Findings and recommendations

Political and economic context

Since the last peer review in 2016, the United States has undergone significant political change. From January 2017, Donald Trump, of the Republican Party, served as president for four years. During this period, legislative support for and appropriation of foreign assistance remained relatively constant. Four years later, in January 2021, President Joe Biden, of the Democratic Party, took office. The Biden administration’s ability to advance its legislative agenda and the resources to implement it are constrained, given the narrow Democratic majority in the House of Representatives and an evenly divided Senate. All House seats and 35 Senate seats are up for election in November 2022. If the balance changes and the Democratic Party loses its majority in either body in these midterm elections, the administration will find it more challenging to advance its priorities.

The US economy suffered from the effects of the COVID-19 pandemic, and Russia’s war against Ukraine may slow the recovery further. Resilient economic growth and a steady decline in the unemployment rate during the 2010s boosted material standards of living for Americans. Measures to contain the spread of the coronavirus contributed to the one of the largest shocks suffered by the US economy outside of wartime and led to very high unemployment. Cash transfers and expanded unemployment benefits helped cushion the impact on vulnerable households (OECD, 2020[1]). US real gross domestic product (GDP) had been anticipated to grow by 5.6% in 2021, then drop to 3.7% in 2022 and to 2.4% in 2023 (OECD, 2021[2]). However, underlying inflationary pressure and the war in Ukraine may result in a decline of more than 1% in global growth and higher inflation (OECD, 2022[3]).

The Trump administration defined its security strategy as protecting Americans and preserving their way of life, promoting US prosperity, supporting peace through strength, and advancing US influence in the world. The fourth pillar of the 2017 National Security Strategy prioritised partnering with countries that are interested in economic progress and aligned with US interests; a shifting away from development assistance based on grants and towards attracting private investment and catalysing private sector activity; and, in fragile states, working with “reformers” and synchronising diplomatic, economic and military tools (White House, 2017[4]). The strategy also sought to achieve better outcomes in multilateral forums in line with US interests.

The Biden administration’s Interim National Security Strategic Guidance, issued in March 2021, acknowledges the changing distribution of power across the world. It pledges that the United States will reinvigorate and modernise its alliances and partnerships and resume its position of leadership in international and multilateral institutions. The interim strategic guidance further recognises the “profound” risks posed by the COVID-19 pandemic, economic downturn, and climate and humanitarian crises and renews the US commitment to global development and international co-operation (White House, 2021[5]).

Development co-operation system

In November 2021, US Agency for International Development (USAID) Administrator Samantha Power announced her vision of more inclusive, accessible, equitable and responsive global development. To achieve this, she set forth three priorities: allow people from more diverse backgrounds and partners of all kinds to participate, making aid more inclusive and accessible; focus more on the voices and needs of the most marginalised, making aid more equitable; and listening to what partners are asking of the United States in countries where it works, making aid more responsive (USAID, 2021[6]).

The development co-operation system of the United States is complex.1 Twenty-one federal government agencies provide official development assistance (ODA) and other official flows (OOF). USAID, the State Department, the Department of the Treasury, and the Department of Health and Human Services deliver the largest amounts of ODA (Figure 1). The Snapshot of the United States’ development co-operation accompanying this peer review provides more detail on the US development co-operation system (OECD, 2022[7]).

Strong and consistent bipartisan support for foreign assistance in the US Congress creates both opportunities and challenges. The US Congress repeatedly resisted efforts by the previous administration to cut the foreign assistance budget, and overall legislative support for humanitarian assistance remains strong. At the same time, the presence of a more diverse group of incoming members of Congress in recent years has led to increased congressional interest in development co-operation and to some extent greater congressional control over how the Department of State, Foreign Operations and Related Programs (SFOPs) budget is allocated and spent.

ODA from the United States reached its highest-ever volume of USD 42.3 billion in 2021, according to preliminary figures (in current prices), a 14.4% increase over 2020 (USD 35.6 billion in constant prices), reflecting an increase in contributions to multilateral organisations and the purchase of vaccines to be donated to developing countries. ODA had dropped in 2019 to USD 34 billion from USD 38 billion in 2016. The latest ODA volume represents 0.18% of gross national income (GNI), ranking the United States 23rd among DAC member countries. While it is close to the most recent high of 0.19% achieved in 2016, the share of national income dedicated to ODA by the United States falls short of the 0.20% of GNI it achieved in 2010 and 2011 and well short of the United Nations (UN) target of 0.70% of GNI.

Figure 1. ODA disbursed by US government executive branch entities

Note: Shares refer to ODA disbursed by US government entities in 2020 as reported to the OECD’s Creditor Reporting System.

1. This includes the Centers for Disease Control and Prevention (CDC).

2. The bulk of DFC activities are reported as OOF, however the repayment of old loans and technical assistance activities may be reported as ODA.

Source: Author.

Development co-operation is an important dimension of national security and a leading instrument of US foreign policy

The Biden administration has renewed US commitment to global development and international co-operation and positions diplomacy, development and economic statecraft as the leading instruments of US foreign policy. The forthcoming National Security Strategy, which builds on the March 2021 interim guidance, will articulate the role of development co-operation (White House, 2021[5]).

USAID’s participation in the National Security Council has grown over the past 15 years as issues such as global health, humanitarian assistance, climate change, democracy, corruption, conflict and stabilisation, and food security have become central to foreign policy decisions.2 Consistent participation of the USAID administrator in the Principals Committee would help ensure that development perspectives are always considered in matters affecting national and global security. Whether the administrator participates is decided by each president and administration.

