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With rigorous economic research and practical policy solutions, we focus on the issues and institutions that are critical to global development. Explore our core themes and topics to learn more about our work.
In timely and incisive analysis, our experts parse the latest development news and devise practical solutions to new and emerging challenges. Our events convene the top thinkers and doers in global development.
Attention UK political parties: we know you are pretty busy right now, what with Prime Minister Theresa May calling a snap general election in a few weeks. So, we wrote an election manifesto on development for you. Feel free to plagiarize it; in fact, we’ve written it so you can just copy/paste parts of it if you want. To M Macron and Mme Le Pen, your manifestos are written (and here's what we think), but you will find some good ideas here too. Needless to say, not all our CGD colleagues will agree with all our ideas, nor will many readers. So please let us know what we have missed or got wrong, in the comments below.
Vice President, Director of CGD Europe, and Senior Fellow
This piece was written with significant input from Owen Barder, Hauke Hillebrandt, Anita Kappeli, Joanna Macrae, Maya Forstater, Lee Crawfurd, and Caitlin McKee, our colleagues at CGD Europe, based in London.
Britain’s unique role in the world
We will ensure that everyone in the UK can be proud of our role in the world, taking steps that will benefit UK citizens for generations to come.
Britain is a small country with global influence. We are the sixth largest economy in the world. We are among the world’s leaders on the environment, international development, and ending modern slavery. We are the only advanced country which meets both the international commitment to spend 2 percent of national income on defence and 0.7 percent of national income on development, and our armed forces and development programmes are admired the world over.
We are leaving the European Union because we want to control our own future, not because we want to retreat from the rest of the world. Britain is at its best when we trade freely, cooperate voluntarily with others to solve international problems. We will continue to lead the world in finding fair solutions to issues like extreme poverty, financial stability, international taxation, human rights, human trafficking and modern slavery, the environment, migration and refugees, drug resistance and pandemic disease. These actions will benefit UK citizens today, and for generations to come, by helping to shape a safer, fairer, more prosperous and sustainable world.
Britain’s international development policies are aimed at meeting the Global Goals for Sustainable Development agreed in 2015. As well as our effective aid programme, we will implement policies across all of government to help achieve these goals.
Aid policies for the 21st century
In every year of the next parliament we will spend at least 0.7 percent of gross national income (GNI) on overseas development assistance (ODA), according to the internationally-recognised definition agreed by the OECD; and we will spend 2 percent of gross domestic product (GDP) on defence.
We will maintain our aid spending because the UK lives up to it promises, but more importantly because foreign aid saves lives and helps the world’s poorest people.
This aid must be spent in the most effective way. We owe that to the people who need the aid as well as to the British people who pay for it.
We will take risks, and some aid programmes will fail. That is the price of trying to succeed, and the good that is done by successful projects far outweighs the costs of failures. But we will ensure that we learn lessons from every aid programme, whether it succeeds or fails, so that we can do better the next time. We will continue to have zero tolerance of corruption and waste.
The primary goal of British aid is to put itself out of business: we all want a world in which foreign aid is no longer needed. This requires investments in education, jobs and growth, reducing conflict, and promoting the rights of women and girls and good government. In the shorter term, aid provides a vital lifeline to the poorest and most disadvantaged people, providing health care, food, water, sanitation, and other vital services.
We will take a new approach to aid spending, fit for the 21st century—first, transforming the system and second, refocusing aid for maximum impact.
Part 1 - Six reforms to transform the aid system
To transform the system that allocates aid, we will undertake six reforms which add independent scrutiny to ensure our aid is effective and give taxpayers and Parliament a greater say in how and where our money is spent. The six reforms are:
1. A National Institute for Development Effectiveness to assess what works
We will be guided by what works. We will establish a National Institute for Development Effectiveness (NIDE), modelled on Britain’s world-leading National Institute for Health and Care Excellence (NICE), which will issue public guidance about which interventions have been proven cost-effective in rigorous, transparent, impact evaluations such as randomised controlled trials, supported by open data. Additionally, NIDE will provide a summary of the effects on women and girls of each programme that it analyses. NIDE will also assess all aid programmes against the benchmark of direct cash transfers. From 2019 onwards, we will not invest more than £10m of bilateral aid in any programme that has not been assessed by NIDE, and we will only invest in programmes that have been demonstrated to benefit women and girls at least as much as men and boys.
