By Niruni de Mel
Imagine a rural community in Sri Lanka where a once-thriving agricultural initiative suddenly comes to a halt. Farmers who relied on USAID-funded fertilizer support are left struggling, and a crucial supply chain begins to crumble.
This is one example of the tangible impact of USAID’s withdrawal from Sri Lanka – a decision that extends far beyond policy debates and diplomatic maneuvering.
On January 20, 2025, the United States Agency for International Development (USAID) officially announced its withdrawal from Sri Lanka and many other underdeveloped and developing countries, a move that has sparked widespread discussion.
While the official narrative cites financial realignment and anti-corruption measures, the decision raises pressing questions about its real motivations, the impact on local communities, and what this means for Sri Lanka’s economic and policy landscape moving forward.
According to official statements, the USAID withdrawal was part of broader U.S. government efforts to reevaluate foreign aid priorities, ensuring alignment with the administration’s goals. Former US President Donald Trump had previously ordered a freeze on USAID disbursements, citing corruption and inefficiency in fund allocation.
Additionally, the move fits into a larger pattern of US disengagement from international agreements, such as the withdrawal from the Iran nuclear deal, the UN Human Rights Council, and the Paris Climate Agreement.
However, Shakthi De Silva, an independent analyst, suggests that this decision is better understood in the context of the US shift toward offshore balancing. While USAID accounts for only a small fraction of US government spending, it has become an easy target for budget cuts, particularly when coupled with misinformation campaigns designed to appeal to domestic political bases.
De Silva also notes the irony of the situation: while corruption is often cited as a reason for the cut, many organizations reliant on USAID funding – including those engaged in fact-checking, policy formation, and support for marginalized communities – are now at risk of shutting down.
The consequences of USAID’s departure are being felt most acutely by the people who depended on its programs. For example, the closure of MEND Media Empowerment for a Democratic Sri Lanka)’s initiatives under International Research & Exchanges Board (IREX), which had played a critical role in media development and capacity-building efforts.
Without USAID support, many similar organizations now face an uncertain future. Beyond the non-profit sector, vulnerable communities that received humanitarian assistance, especially in the wake of natural disasters, are now left with reduced support.
Farmers, women-led businesses, and educational programs in underserved areas are grappling with funding gaps that threaten their survival.
The 90-Day Dash: The Transition and Its Aftermath
According to Reuters, fewer than 300 staff will remain out of the agency’s global workforce of over 10,000. The Asia bureau, which has been instrumental in projects across Sri Lanka, will be left with only eight employees. This massive downsizing has led to chaos, uncertainty, and the suspension of critical programs.
With all directly hired USAID employees put on leave and thousands of overseas personnel recalled, ongoing projects have ground to a halt. Humanitarian aid shipments are reportedly stuck in ports, with no clear plan for distribution.
Millions of dollars’ worth of assistance – medical supplies, food aid, and disaster relief – risks being wasted due to bureaucratic paralysis and lack of manpower. Contracts with NGOs and local partners remain in limbo, with hundreds of internal contractors already laid off.
J. Brian Atwood, former USAID head, called the mass terminations “outrageous,” warning that the agency, which has saved tens of millions of lives globally, is being effectively dismantled. The situation has been further inflamed by high-profile figures like Elon Musk accusing USAID staff of criminal activity, adding to the climate of uncertainty and distrust.
For Sri Lanka, the sudden withdrawal means a funding vacuum for crucial development projects. Organizations that depended on USAID support for public health, climate resilience, and governance programs now face an uncertain future. As the 90-day period unfolds, the big question remains—what happens next, and who will step in to fill the void left behind?
Sri Lanka’s Next Chapter: What Happens Now?
The immediate challenge for Sri Lanka is filling the funding void left by USAID’s departure. According to Amar Gunatilleke, Vice Executive Chairman of the Marga Institute, Sri Lanka has historically benefited from diverse funding sources. These include the Asian Development Bank (ADB), World Bank, EU, and other bilateral donors such as Japan, Canada, and Australia.
The country also has access to climate finance mechanisms like the Green Climate Fund. However, he cautions that reliance on foreign aid and borrowing is not a sustainable long-term strategy.
Gunatilleke argues that Sri Lanka’s economic future hinges on policy stability and internal revenue generation. He emphasizes the need for the government to widen the tax net without disproportionately burdening lower-income groups, increase direct taxation, and focus on value addition in agriculture and manufacturing.
However, policy discontinuity remains a major obstacle, as successive governments frequently alter economic strategies, undermining long-term development planning.
The American Perspective (And Why It Matters)
From a geopolitical standpoint, the USAID withdrawal is part of a broader trend of U.S. retrenchment from international commitments.
De Silva points out that, beyond Sri Lanka, this pattern includes the US withdrawal from UNESCO, the World Health Organization (WHO), and funding cuts to UN relief agencies. Such moves contribute to shifting global perceptions of the U.S. as an increasingly isolationist power, favoring short-term transactional gains over long-term strategic alliances.
For Sri Lanka, this withdrawal may signal a pivot toward alternative partners, such as China and India, for development assistance. However, the geopolitical strings attached to such engagements could significantly shape the nation’s policy landscape.
Call to Action
The question now is: What next? Policymakers, civil society, and the private sector must collaborate to address the immediate fallout while also working toward long-term economic resilience.
Strengthening Domestic Policy: The Sri Lankan government should prioritize policy continuity and effective fiscal management to reduce dependency on external aid.
Bridging the Funding Gap: Local and international organizations can explore alternative funding streams, including public-private partnerships, impact investments, and crowdfunding models.
Research and Evidence-Based Policy: Amar Gunatilleke, for instance, underscores the importance of interdisciplinary research institutions working together to inform policy development. The government must take the lead in integrating economic, environmental, and social research into national planning efforts.
Citizen Engagement: Sri Lankan citizens and diaspora communities can play a role by supporting initiatives that promote self-sufficiency, advocating for transparent governance, and participating in dialogues on economic policy.
USAID’s withdrawal from Sri Lanka is not just a diplomatic event; it is a moment of reckoning for the country’s development trajectory. Whether this shift will lead to stronger domestic policy reforms or expose further vulnerabilities remains to be seen. What is clear, however, is that Sri Lanka must strategically navigate this transition, leveraging existing strengths while addressing critical gaps in governance, economic policy, and research-driven planning[1].
Niruni de Mel is an intern at the Marga Institute and an undergraduate student at the London School of Economics and Political Science, specializing in International Relations. Her research at the Marga Institute focuses on evaluating a trending social issue, aiming to contribute to informed policymaking and development discourse in Sri Lanka.
Factum is an Asia-Pacific focused think tank on International Relations, Tech Cooperation, Strategic Communications, and Climate Outreach accessible via www.factum.lk.
The views expressed here are the author’s own and do not necessarily reflect the organization’s.
[1] For those interested in a deeper dive, the author recommends reading Professor Rohan Samarajiva on Sri Lanka’s economic strategy, policy briefs on patent rights integration, and reports from institutions such as Marga Institute and Gamani Corea Foundation.