A whole-of-government development policy and refreshed institutional arrangements would provide unity of purpose to US efforts

The United States has not updated its whole-of-government development co-operation policy despite significant changes in the global development landscape. In 2010, the Presidential Policy Directive Number 6 on Global Development (PPD-6) elevated development as a core pillar of US international engagement and set ambitious development goals aligned with the United States’ strategic national objectives of peace, security, global prosperity, universal values and human rights (White House, 2010[8]). The previous administration’s National Security Strategy addressed development assistance, but much has changed in the past decade, including the role of the United States and other major powers. An updated policy would provide coherence to US development co-operation and offer its developing country, bilateral and multilateral partners clarity on US priorities.

Mechanisms for ensuring coherence in development policy across the US government (USG) were not maintained following the change in administration in 2017. The PPD-6 proposed that a national global development strategy be developed every four years and approved by the president alongside the Quadrennial Diplomacy and Development Reviews by the State Department and USAID. The PPD-6 also established an Interagency Policy Committee on Global Development, led by national security staff, and a US Global Development Council3 (White House, 2010[8]). These initiatives were not continued.

A whole-of-government development co-operation policy would enable the United States to achieve greater impact. A policy outlining an agreed, coherent and strategic vision for development co-operation might facilitate strategic conversations across the federal government about the content of such a policy and its ongoing implementation. A clear vision would provide direction to federal agencies and offer other US actors – states, localities, tribes, territories, and other stakeholders such as non-governmental organisations (NGOs), civil society, the private sector, philanthropic foundations and academia – the opportunity to lend their support. It would inform the USG regional, country and thematic strategies and provide a solid basis for the United States to engage proactively with multilateral, regional, bilateral and country partners. Such an approach underpins USG efforts at home and abroad to address the climate crisis (Box 2) and to promote gender equity and equality (White House, 2021[9]).

The 2030 Agenda provides a ready framework for the United States to agree to global development priorities and to exercise global leadership

The 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs) could provide a framework for the US commitment to global development. The United States played a key role in negotiating both the Addis Ababa Action Agenda and the 2030 Agenda, but these have not since featured prominently in its narrative or operations (Ingram and Pipa, 2022[10]). Nevertheless, the SDGs provide a coherent, integrated framework underpinning the national development plans and strategies of the developing country, bilateral and multilateral partners of the United States and also provide a basis for advancing sustainable development domestically. Acknowledging the interlinkages between the SDGs and using SDGs to describe the challenges facing the United States and its partners would ground the United States’ renewed commitment in an existing, broadly accepted vision of global sustainable development. This would also create synergies among US thematic priorities and enable the United States to leverage the efforts of those civil society and private sector actors that share a commitment to the 2030 Agenda.

More effective co-ordination across and between US government agencies can achieve greater interagency coherence

US development co-operation has the potential to be more than the sum of its parts. With 21 agencies engaged in development co-operation, extensive co-ordination is required in Washington, DC and at US embassies and missions. While internal co-ordination efforts are time consuming, they nevertheless add value at US embassies and missions where integrated country strategies articulate US priorities and set goals and management objectives for the USG. Country Development Cooperation Strategies in turn describe how USAID supports US priorities and partner country national development plans. Organising co-ordination around the key pillars of US engagement can create synergies across the USG interagency, as seen in Kenya.4 Particularly in sectors managed directly from Washington, DC or involving departments or agencies based in the United States, there is a risk of fragmentation in USG support, as noted in Kenya. USG efforts to control infectious diseases successfully leverage a whole-of-government approach – with, for example, the President’s Emergency Plan for AIDS Relief (PEPFAR) helping several countries to achieve epidemic control (Box 1).

Given the number of agencies and initiatives, keeping track of, programming and achieving synergies in different US government investments is challenging. The large number of agencies results in a complicated institutional system. The State Department offers guidance for developing foreign assistance strategies for each country through an Integrated Country Strategy (ICS) that aims to minimise fragmentation and improve co-ordination within foreign assistance planning,5 and interagency members use data and evidence, including from evaluations, to improve programming and inform decision making. However, use of data and evidence is focused at the activity level. A more strategic approach to evaluation and knowledge sharing across interagency members would enhance learning and improvement (Fit-for-purpose development co-operation system).

An integrated approach across the portfolio could lead to greater coherence. Interventions to support nature and wildlife conservancies and address trafficking of wildlife in Kenya, for example, are well co-ordinated and harness the considerable expertise, experience and resources available across the USG interagency. Kenyan government counterparts highly appreciate the specialised expertise that USG agencies offer. Wildlife trafficking initiatives are co-ordinated with efforts to combat corruption, terrorism, trafficking in drugs and people, and violent extremism. However, these interventions could achieve greater impact if delivered together with local authorities in a more integrated manner that addresses the multiple challenges facing rangeland communities, such as food security, access to health care and productive opportunities.

Strong internal co-ordination could extend to better co-ordination with partners. Partner government counterparts find it burdensome to deal with a range of agencies using differing administrative and reporting requirements, as seen in Indonesia and Kenya. Designating an overall point of contact at US missions and streamlining procedures across the interagency, as recommended in the 2016 peer review, would improve co-ordination with government counterparts in sectors supported by many interagency members.

Articulating a strategic vision for US development co-operation

A forthcoming National Security Strategy and an integrated global development co-operation policy offer an opportunity to articulate an agreed, coherent and strategic vision for US development co-operation. Building on the interim guidance, the National Security Strategy will articulate the administration’s global development priorities and confirm how these contribute to the national security and foreign policy of the United States. In October 2021, the National Security Council (NSC) Directorate for Development, Global Health and Humanitarian Response commenced a process to develop an integrated global development co-operation policy, which is intended to build on PPD-6 (Government of the United States, 2022[12]). Through both of these processes, the United States might set out:

• the links between the interests of Americans and those of people in communities around the world

• how the United States will exercise global leadership in the face of multiple crises, global challenges, and threats to shared interests and values

• an enhanced whole-of-government policy directing USG agencies and encouraging other actors to work together to make progress toward achieving the 2030 Agenda and the SDGs

• the importance to the US federal government of working with its country, bilateral, regional and multilateral partners in pursuit of its vision

• the importance of systematically addressing domestic policies that have negative consequences for developing countries.