2. A stronger Independent Commission on Aid Impact
To enable it to provide independent advice to parliament on the results being achieved by UK ODA, we will double the resources of the Independent Commission on Aid Impact, and to ensure its independence we will transfer responsibility for budget and appointments to Parliament's International Development Committee.
3. Coherence and accountability for development across all of Government
The Department for International Development (DFID) will remain a separate government department, headed by a Secretary of State for International Development. They will chair a new Cabinet Committee, supported by the secretariat of the National Security Council, to coordinate aid spending and other policies across government, and will be accountable to the Prime Minister and to Parliament for overall value for money, transparency and coherence of Britain’s aid spending and policies affecting international development. The Committee will develop, publish and oversee the implementation of whole-of-government strategies for each priority developing country, replacing country strategies developed separately by individual government departments.
4. Tough love for the multilateral system
Britain will continue to champion a rules-based, legitimate, efficient multilateral system. But some of the world’s most important institutions are not fit for purpose and we will be uncompromising in driving reform, working with others. Multilateral institutions will benefit from earned autonomy: we will give more money and freedom to organisations that have earned the trust and resources of British taxpayers. Where agencies are completely transparent, so that money can be followed from top to bottom, and their programmes are demonstrated to be good value for money by independent, transparent, rigorous impact evaluations, we will provide more core funding. For organisations that have not yet demonstrated their impact and value for money, we will enter into tightly-specified results agreements as a condition of core UK funding, with a substantial part of the funding provided only when results have been demonstrated. For the least effective institutions, British contributions will be earmarked, not core, and closely linked to an agreed programme of organisational improvements and results. Organisations in this last group that do not improve within three years will cease to receive money from the UK government. We aim to increase multilateral aid, i.e. core funding to demonstrably effective multilateral institutions to at least 50 percent of ODA (from 42 percent now), as and when their performance merits it, while reducing the proliferation of so-called “multi-bi” earmarked programmes such as trust funds to less than 5 percent of ODA (from 20 percent now). This will be a significant improvement in the effectiveness of British aid, 64 percent of which is currently provided as bilateral aid, much of which is going to multilateral institutions anyway, leading to unnecessary bureaucracy, duplication and burdens on developing countries.
5. Using technology to make aid spending more transparent and accountable
We will make aid more transparent, using new technology to enable citizens to “follow the money” to see where their aid has been spent and what impact it has had. By 2019 all government departments administering UK ODA will be required to meet the good or very good standard the independent Aid Transparency Index. By 2020, the public will be able to “follow the money” for at least 90 percent of bilateral UK aid whether it is spent through NGOs, international organisations or private contractors. This will be achieved through a programme of geo-coding, traceability and standardised quantitative results. By 2020 we will move all grants and contracts to transparent reporting of expenditure and results through the open data standard of the International Aid Transparency Initiative, which implementing partners may choose to use instead of separate reporting to the government, so reducing the bureaucratic burden on implementers while increasing transparency.
6. Letting taxpayers choose
If taxpayers want to choose for themselves where their aid goes, they will be able to take the decision into their own hands using our new AidChoice initiative. Income tax payers will each be able to allocate up to £100 a year each UK ODA to UK-registered charities working in the field of international development.
Part 2 - Six ways to re-focus aid for maximum impact
To refocus our current aid to significantly increase its impact, we will draw on evidence on the effectiveness of aid spending, and change our approach in six ways:
1. Use cash transfers wherever appropriate
We will distribute at least a quarter of our bilateral aid as cash transfers, directly to the very poorest people and those affected by humanitarian emergencies. We will use technology to minimise waste and corruption so ensuring our aid goes into the hands of those that need it to be used for what they most need. We will not invest in other aid programmes exceeding £10m unless they have been assessed by NIDE and shown to be more cost-effective than direct cash transfers.
