernization is not just a bureaucratic exercise but a fundamental component of national development. Administrative reforms should go hand in hand with public awareness campaigns that highlight the benefits of tax compliance. When citizens see tangible improvements in public services as a direct result of tax revenue, they are far more likely to participate in formal tax systems and contribute to their country’s economic future.

Urgent Domestic Revenue Mobilization: Bridging the Fiscal Gap

The loss of USAID funding underscores the necessity for developing countries to act swiftly in reforming their tax policies. Many nations still rely on inefficient tax structures, such as an overdependence on customs duties and narrow tax bases, which can weaken fiscal resilience. In contrast, broadening tax categories to include digital services and informal sector activities allows governments to tap into previously uncollected revenues.

Additionally, collaboration between governments and financial technology firms can accelerate the transition to digital tax systems. Public-private partnerships can help develop user-friendly platforms that simplify compliance, making it easier for businesses to report earnings and remit taxes. At the same time, governments must reassess tax incentives and exemptions that erode revenue potential, crafting policies that promote fairness while still supporting economic growth.

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