The United States is ideally placed to advance global public goods and address global challenges at home and abroad

Sustainable development is not a zero-sum game. The 2030 Agenda requires action at the subnational, national, regional and global levels in pursuit of sustainable, inclusive and sustained economic growth (UN, 2015[14]). US policies and regulations can have positive and negative spillover effects, including on developing country partners. Removing barriers to international trade and promoting the free flow of capital offer both opportunities and challenges. Companies may benefit from US integration into global markets, shifting jobs to developing economies where labour is cheaper and the overall cost of doing business is lower. However, without proper attention, the jobs created outside the United States may exacerbate existing problems with labour rights, equal opportunity and environmental stewardship in these economies (White House, 2021[5]).

The US ambition to build an equitable and inclusive global economy demands coherent action at home and abroad, which in turn requires coherence between domestic and foreign policies. The Biden administration recognises that domestic renewal is critical to foreign policy and is promoting action on a range of critical economic, social and environmental issues that impact and achieve mutual benefits for the United States and the world. Advancing these issues equitably requires a consistent and clear understanding of the effects of US policies – at home and abroad.

US efforts to address global challenges can reduce negative impacts on developing countries. The COVID-19 pandemic and the climate crisis vividly demonstrate how global challenges can negatively impact the United States. They also show the significant influence the United States can have to reduce the negative impacts at home and abroad. Given the size, importance and impact of its economy, the United States is ideally placed to lead action in response to global challenges, using its influence to encourage other nations to support solutions that benefit both their own people and communities around the world.

Managing trade-offs requires careful analysis, reconciliation and resolution of competing priorities. When US interests converge with those of its partners, US leadership can bring about positive change, as seen in its engagement to reform international taxation rules to ensure multinational enterprises pay a fair share of tax wherever they operate, counter corruption and combat illicit financial flows. However, where US interests diverge from those of developing countries or where competing interests exist across USG agencies, these differences need to be carefully considered and resolved. It is not easy to do so, and such decisions should not be left to chance.

Opportunities exist to do more to address negative spillover effects on development and advance sustainable development globally

The United States is thinking more intentionally about how domestic policies impact the rest of the world, as work on climate and COVID-19 demonstrate, but the tools to systematically do so are lacking. The United States ranks lower than many other OECD member countries on one index in terms of the effects of its policies on developing countries. The United States is ranked 22nd out of 40 countries overall on the 2021 Commitment to Development Index, scoring highest on security (6th), trade (10th) and health (17th) but low on environment (37th), technology (29th) and investment (24th)6 (Center for Global Development, 2021[15]). These rankings suggest that there is more the United States might do to address negative spillover effects of its policies on developing countries. The following paragraphs offer some examples.

The African Growth and Opportunity Act (AGOA) enhances market access for qualifying sub-Saharan African countries, but requires regular renewal.7 Enacted in 2000, it expanded duty-free benefits offered under the US Generalized System of Preferences (GSP) programme by adding new product lines. Any extension beyond its expiry in 2025 will require bipartisan support in Congress. Market access arrangements such as AGOA and GSP offer economic benefits to eligible countries and can help countries broaden their export base.8 To increase bilateral trade and investment, the Prosper Africa Initiative, which builds and expands on the US government's trade and investment support across Africa, including AGOA trade preferences.9

US anti-corruption efforts will be enhanced by addressing beneficial ownership and strengthening international co-operation in the exchange of information. The United States Strategy on Countering Corruption notes that legal and regulatory deficiencies in the United States and other high-income countries, including shortcomings in beneficial ownership transparency, allow assets to be laundered and the proceeds of crime to be obscured. The strategy also recognises the particular responsibilities in this area that rest with the United States as the largest economy in the international financial system (White House, 2021[16]). In addition to finalising beneficial ownership regulations, it will be important for the United States to ensure that coverage is comprehensive. Further, exchange of information and co-operation with other jurisdictions would enable the United States to be more fully compliant with anti-money laundering and counter-terrorist financing measures (Financial Action Task Force, 2020[17]).

Tackling the climate crisis requires significant US efforts to transition from a reliance on fossil fuels. The United States aims to promote ending its international financing of carbon-intensive fossil fuel-based energy and to eliminate fossil fuel subsidies from the federal government’s budget request for FY 2022 and beyond. Exploring innovation, commercialisation, and deployment of clean energy technologies and infrastructure is a critical part of the US approach (White House, 2021[18]). Following a pause on new oil and gas leases on public lands in the second quarter of 2021, the Department of the Interior resumed onshore oil and gas lease sales on federal land at a higher royalty rate than previously charged (US Department of the Interior, 2022[19]). This was not an explicit response to the significant increase in fuel prices resulting from Russia’s war against Ukraine, as some critics have claimed. Nevertheless, the resumption does point to the need for greater efforts to spur the transition to a low emissions, climate-resilient US economy. The 2030 domestic emissions reduction target in the United States’ nationally determined contribution is now aligned with a pathway towards 1.5°C warming. However, given that the United States has the highest CO₂ emissions among OECD countries and accounts for 15% of global CO₂ emissions,10 continued efforts on implementation will be needed to further reduce emissions and enable the United States to be in alignment to the 1.5°C temperature limit of the Paris Agreement (Box 2) and to improve policy coherence at home and abroad.