2. Lead global reform on humanitarian aid
We will work with the other donors to reform humanitarian aid to help end the duplication, lack of planning, overlap and ineffectiveness that characterizes the international response to crises, as agreed at the World Humanitarian Summit in 2016. We will bridge the humanitarian and development divide; work with countries hosting refugees to create more jobs, for example by providing access to our markets; give cash transfers rather than aid-in-kind by default; help countries to take out new concessional insurance policies that incentivise risk reduction and pay out in case of disasters like drought or hurricanes; and use innovative finance to increase refugee resettlement. We will open humanitarian aid to innovation and new technologies by working with the private sector and other new actors.
3. Resource the UK’s development finance institution, CDC, to increase investment, growth and jobs so that countries graduate from aid
We will use aid to support private investment, jobs and growth in the developing world. This is essential to provide countries with a path to graduate from aid and to meet the Global Goals. We will implement a planned programme of sustained expansion of CDC group (the UK’s development finance institution), increasing the British government’s investment to £6 billion over the next 15 years, to scale up investment and development impact of the company. Though our contributions to CDC count as ODA, they do not add to the government deficit or public spending so they will be additional to the 0.7 percent target for ODA. As part of its new strategy CDC will be increase its transparency, including full compliance with the International Aid Transparency Initiative.
4. Bilateral aid to focus on British innovation and values
Our bilateral aid will concentrate on programmes that are innovative, which draw on specialist British expertise, are neglected by others, or which help to promote our values such as human rights and the rule of law. We will increase our support to the Global Innovation Fund, research and development, think-tanks in the UK and internationally which generate knowledge and policy ideas [self serving suggestion klaxon!], and civil society groups around the world which promote rights and accountability. We will link payment to results wherever possible. This ensures that everyone is focused on what our aid achieves, rather than on spending the money, enables flexibility for risk-taking and adaptive programming, and draws in a wider range of delivery organisations.
5. Improving outcomes in fragile and conflict states
We will continue to increase the proportion of aid targeted to the most fragile and conflict-affected states, where people are most vulnerable and security threats most significant. In line with the Global Goals, Britain will ensure it leaves “no one behind” by reversing recent trends of decreased aid spending to sub-Saharan Africa, where the majority of fragile states are located. We will review the way in which we use aid in these contexts to ensure that DFID has the right policy frameworks, partnerships, human resources and finance to deliver development outcomes in these most difficult contexts, and to improve coordination between the Ministry of Defence, Foreign Office, Department of International Trade, Department of Health, Department for Business, Energy & Industrial Strategy and DFID.
6. Increasing impact investment from the private sector
We will establish a £1 billion outcomes fund for Development Impact Bonds, to enable social impact investment in key services in developing countries. We will expand the successful model of Trade Mark East Africa to support economic growth across the continent.
Many of the other policies that make Britain an outward facing, successful global, trading nation are good for Britain and good for the developing world. These include:
We will make a British Trade Promise that our post-Brexit trade policies will be better for developing countries than they are within the EU. We will use the control given to us by Brexit to strike deep and comprehensive trade deals with the EU and the US that show the benefits of free and open trade. We will take the Four Steps that would achieve lower prices for rich and poor UK consumers alike, driving up business productivity, and establish the UK as a leader on trade for development.
2. Investment and Finance
We will further develop the The City of London as a world-leading hub for enabling capital to be invested efficiently, responsibly, with integrity and in alignment with the opportunities for green economic growth globally. We will implement the Financial Stability Board’s Task Force on Climate-related Financial Disclosure and collaborating to develop financial instruments such as green bonds and catastrophe insurance.
The UK will promote leading standards in tax and transparency. We will convene the UK’s leading businesses, tax professionals, NGOs and think tanks to establish common principles for how they can work together to scrutinise and improve the UK’s impact on tax revenues in developing countries.
British courts will not uphold future contracts or agreements entered into by companies whose beneficial owners are not publicly known. Any company or organisation wishing to take advantage of the fair and efficient British legal system must be publicly transparent about the true identities of its beneficial owners.
