US aid suspension triggers economic crisis in MENA and South Asia

By Tajul Islam

On January 20, 2025, US President Donald Trump issued an executive order suspending all USAID and State Department-funded projects, totaling $60 billion, for 90 days. This decision was framed as a reassessment of foreign aid effectiveness and its alignment with the administration’s strategic priorities. The abrupt termination of nearly 10,000 foreign aid grants and contracts has sent economic and humanitarian shockwaves through countries in the Middle East, North Africa (MENA), and South Asia, raising concerns over regional stability, economic sustainability, and geopolitical realignments.

The US has historically been a major financial backer of many MENA nations, offering aid to bolster fragile economies, reinforce security frameworks, and support humanitarian projects. In 2023 alone, Jordan and Egypt were among the top beneficiaries, receiving $1.6 billion and $1.5 billion, respectively. With this aid now suspended, these nations are scrambling to secure alternative economic partnerships.

Jordan, one of the region’s most politically stable nations, relies heavily on US assistance to sustain its economy and support its 1.3 million Syrian refugees. American aid has been crucial in funding healthcare, education, and employment initiatives. The aid suspension places these programs at risk, forcing Amman to seek emergency funding from Gulf nations and international lenders.

Egypt, a long-time recipient of substantial US military and economic assistance, faces economic uncertainty due to the aid cuts. American funds have been instrumental in maintaining Egypt’s defense capabilities and financing infrastructure projects. With US support in limbo, Cairo is turning to China and the Gulf states to bridge the financial gap. However, Gulf nations, already contending with their own economic challenges, may not provide indefinite assistance, leaving Egypt in a precarious position.

Lebanon has been hit hard by the aid cuts, with UNICEF forced to scale back crucial programs amid an escalating food crisis. Over half of children under two years old in eastern Lebanon are now facing severe food insecurity. In Sudan, where conflicts have displaced millions, at least two million people have lost access to life-saving assistance due to the abrupt funding halt.

South Asian nations, already grappling with economic hardships and humanitarian challenges, are struggling to maintain essential services following the aid suspension. Countries such as Bangladesh, Pakistan, and Nepal, which have relied on US funding for healthcare, education, and economic development, are among the hardest hit.

In 2023, Bangladesh received $490 million in US aid, much of which was allocated to healthcare and refugee support, particularly for the Rohingya population in Cox’s Bazar. The suspension has forced the International Centre for Diarrhoeal Disease Research, Bangladesh (icddr,b) to lay off over 1,000 employees, while over 300 non-profits reliant on USAID funding have ceased operations, leaving thousands unemployed. Healthcare services for Rohingya refugees have effectively collapsed, exacerbating an already dire humanitarian crisis in the world’s largest refugee settlement.

Pakistan had been set to receive $845 million in aid for 39 key projects spanning energy, economic growth, agriculture, governance, and health. The funding freeze has led to the imminent closure of over 60 UNFPA-run health facilities, cutting off 1.7 million people- including 1.2 million Afghan refugees-from essential reproductive healthcare services. The reduction in aid not only disrupts Pakistan’s economic and public health stability but also diminishes US influence in the country, a key strategic ally in South Asia.

Nepal, which signed a five-year $659 million development deal with the US in 2022, is also suffering from the funding suspension. Over 300 NGOs and non-profits focused on gender equality, healthcare, and education now face financial gaps. In the Terai region, early-grade learning programs in 39 schools have been halted, jeopardizing literacy and child development efforts. The dismissal of 36 staff nurses in federal and provincial hospitals has further strained Nepal’s already struggling neonatal healthcare system, exacerbating the country’s high infant mortality rate.

While India received a relatively modest $150 million in US aid in 2024 and is not as severely impacted, the aid suspension presents an opportunity for New Delhi to expand its regional influence. Over the past decade, India has increased its development assistance to Nepal, Bhutan, and Bangladesh, focusing on infrastructure and trade. With US aid drying up, India may step in to support these nations, strengthening its role as a regional leader.

The sudden withdrawal of US aid has prompted a realignment of economic and political partnerships across the Arab world and South Asia. Countries that once relied on American funding are now seeking alternative sources of support.

China’s Belt and Road Initiative (BRI) has already gained traction in many MENA and South Asian nations. With US aid now suspended, countries such as Jordan, Egypt, and Pakistan are increasingly turning to Beijing for infrastructure investments and financial assistance. However, China’s economic aid often comes with long-term debt risks, as seen in Sri Lanka and Zambia, raising concerns over financial dependency.

Russia is also moving to fill the void left by the US Moscow has deepened security and energy partnerships with Middle Eastern countries like Egypt and Syria, while also strengthening ties with Pakistan. However, Russia’s ability to provide large-scale economic aid is limited due to Western sanctions and its own financial constraints.

Saudi Arabia and the UAE have stepped in as financial lifelines for struggling Arab economies. However, their assistance tends to be strategic rather than long-term, focusing on investments rather than sustained economic support. Countries that fail to develop self-sufficient economies may find themselves vulnerable to shifting Gulf priorities in the future.

The US aid cuts have not only triggered immediate humanitarian crises but also forced affected nations to reassess their economic dependencies. While some view this as a financial catastrophe, others see it as an opportunity to build self-reliant economies and diversify global partnerships.

For Arab nations, the challenge lies in reducing reliance on foreign aid by strengthening domestic industries and enhancing regional economic cooperation. South Asian countries like Bangladesh, Nepal, and Pakistan must develop sustainable development models, seeking alternative funding sources while bolstering internal economic resilience. India’s role in regional assistance is likely to expand, but it alone cannot replace the scale of US aid.

Ultimately, the suspension of US foreign aid marks a pivotal moment in global economic relations, compelling nations to reassess their partnerships and forge new paths toward sustainable growth and stability.