Achieving policy coherence requires a strategic vision, political leadership and effective mechanisms and tools

Greater coherence between US domestic policies and foreign policy objectives would help the United States reinvigorate its global leadership. In the face of unprecedented global challenges, effort across a broad front will be needed to “boldly engage the world”, as the administration has described its task (White House, 2021[5]). Integrating sustainable development throughout domestic and foreign policy making would be an important first step. The forthcoming National Security Strategy and an integrated global development co-operation policy are opportunities to set out how the United States will deliver coherent domestic and foreign policies. These documents might articulate a strategic vision, provide political leadership, and encourage the establishment of effective mechanisms and tools for the United States as it grapples with new challenges on the global landscape.

Systematic assessment can foster positive impacts of policies and regulations at home and abroad and reduce their negative spillover effects. Many countries, the United States included, create domestic policy in isolation from foreign and international development policy or global public goods (Dissanayake, 2021[20]). US law requires that some assistance to developing countries be assessed for its impact on US domestic economic interests. However, there is no reciprocal process whereby the United States systematically assesses the spillover impact of its domestic policies on the economic or sustainable development interests of developing countries. A key premise of the OECD Recommendation of the Council on Policy Coherence for Sustainable Development is that to achieve the 2030 Agenda, governments need processes, systems, structures and tools to manage and co-ordinate coherent policy at all levels (OECD, 2019[21]).

Coherent action at home and abroad to, among other things, counter corruption, address the climate crisis, and advance gender equity and equality must be systematic and endure. In these instances, the Biden administration has provided a strategic vision and political leadership and established mechanisms requiring the USG to take action and to report on progress (White House, 2021[9]; White House, 2021[18]; White House, 2021[16]). However, the institutional arrangements reflect the current administration’s priorities and, in the case of climate, depend on congressional funding for implementation (Box 2). In lieu of lasting, formal arrangements, executive orders requiring domestic and global efforts are important options available to the USG. However, these can easily be overturned or discontinued with a change in administration.

Updated institutional mandates could help deliver coherent policies. A range of institutions offer policy advice to the president. The Council of Economic Advisers and the NSC are long-standing entities and were established by statute.11 The National Economic Council and the Domestic Policy Council were created by executive order in 1993 to co-ordinate policy advice on domestic and international economic issues and domestic policies and to monitor implementation of the president’s economic and domestic policy agendas. The NSC considers development objectives alongside national security and foreign policy matters. However, when it comes to global and domestic food security, for example, the three aforementioned councils are not mandated to ensure routine coherence between US domestic policies and development objectives.

The United States has a long-established mechanism for analysing the domestic consequences and effects of regulations but not to address the transborder effects on partner countries. The Office of Management and Budget (OMB) in the Executive Office of the President requires that reviews of any significant regulatory action include regulatory analysis by its Office of Information and Regulatory Affairs. The focus is domestic, with effects of regulations beyond US borders reported separately (US Office of Management and Budget, 2003[22]). The Biden administration recognises the need to improve and modernise the regulatory review process to include distributional impact analysis, among other things (White House, 2021[23]). The United States might consider including in updated guidance a requirement to assess the positive and negative spillover effects of US regulations on partner countries and tools for doing so.

The United States is a generous multilateral partner that could further leverage its partnerships in partner countries

The United States has made a point of re-engaging multilaterally since 2021, when it substantially increased core (unearmarked) contributions to multilateral entities to USD 9.1 billion, or 21.5% of its gross ODA (compared to a DAC average of 28.3%) – the highest volume of any DAC member. In addition, US government actors provided USD 7.3 billion in earmarked funding to the multilateral system in 2020.13 The FY 2023 budget request proposes a near doubling of funding for multilateral assistance reflecting proposed expanded investments in the Green Climate Fund and the Climate Investment Funds. As US support to international climate change initiatives increases, demand is growing within the federal government for a systematic, interagency approach to more strategically fund multiple climate vehicles across accounts and government agencies. Such an approach could also include being transparent and explicit about how the United States uses multilateral and bilateral channels, as was suggested in a recent OECD portfolio similarity analysis,14 and about the impact it has on the effectiveness of the system as a whole.

The United States does not have a multilateral strategy or operational guidance for multilateral assistance, as was recommended in the last peer review. The United States has invested heavily in strong, robust systems of multilateral partners (for example, whistleblower protection, anti-corruption, fraud, and prevention of sexual exploitation, abuse and harassment) and in upholding norms and standards (for food, for example). Multilateral partners cite challenges related to the lack of standard operating procedures, including for financial contributions, when a single multilateral partner engages across different USG entities as well as challenges arising from delays in appropriations. Twenty-one USG agencies provide foreign assistance to or partner with multilateral organisations. The Secretary of State submits an annual report to Congress with an agency-by-agency breakdown of their financial and in-kind contributions made to international organisations.15 The Department of the Treasury submits a similar report to Congress on the US role in shaping the policies and lending decisions of international financial institutions.16 Although both documents fulfil transparency requirements, it is unclear whether and how they are used to inform future allocations. In the view of some partners, one consequence of the more diffused USG engagement is that advocacy for greater use of pooled funds and multilateral channels is often missing at key decision points in government.

Outside of regular replenishments, the US government adopts a delegated approach to multilateral partnerships, leaving it up to USAID, the USAID Washington operating unit, the USAID country office or the embassy to decide the partner of choice. An advantage of this approach is that the decision falls to those with the greatest interest and involvement in a given investment. But there can be a missed opportunity to connect funding policies and decisions in governing boards or elsewhere to specific investments. As a result, the United States may be less able at the partner country level to systematically leverage the important contributions it makes globally to complement its bilateral priorities. The relatively expanded mandate of the Office of Development Cooperation’s Multilateral Affairs Team at USAID is working towards ensuring the interconnection between USAID’s country-level work and funding and engagement at the headquarters level in respective international organisation governing bodies.