We will support an effective UN body working on international tax systems. We will continue with our commitment to double annual aid for tax systems to £40 million annually by 2020, including seconding UK tax inspectors to work with revenue authorities in developing countries. We remain a leading member of the Extractive Industry Transparency Initiative and the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and will work with our Overseas Territories and Crown Dependencies to ensure that they offer well-regulated financial services and demonstrate the highest standards of integrity.
3. Climate and energy
Within the UK we will introduce a carbon tax, on a revenue neutral basis, recycling the revenues to households in the UK. This will increase incentives to invest in clean energy, and reduce demand for the most polluting forms of energy, production and consumption.
Climate change and energy scarcity hits developing countries the hardest. To address both issues we will increase spending on energy innovation research and development. Focusing on energy innovation policy is a global public good that is vital to create the next generation of affordable, carbon-free energy creation and storage capabilities. Investment in this research will not only benefit the world, but also our economy in particular. We will stay committed to the Mission Innovation initiative and our pledge to double energy innovation spending by 2021 to over £400m per year.
Britain will remain at the cutting edge of innovation, research and development. We will simplify our intellectual property rights to support rather than stifle innovation, tackle patent thickets and trolls, and spread British ideas through technology transfer. We will invest at least £1 billion a year of ODA in research and development for challenges that affect the world’s poorest people, including neglected diseases, clean energy and new forms of agriculture.
6. Peace and security
A major driver of conflict is the exploitation and sale of natural resources. Under international law, these resources are owned by the citizens of the country where they occur, and they may not be appropriated or sold without the consent of those citizens. The UK will in future not recognise or enforce transactions involving oil, minerals or other natural resources sold or licensed by governments that did not demonstrably have legitimate ownership of them at the time of extraction. The standard used will be based on ratings for civil liberties and political rights from Freedom House. Anyone trading in resources from such countries will be regarded as dealing in stolen property, for which the usual sanctions will apply.
Britain will no longer grant arms export licences for exports to low income countries, nor to countries that have not been designated electoral democracies by Freedom House. Instead we will invite democratically elected governments in low income countries to apply ex ante for a Security Guarantee - a time-limited insurance contract guaranteeing that British - and potentially other - armed forces will step in to defend that government from any attempt at the violent seizure of power, from either internal or external armed groups.
Once we have taken back full control of migration after Brexit, our approach will be to ensure that migration is managed, fair, and benefits the country. Migrants make a huge contribution to our public services and our economy, and we will continue to welcome people who want to come here to flee persecution, to join family members, to make a better life for themselves and their family, or to participate in our vibrant economy.
Overall migration will be paced to be below 1 migrant for every 200 British citizens per year. Migrants will be welcomed from all parts of the world, rather than just high-skilled or already-wealthy migrants. As well as being good for the British economy, migration from developing countries can provide life-changing opportunities for the people who move, increases remittances and investment in developing countries, and accelerates the spread of ideas and values which underpin development. We will introduce the equivalent of the US Green Card lottery system for developing partner countries with sound security.
We will introduce Global Skills Partnerships which will enable talented people from developing countries to be trained and accredited to fill key roles in the British economy without contributing to a brain drain from the poorest countries in the world, so benefiting Britain, the migrant, and their country of origin.
As my colleague Sarah Rose aptly points out in a recent blog post, USAID is promoting domestic resource mobilization as a central component of USAID’s “journey to self-reliance” framework. But even for countries that are far away from graduating from foreign aid, the importance of domestic resource mobilization for maintaining macroeconomic stability and sustained economic growth is well documented. A look at the experience of countries that have received HIPC debt relief validates this point and underlines the need for attaching a high priority to tax policies and practices in international assistance programs for low income countries.
In 2008, a number of HIPC Initiative beneficiaries had yet to receive full debt relief from the initiative. Almost half were either in debt distress or were at a high risk of debt distress. By 2014, 35 of the 36 countries that have benefited from HIPC debt relief had reached the completion point of the process and had considerable amounts of debt wiped off their books. The impact with respect to reducing debt distress was impressive. However, as can be seen in the chart below, since 2014 there has been a steady increase in the risk of debt distress among HIPC beneficiaries, a rather alarming development given the billions of dollars that have gone into the initiative and the conditions attached to it.