At the country level, the United States tends to invest little in structured dialogue or partnerships with other bilateral and multilateral partners, as seen in Kenya and Indonesia. Its more delegated approach to multilateral partnerships offers one possible explanation: Unless the USAID country office is providing earmarked funding to multilateral organisations to fulfil its country programme, it does not consider its role is to build on complementarity between what is provided centrally from headquarters and the country programme. In addition, given the size of the development co-operation system, US country and regional missions invest heavily in internal co-ordination across several different agencies and initiatives, and this focus leaves less appetite and time for co-ordinating with external actors (A coherent whole-of-government policy). Another reason, as noted in the discussion of appropriations, is that accounts and budget lines are linked to specific accountability requirements. This can make partnering with other bilateral or multilateral actors, themselves accountable to many members or shareholders, arduous and time consuming as both partners must meet the various requirements.17 Furthermore, the United States’ earmarked contributions tend to be large in volume, which may not incentivise it to pool funding and harmonise reporting requirements with other members or shareholders. The United States has strong country partnerships with some entities in which it is one of the largest contributors, among them the World Food Programme, the Global Fund, the United Nations High Commissioner for Refugees and the United Nation Children’s Fund. Notwithstanding the systemic challenges, there may be an opportunity for the United States to build on its important multilateral contributions and act through a broader coalition of partners at the country level to share risk and be more influential.

Establishing the Development Finance Corporation and expanding official finance instruments face some challenges

The authorisation of the US International Development Finance Corporation (DFC) marked a historic shift away from the long-standing US approach of providing foreign assistance almost exclusively in the form of grants and making available a greater range of instruments.18 One of the goals of DFC, which has a financing ceiling of up to USD 60 billion, is to “drive private capital” towards US foreign policy objectives19 (US International Development Finance Corporation, 2021[27]). However, the removal of the US connection, or nexus, requirement that applied to projects supported by one of DFC’s predecessor agencies, the Overseas Private Investment Corporation, means that DFC operations are wholly untied.20 DFC’s revenue source is an annual congressional appropriation that leverages US Treasury lending, with the proceeds of loans being returned to the US Treasury. This is not the case for many other bilateral development finance institutions. DFC has no need to maintain a credit rating, which should make it easier to prioritise investments in low- and lower middle-income countries. However, its development mandate has not prevented Congress and the administration from requesting waivers enabling DFC to fund other priorities in higher-income countries. Some have argued that these could undermine DFC’s strong initial bipartisan support as it risks becoming more instrumentalised.21 DFC has so far exceeded its annual goal of ensuring that at least 60% of the investments it supports are in low-income, lower middle-income or fragile countries and contexts. As the Inspector General of DFC noted on 21 March 2022, “DFC faces a difficult challenge in making investments that balance the competing interests of financial performance, development impact, and foreign policy, all while maintaining accountability and transparency” (US International Development Finance Corporation, 2022[28]).

The success of DFC will depend on how quickly it is able to deliver new instruments, particularly equity, and work with the US government and other partners.22 DFC faces challenges in its highly anticipated equity investment programme23 and in the time lag between investment decisions and disbursement of funds (US International Development Finance Corporation, 2022[28]). Sourcing a pipeline of transactions in partner countries is a persistent challenge and will require DFC to more regularly collaborate with in-country or country-dedicated headquarters staff of other USG agencies including USAID, the Departments of State and Commerce, the Millennium Challenge Corporation (MCC), and the US Trade and Development Agency as well as with other bilateral and multilateral development finance institutions. Across USAID country offices, the loss of the in-house Development Credit Authority, which became part of DFC, is keenly felt. DFC’s Mission Transaction Unit works closely with USAID DFC liaisons at each USAID country office; collaboration at the country level would benefit from increased DFC overseas presence. DFC has legal restrictions that can prevent it from investing in certain countries or sectors where USAID can operate, such as textile investments that could have an adverse impact on US jobs.24 As a result, DFC is unlikely to extend debt or equity in some circumstances where there might otherwise be a positive development outcome, as seen in Kenya through its USAID East Africa Trade and Investment Hub.

Most foreign aid is congressionally earmarked and directed, limiting the government's flexibility on how funds are spent

Divisions in Congress and between Congress and the executive branch have resulted in less flexible funding for the Department of State, Foreign Operations, and Related Programs appropriations.25 The tighter congressional control can be explained by a desire to protect congressional prerogatives in the face of legislative gridlock26 and by the contrasting priorities of the executive and the legislative branches. The lack of alignment and mistrust has resulted in lawmakers increasingly seeking to bypass the legislative process and use other procedural means to direct foreign assistance spending in the form of harder directives, less flexibility and more requirements included in the policy instructions (Bolton, 2022[29]). This tighter control has translated into 600-700 policy instructions accompanying each of the past few fiscal years’ SFOP appropriations (USAID Office of the Inspector General, 2021[30]); the result is that effectively, more than 90% of US foreign assistance managed by USAID and/or the Department of State is either earmarked or congressionally directed funding. Although most of these policy instructions are not legally binding, it is in the executive branch’s interest for future appropriations to abide by them. In the FY 2022 Consolidated Appropriations Act, Congress continued to include a provision designating allocations set out in tables included in the policy instructions as legally required minimum amounts to be spent in the relevant country or sector27 (US Congress, 2022[31]).

The president proposes a budget that reflects the preferences of the executive branch two years before the start of the fiscal year. Agency-wide budget requests are guided by administration priorities; country-specific needs received through mission or country office resource requests; and global priorities such as the COVID-19 pandemic and climate change. USAID’s Office of Budget and Resource Management and the State Department’s Office of Foreign Assistance jointly submit a budget request to OMB, which plays an influential role in ensuring that the administration’s policy preferences and initiatives are incorporated into a proposed budget by using different levers at the budget request stage.28 One such lever is to send budget requests back to agencies with requests for adjustments to funding levels – a step known as passback (Pasachoff, 2016[32]). The president’s budget request is then sent to Congress, incorporated into a fiscal year Congressional Budget Justification for each USG agency and department.

Executive and congressional priorities do not always align, and the art of matching budget requests to actual appropriations intensifies once both chambers have passed the appropriations bill.29 Once enacted into law, a Section 653(a) report for the SFOPs – a comprehensive table that shows all country-level allocations by sector, directives, earmarks and initiatives – is sent to Congress.30 This process involves ensuring that country allocations overlaid with sector earmarks are respected. For example, a directive to spend a certain amount on a given sector or theme will have to be layered on top of country-specific earmarks even if this amount was never included in the President’s (or USAID country office’s) budget request. USAID’s Office of Budget and Resource Management and bureaus work with the State Department’s Office of Foreign Assistance and OMB to make adjustments and propose shifts to earmarks and directives allocated before the State Department and USAID submit the Section 653(a) report to Congress.31

Reconciling executive and legislative priorities with those of partner countries is complex and not helped by pre-obligation requirements and appropriations late in the fiscal year

Complex pre-obligation requirements as well as appropriations late in the fiscal year can negatively affect programme implementation by the State Department and USAID. Once the Section 653(a) report is submitted, the budget execution process begins and OMB apportions funds32 authorising the State Department and USAID to obligate funds.33 Country missions are required to provide additional information (via individual country-level congressional notifications and operating plans) explaining how funds will be used in that fiscal year and noting any divergence with the Congressional Budget Justification, including any special notification (related to budget items requiring pre-approval),34 new programmes and even implementing partners. In addition, sectoral directives can require spending plans, describing by technical area the work that is expected to be performed in each country. Moreover, for any number of technical sectors or countries, Congress occasionally includes a requirement for consultation prior to obligation. These notifications and plans are generally made six months or more into the new fiscal year. Delays can also impact localisation objectives (Localisation) and programming, given the short time span to obligate funds into new awards before the end of the period of availability of funds. Such requirements put pressure on USAID staff, especially in the offices of acquisition and assistance in country and regional offices and also in Washington, DC, where obligations are centralised.

Today, USAID is in a stronger position to advocate for country-specific needs in proposing the allocation of funds in the Section 653(a) process. The role of the State Department’s Office of Foreign Assistance has evolved since it was created in 2006, as USAID developed stronger legislative relations and built up stronger in-house systems and budget capability, most recently by reinforcing its leadership with the addition of a second deputy administrator for management and resources. The Office of Foreign Assistance, USAID’s Office of Budget and Resource Management, and the Bureau for Policy, Planning and Learning work together to make adjustments in line with the Appropriations Act across the 21 accounts (9 with USAID, 9 with the State Department, and 3 jointly managed and accounted for). In doing so, the Department of State and USAID have an opportunity to also make greater use of Integrated Country Strategies and Country Development Cooperation Strategies, which draw explicit links between US priorities and those of partner countries in justifying allocations. Further, USAID country offices are requested to provide concurrence or non-concurrence to activities that are funded through centrally programmed funds,35 strengthening USAID as the lead player in the US development co-operation system.36

Restoring trust between the executive and legislative branches is ongoing (A coherent whole-of-government policy). As a sign of more trust and less control, the FY 2022 Consolidated Appropriations Act for SFOPs has slightly less congressionally directed funding than the previous year’s appropriations act.37 This is an opportunity for USAID and the State Department to demonstrate that less-restricted funds provide the flexibility needed to meet partner country needs and contribute to better outcomes. Passing on early advice from the executive branch to congressional appropriators and allowing for more flexible programming within presidential initiatives would also show the executive branch’s goodwill. In short, USAID and the State Department have an opportunity to show that in the absence of directives, they are able to meet congressional and administration priorities and deliver results. Increasing the deviation authority (currently 10%) and extending the period of time to obligate resources,38 would allow for the USG to better respond to a country’s development needs.

Matching human resources to agency needs is a work in progress

USAID does not have a global strategic workforce plan as recommended in the 2016 peer review, and an interim plan is in effect only until the end of FY 2022. While USAID did not provide a timeline for replacing the interim plan, its new Global Development Partnership Initiative is a hiring effort to rebalance the proportion of Foreign Service officers, civil servants and contractors in its workforce. USAID is starting to recover from the 2017 hiring freeze that affected staff based in Washington, DC and has been increasing recruitment with a particular focus on enhancing its human resources in terms of gender and inclusive development, democracy and anti-corruption, global health, humanitarian assistance, climate change, and diversity, equity, inclusion and accessibility (Box 3). Conversations with members of Congress about increasing the number of direct hire (foreign and civil service) positions relative to contractors are constructive and have already led to some changes. One example is an increase in the number of civil servants hired in the new Bureau for Humanitarian Assistance, which provides technical backstopping to foreign service nationals (Being fit for fragility). The FY 2022 appropriations act recognises that USAID lacks sufficient personnel to respond to urgent needs around the world and allocates funds to support an increase in Foreign Service and civil service positions; the policy instructions, or joint explanatory statement, accompanying the act justify this increase also on the basis of USAID’s localisation objective39 (US Congress, 2022[31]) (Localisation).