A recently released report by the IMF entitled, “Macroeconomic Developments and Prospects in Low Income Developing Countries (LIDCs)” explains in great detail the reasons for the elevation in the risk of debt distress among low income countries, including the HIPC Initiative beneficiaries. One of the primary reasons was a decline in commodity prices that led to a drop in revenues for many commodity exporters not matched by a reduction in expenditures. But even among diversified exporters there has been a deterioration in fiscal balances leading to rising debt levels, with declining revenues the main factor in roughly one quarter of the cases.
While the IMF report shows that declining revenues are not the only reason countries face an increased risk of debt distress, a look at the record for HIPC Initiative beneficiaries shows there is clearly a strong link. The chart below shows the weighted average change in the domestic revenue to GDP ratio among three groups of HIPC beneficiaries, those currently rated at low risk of debt distress, those rated at moderate risk of debt distress, and those at a high risk of debt distress or in debt distress. The change is recorded as the difference between the revenue to GDP ratio in the year before the country received HIPC debt relief (completion point) and 2016:
Among all 36 HIPC beneficiaries, the weighted average increase in the domestic revenue to GDP ratio has been 9.8 percent, from 16.2 percent to 17.8 percent. For the five countries currently regarded as having a low risk of debt distress, the average ratio increased almost 30 percent, from 15.6 percent to 20.2 percent. For the 18 countries deemed to have a moderate risk of debt distress the average ratio increased a little over 11 percent. For the 13 countries at high risk or in debt distress, the average ratio actually fell a little over one percent (from 17.2 percent to 17.0 percent). It would have been a much greater decline absent Mozambique, which has fallen into debt distress due to malfeasance but has greatly increased its domestic revenue to GDP ratio since reaching HIPC completion point.
While countries in the high risk/in debt distress category have generally seen a decline in government revenues as a share of GDP, there are some notable exceptions. Both Afghanistan and Haiti, ranked as “high risk” due to weak institutional capacity rather than elevated debt levels, have had success in increasing tax revenues. According to the Inter-American Development Bank, tax collection in Haiti reached an average 14 percent of GDP during 2015-2016, up from 11 percent in 2008-2009 despite the devastating effects of the earthquake. In Afghanistan, revenue as a share of GDP rose from a low of 8.7 percent in 2014 to 10.3 percent in 2015 and well over 11 percent in 2016.
Much of the success in Afghanistan and Haiti is due to a concerted effort by government authorities with the support of the international donor community and international financial institutions. The embodiment of this collaborative approach is the little known Addis Tax Initiative (ATI), which was launched at the at the 3rd Financing for Development Conference in Addis Ababa in 2015. ATI is not a new international fund, but rather a pledge among like-minded countries to increase resources and attention on the basic practice of collecting taxes in a fair, efficient, and effective manner in order to fund government programs in a sustainable manner. It deserves the international community’s continued support through prominent references in communiques by the G20 and other groups. At the same time, more donors—including the United States—should fund the Revenue Mobilization Trust Fund at the IMF.
Perhaps the least noticed, but most impactful, addition to the US foreign assistance toolkit in recent years has been the US sovereign bond guarantee (SBG). However, the Trump administration’s proposed FY 2019 budget leaves out any request for authorization of new SBGs—and it isn’t entirely clear why. As Congress begins to consider the FY19 budget request, I offer three recommendations on the SBG program so that its role in US foreign assistance going forward can be carefully considered.
A Brief History of SBGs
The genesis for the SBG program was a 1990 agreement for the United States to provide a 100 percent guarantee for loans made to Israel by the private sector. The proceeds were used to help pay for housing for a wave of new immigrants from the Soviet Union after it lifted its ban on emigration. The benefit to Israel was substantial since a US guarantee extended the full faith and credit of the US government to these loans, making them basically risk-free investments for creditors. This allowed the interest rate paid by the Israeli government to be much lower than in the absence of the US guarantee.
This guarantee was followed in 1993 by a much larger five-year $10 billion guarantee program for much the same purpose. The program size fell to US$9 billion in 1997 but then jumped to roughly $13 billion in 2003. In 2005, Congress agreed to authorize an extension of loan guarantees to Egypt and Turkey to provide a financial incentive for their cooperation and continued support for the war in Iraq. In the end, Egypt borrowed $1.25 billion under its $2 billion authorization but Turkey did not take up the offer.
In the wake of the Arab Spring, the Obama administration began using SBGs to support Tunisia and then Jordan. The program was extended to the Ukraine following the Russian invasion in early 2014. Most recently, the US provided a guarantee to Iraq in January 1997 for US$1 billion in bonds. In sum, there are now 19 outstanding guarantees to five different countries (Egypt fully repaid its loan in 2015), with a total credit exposure of a little over US$18 billion. This represents over half of US government foreign credit exposure to official obligors, compared to less than 10 percent at the end of 1997, as seen in the following chart:
SBGs Yield Big Benefits
As mentioned with respect to Israel, governments that receive the loan guarantees benefit from the interest rate savings. The 2017 five-year US-guaranteed Iraqi sovereign bond was priced at a coupon rate of 2.149 percent. A five-year non-guaranteed bond for the same amount issued in August 2017 carried a coupon price of 6.752 percent, roughly 460 basis points (4.6 percent) higher. In other words, on a US$1 billion issuance, the US guarantee provides a savings of $46 million per year.
And the beneficiary governments don’t have to do much in return for the financial benefit. Though the US government asserts that the provision of guarantees is conditioned upon economic policy reforms, the reality is that these reforms generally reflect conditions in pre-existing IMF or World Bank programs, and others are vague or not strictly applied. The conditions in the Iraq agreement are illustrative:
Condition #1: Iraq shall implement the economic reforms and prior actions necessary to obtain IMF Board approval for the first review of its Stand-By Arrangement (SBA). The first review had been completed one month before the US-Iraq agreement; this included waivers on a number of the conditions in the original SBA.
Condition #2: Iraq shall pay arrears to the Basrah Gas Company, as specified in the Memorandum of Economic and Financial Policies agreed to by Iraq as part of its Stand-By Arrangement with the IMF. This condition is basically superfluous since the first condition already says that Iraq is expected to remain in compliance with the terms of the SBA.
Condition #3: Iraq shall promote government financial transparency through publication of budget information including the most recent budget audit. The amount and nature of information disclosed does not seem to have substantively changed as a result of the guarantee.
Condition #4: Iraq shall commit to implement the proposed World Bank Public Financial Management Institutional Development and Capacity Building project. The loan agreement between Iraq and the World Bank had been signed the previous month.
Condition #5: As agreed to in the IMF Memorandum on Economic and Financial Policies, Iraq, acting through the Central Bank of Iraq, shall strengthen banking supervision operations. Again, rather superfluous since the first condition already says that Iraq is expected to remain in compliance with the SBA.
Condition #6: Iraq shall issue unenhanced sovereign bonds internationally no later than four months after the US guaranteed issuance. This is the only condition that effectively goes beyond what Iraq already had committed to under a different program. It did eventually issue unenhanced bonds in August 2017.
From the perspective of the United States, an SBG offers the advantage of providing financial support for a country at a de minimis cost to the US taxpayer. In accordance with the Federal Credit Reform Act, the US government must calculate the “subsidy cost” of the guarantee and “score” it against the foreign assistance budget authority. But if there is no default on the underlying bond, there is no outlay of taxpayer funds, so there is no impact on the budget deficit. It also provides an important political benefit to the United States.
It must be acknowledged that a beneficiary country may actually prefer receiving a grant that is equivalent in amount to the subsidy cost rather than the guarantee. For example, in the case of Iraq the subsidy cost was said to be over $250 million (the exact amount is not made public). This is more than the $230 million in interest savings the guarantee generates, even before the present value of the lower interest payments is calculated. However, a grant is not an option since the US guarantee is intended to set the stage for a non-guaranteed issuance.