As localisation becomes more of a priority, a key challenge is creating more positions of leadership for career locally hired (Foreign Service national) staff. Agency-wide, there are currently about 12 foreign service national grade 13 positions – the highest grade for career locally hired staff – and these are usually created to retain a specific person rather than systematically based on function or organisational needs. Foreign service national staff are of high quality, as several partners in both Jakarta and Nairobi confirmed, and their knowledge of the local context, culture and language is invaluable to programme success, as evidenced by the county liaison teams in Kenya that are led by foreign service nationals. The focus on localisation will require more contracting officers and better retention of experienced officers who have deep knowledge of the system. As USAID reconsiders its risk appetite to prioritise localisation, there will also be implications for its human resource needs in posts and in Washington, DC (Localisation). Foreign service nationals in USAID appear to have greater opportunities than other DAC member counterparts to go to other country missions as third country nationals or to regional hubs on detail assignment.

Operational bottlenecks in mission hiring arrangements jeopardise quality country programmes. Kenya offers an illustration. While the number of USAID staff has increased substantially in recent years, 100 of the current 380 posts are vacant. Although locally engaged staff are the bedrock of a country office and many programmes, it can take as long as one year to hire such staff under personal service contracts that are more like procurement contracts for goods and services than for human resources.40 In addition, once a post is occupied, career progression is impossible without a reclassification of posts that requires an entirely new recruitment process, further threatening programme delivery. While country offices have a certain amount of leeway in deciding the percentage of programme costs that can fund administrative and staffing, operational bottlenecks tend to impair this flexibility.

The United States is committed to using evidence but could enhance learning through strategic evaluation and sharing knowledge across interagency members

The United States has in place robust evaluations as well as strong collaboration, learning and accountability mechanisms with built-in pause and reflect moments. The Foundations for Evidence-Based Policymaking Act of 2018, which builds on the 2010 Government Performance and Results Act Modernization Act, requires federal agencies to evaluate the impact of programmes; increase the use of data, evidence and evaluation in the policy-making process; and make data accessible to the public. USAID and other agencies have access to a strong evidence base that informs US strategies, programmes and activities. Data are generated for both accountability purposes and for learning and based primarily on monitoring of results and evaluation of performance at project and programme levels. In USAID, strategic collaboration, continuous learning and adaptive management link all components of the programme cycle. Taking the time to pause and reflect is an essential Collaborating, Learning and Adapting (CLA) practice (Box 4).

USAID’s new, elevated and expanded post of chief economist and greater use of strategic evaluation could deliver insights on the extent to which programmes are achieving their goals and also inform improvements. Strategic dialogues with key stakeholders led by USAID’s chief economist and backed by a new Office of Behavioral Science and Experimental Economics will look at ways in which USAID programmes can be strengthened to better meet development objectives. Since evaluations are decentralised to country offices and headquarters units in USAID, these tend to be mostly context specific. Together with monitoring, activity-level evaluations, and evaluations of sector, thematic, country and regional programmes, the new dialogues can generate information about achievement of broader goals. Learning from the different types of evaluations would also facilitate improvement beyond individual teams and units within agencies.

The United States has strong foundations for localisation, but needs clarity of purpose to support the ambitious vision

The United States has a long history of trying to localise its development assistance to increase ownership and sustainability, with varying success. Local Solutions, a component of the USAID Forward reform initiative introduced in 2010 under the Obama administration, established a goal of awarding 30% of US assistance to local organisations and partner countries (USAID Office of the Inspector General, 2019[34]). This was followed by the Journey to Self-Reliance under the Trump administration. The 2018 Acquisition and Assistance Strategy, and the subsequent introduction of the New Partnerships Initiative were developed to help address some of the internal constraints to diversifying the entities with whom the agency partners.41 These efforts have left both a legacy cadre of staff who have been involved in localisation initiatives and lessons to systematically draw upon (USAID, 2021[35]). Progress has been made but slowly, in the face of bureaucratic hurdles and regulatory and statutory requirements, competing priorities, measurement challenges, and special interest resistance (Steiger, Maloney and Runde, 2021[36]; USAID Office of the Inspector General, 2020[37]; Government of the United States, 2022[12]). Beyond USAID, there are strong traditions of community-driven and locally led development in the Peace Corps, the Inter-American Foundation and the African Development Foundation.

The new approach to localisation reflects both continuity of these efforts as well as significant changes in ambition and direction. USAID Administrator Power builds on the past in her vision for global development, which includes a commitment to allocate 25% of funding to local organisations within four years, including by building on metrics of previous efforts (USAID, 2021[6]; Ingram et al., 2022[38]).The vision is also a shift in emphasis, seeking to address the power dynamics within development co-operation, reach the most marginalised populations and put people at the centre of the development process. As USAID Administrator Power stated in November 2021, at least 50% of USAID assistance by the end of the decade “will need to place local communities in the lead to either co-design a project, set priorities, drive implementation, or evaluate the impact of our programs” (USAID, 2021[6]). USAID is in the process of setting out how to implement the administrator’s commitment.

Creating a shared understanding of localisation within USAID, the wider interagency and with partners will be essential for driving effective, co-ordinated action. Drawing on lessons from prior reforms and ensuring that there are manageable and clearly signposted initiatives and common metrics with simple, clear and consistent direction will be critical to successful implementation of the new vision (USAID Office of the Inspector General, 2020[37]; King, Garber and Hirschfeld, 2022[39]). There is political willingness to support localisation, including on the part of private sector contractors and the wider civil society, as well as bipartisan support in Congress (Cooley, Gilson and Ahluwalia, 2021[40]; Ingram et al., 2022[38]). As yet, however, there is no unified definition of localisation and its constituent parts that is shared across the US interagency and understood externally. Rather than an end in itself, localisation is a process that helps to address power imbalances, enhance equity in programming and expand the number of non-traditional partners from underserved communities and craft development efforts so that their outcomes are ultimately sustained by local people with local resources (Government of the United States, 2022[12]). It will be important to develop a clear theory of change for what a shift to localisation brings in terms of sustainability and development impact across a variety of contexts, including authoritarian ones. For agencies that seek to localise more, this clarity could help them partner with other US government agencies with complementary development models that are already localised such as the Inter-American Foundation, the United States African Development Foundation, PEPFAR and the Peace Corps.