But SBGs Have Some Big Drawbacks
There are two significant drawbacks to the SBG. One is that they are a contingent liability in the sense that in the event of a default on a bond payment, the bondholders would need to be made whole by the US government within a brief period. The United States, in turn, would become a creditor to the defaulting government and would need to seek authorization and appropriation for any cost associated with any subsequent debt treatment negotiated by the Paris Club. The other drawback is that the United States has absolutely no control over how the funds are used by the beneficiary government. In a worst-case scenario, the beneficiary government changes to one that is hostile to the United States and the proceeds of a US guaranteed bond are used to support activities or investments counter to US interests.
Recommendations to Guide the Future of SBGs
Given the potential costs and benefits of the SBG, I suggest the congressional committees with jurisdiction over US foreign assistance take the following three actions:
Ask the Government Accountability Office to undertake a thorough review of the costs and benefits of US sovereign loan and bond guarantees that have already been extended, and an assessment of the advantages and disadvantages of applying the instrument more broadly.
If the findings of the GAO report are generally favorable and Congress finds merit in continued use of SBGs, draft legislation authorizing an SBG program on a permanent basis. Such legislation could spell out the parameters for use of any guarantees as well as the institutional structure for administering and managing the program.
Regardless of whether the first and second actions are taken, Congress should insist that USAID report on the performance and impact of the SBG on a regular basis, in accordance with the Foreign Aid Transparency and Accountability Act of 2016. As it stands, there is no publicly available information on the extent to which the beneficiary governments are adhering to the conditions associated with the individual guarantees, nor any information on how the guarantees are benefiting the United States on an ongoing basis.
Tomorrow, USAID Administrator Mark Green heads to Capitol Hill to defend the Trump administration’s FY 2019 foreign assistance budget request. It won’t be easy. Lawmakers have pushed back hard against the drastic cuts to US global development and humanitarian spending proposed by the administration.
And while, under Green’s leadership, USAID has advanced several smart ideas to improve the agency’s effectiveness—including developing a framework for thinking about aid transition, piloting new ways to pay for results, and improving procurement processes—there remain significant questions about how these efforts will fare in the absence of sufficient resources and whether proposing such deep cuts provokes a level of skepticism that jeopardizes reform efforts.
Here are some specific issues I hope receive attention during tomorrow’s hearing:
At this time last year, the Trump administration was reportedly contemplating folding USAID into the State Department as part of an effort to “streamline” the federal government. The consensus reaction from the development community was that preserving USAID’s independence is paramount. For several months we’ve heard repeated assurances that consolidation is no longer on the table. But ongoing unease about the relationship between the State Department and USAID suggests the point remains relevant.
The rapport between the department and agency is liable to change with new leadership on the horizon for State. Even so, the hearing provides a useful opening for the many members who support USAID’s independence to go on record and give Green a chance to make the case for it.
Green’s vision for USAID’s development work is centered on a “journey to self-reliance”—supporting the development of countries’ capacity to finance and manage their own development so they can eventually transition away from aid. This vision isn’t new—previous administrators have espoused similar convictions. But Green’s proposal to develop a transparent and evidence-based approach to deciding if, when, and how to transition a relationship with a country from one based on grant-based economic assistance to one focused on trade support and other forms of development finance is more focused than many previous efforts and deserves recognition.
An idea, however, is only as good as its implementation, and there are a number of unanswered questions about how this concept will be put into practice. If the hearing delves into Green’s signature “journey to self-reliance,” I hope members ask, how would USAID seek to redefine its relationship with a country based on the new framework? How will proposed metrics be used to inform decisions about readiness for transition and/or the approach USAID should take in a particular country, and what makes them an appropriate tool for this purpose? What is the relationship between the “journey to self-reliance” framework and other strategy-setting processes?
And how does it feed into processes that seek to include local priorities and goals? Directives and initiatives from Washington already tend to dominate missions’ strategic decisions; how will USAID ensure its “journey to self-reliance” framework doesn’t become yet another Washington-based tool that limits the influence of country-determined priorities?
Domestic resource mobilization
An administration-released factsheet on the FY19 budget request highlighted a new commitment to domestic resource mobilization (DRM)—$75 million for activities that help countries self-finance their own development. This is a welcome push that aligns well with USAID’s “journey to self-reliance” framework, as well as with the internationally endorsed Addis Tax Initiative, which asks donors to increase their support for DRM.
But even amid widespread support for DRM, there are real gaps in what we know about assistance in this area. To begin with, we don’t even have a good account of how much we’re currently spending on DRM, though this is improving. We also know relatively little about the effectiveness of various interventions, which largely fall into the camp of more-difficult-to-evaluate technical assistance. I hope, as part of the new initiative, that Green can articulate how the agency will define success in this area and assess the degree to which its investments achieve their intended outcomes.
While it may not sound glamorous or exciting, getting procurement right is foundational to USAID’s effectiveness. Previous administrations have spearheaded some important shifts in how USAID makes awards, but more work remains to ensure award types are better aligned with USAID’s vision for how it wants to do business.
The Trump administration makes a lotofreferences to the importance of evidence-based decision making. And USAID, with Green at the helm, has demonstrated this commitment in some noteworthy ways. Within the last year, for instance, the agency hosted a day-long event showcasing evidence and evaluation and announced participation in a new development impact bond (DIB), an innovative results-based financing scheme.
On the other hand, the administration’s proposed budget would strike a massive blow to USAID’s evidence and evaluation functions. The FY19 budget request contains a 40 percent cut (compared to FY17 levels) to the Bureau of Policy Planning and Learning—the headquarters of the agency’s learning, evaluation, and research efforts. And it would slash funding for the Global Development Lab (the Lab) by 80 percent.
Within the Lab, the evidence-focused components have been particularly shorted. Last year, USAID closed new applications for Development Innovation Ventures (DIV), the part of the Lab that rigorously tests new ideas for solutions to development problems and helps scale those that prove successful.
Green has talked a lot about improving the efficiency and effectiveness of USAID. The hearing provides an opportunity for him to highlight some of the innovative ways USAID is using evidence to pursue these objectives, but he should also be pressed on the risks that downsizing the agency’s evidence engines poses to the broader effectiveness agenda.
Fragile and conflict-affected contexts
At least a third of USAID’s assistance goes to fragile and conflict-affected states.* Fragile states are where poverty is increasingly concentrated, humanitarian relief is most needed, and US national security interests are often most pressing. Fragility, however, is extraordinarily complex, often confounding the most well-intentioned efforts by donors to promote stability and development. Recently introduced legislation (H.R. 5273), sponsored by a number of panel members, would require USAID—along with the State Department and Department of Defense (DOD)—to take a hard look at what works and what doesn’t in aid to fragile states, create a strategy for violence reduction in select countries, and better assess impact.
With over 15 years of experience providing assistance to fragile states, USAID should already have some thoughts on how to approach these questions. It would be great to get Green’s take on how USAID should adjust its procurement, program design, and implementation processes to respond quickly to emergent needs and adapt interventions in constantly evolving fragile environments.
One of the big threads in the recent US foreign assistance reform and redesign conversation has focused on how the fragmentation of aid across 20-plus agencies compromises its efficiency and effectiveness. Eliminating this fragmentation isn’t really on the table—it would be hugely complicated and require a complete rework of the distinct roles of various agencies. But it may be possible to ease the symptoms of fragmentation through improved coordination and collaboration.
This has been critical in the context of a cross-cutting initiative like Power Africa—and would likewise be necessary for doubling down on DRM. The new proposed US International Development Finance Corporation would need to coordinate closely with USAID. And the agency has highlighted the need for better coordination with DOD in its work in fragile states. For each of these needs, what can USAID do to improve coordination and collaboration? What does good coordination look like in practice?
*In FY16, 29 percent of USAID’s obligations went to the 20 most fragile states as ranked by the Fragile States Index.