Increasing local partner funding needs to be context specific and supported by a coherent strategy

Defining a local partner will be important for determining what counts as localisation. USAID’s aim to have 25% of funding delivered directly to local partners requires a clear, agreed definition of a local partner. US assistance delivered through CSOs amounted to USD 6.6 billion,42 or nearly 22% of gross bilateral ODA in 2020, a proportion that has been broadly constant for the last five years (Figure 2). However, almost none was delivered through developing country CSOs, according to OECD Creditor Reporting System (CRS) data (OECD, 2022[41]). USAID guidance on grants and contracts provides different qualifying criteria in definitions of local entities and locally established partners that include local offices of international NGOs or locally registered companies,43 or in other guidance. The definitions matter, as they will feed into the metrics of success and shape the nature of USAID’s localisation approach (USAID Office of the Inspector General, 2021[42]).

Figure 2. Delivery channels of gross bilateral official development assistance, 2016-20

Note: ODA channelled via the US private sector refers to CRS activities indicating the channel of private sector to provider country (channel code 61xxx); ODA channelled via US and international NGOs refers to CRS activities indicating channels for international NGOs (channel code 21xxx) or donor country-based NGOs (channel code 22xxx).

Source: OECD (2022[41]), Creditor Reporting System (CRS) (database), https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

 StatLink https://stat.link/7nhgzb

There are a variety of concurrent routes to localisation, and each is likely to play a role in USAID’s approach. Multiple routes to funding local partners emerged during the country missions and literature review. They are not mutually exclusive:

• One route is via the direct funding relationship between USAID and the local organisation. This would affect USAID’s business model as the agency would need to manage thousands of partners with small awards (King, Garber and Hirschfeld, 2022[39]). The availability of suitable local partners with sufficient capacity to absorb and manage USAID funding is a consideration in some contexts, but progress is possible, as the PEPFAR example shows.44

• A second route is via intermediary institutions of locally established partners that are embedded in partner countries and work with more local groups, bringing partners together in coalitions and networks or managing grant facilities. There is criticism of international NGOs (INGOs) and private sector contractors based in the United States registering local branches to be eligible.45

• Another route, which relies on building transparency in the funding, is via third parties such as contractors, INGOs and multilateral organisations that act as conduits to local organisations, including via country-based pooled funds (Cooley, Gilson and Ahluwalia, 2021[40]). Private sector funding, which has grown since 2016, and INGO funding together constitute 38% of gross ODA (OECD, 2022[41]). Greater visibility and transparency of funding to local organisations via third parties as well as building in award or contractual incentives to support local partners could qualify this support as localised.

• USAID can draw on the networks and practices of agencies with substantial experience with managing direct relationships with local partners through interagency transfers.

USAID will likely continue to use a mix of partner models according to the local context and that these will evolve over time. It is worth noting that international engagement on the localisation of humanitarian assistance has seen some advances globally following the Grand Bargain in 2016 and could be a foundation on which to build.46 Choices in terms of the emphasis given will have an impact on the kind of organisation that USAID will become, considering its comparative advantages and internal constraints. Having a coherent strategy that manages this process will be important.

Developing a stronger country-led approach should be central to locally led development

The United States has demonstrated some progress in supporting country-led development. The 2016 peer review recommended greater alignment with country priority needs and increased support to governments (OECD, 2016[43]). As seen in Kenya and Indonesia, the Country Development Cooperation Strategies are positive examples of USAID grounding its approach within a context based on deep analysis and a robust consultative approach.47 USAID has made formal agreements with governments that provide for deeper partnership. In Indonesia, for instance, the agency signed grant implementation agreements with the Indonesian Ministry of National Development Planning, or Bappenas, and line ministries. In Kenya, formal agreements included a high-level Bilateral Strategic Dialogue, development framework agreements and implementation letters with ministries that set out mutual accountability expectations for programming. A whole-of-society approach in partner countries that includes co-operation with governments is central to system strengthening and sustainability of support over the long term.

However, the United States has made limited progress in mainstreaming government-to-government approaches to build sustainable capacity as a key part of the portfolio mix. As Figure 3 shows, 8% of US bilateral ODA in 2020 was government-to-government (G2G) assistance, including MCC. Apart from countries where there is a strong US foreign policy interest, G2G approaches by USAID remain marginal.48 Missions face disincentives in adopting greater G2G assistance, despite significant revision of complex approval processes set out in Chapter 220 of the Automated Directives System. These challenges include pre-obligation requirements such as congressional notification, eligibility and viability documentation by the Department of State, and risk and accountability considerations49 (USAID, 2021[44]; US Government Accountability Office, 2015[45]). Mainstreaming G2G approaches also requires a stronger political incentive to consider whether programmes can be delivered by and through governments. Building on development effectiveness principles, there is an opportunity for USAID’s approach to localisation to incorporate working with and through governments as a more prominent element in its suite of engagement and channels. PEPFAR is now grappling with the challenges of ensuring system strengthening, local partner transition and financing via government rather than as a parallel structure.50 MCC is a robust model that demonstrates the benefits of G2G approaches51 (Box 5).

Figure 3. Government-to-government official development assistance ODA (2020 USD constant) totals and as share of bilateral official development assistance

Note: Government-to-government disbursements refer to CRS activities indicating the recipient government as the channel (channel code 12xxx); MCC disbursements refer to CRS activities that report MCC as the agency (agency code 18).

Source: OECD (2022[41]), Creditor Reporting System (CRS) (database), https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

 StatLink https://stat.link/dz8w2x

Locally led development changes the power dynamic of traditional approaches

Building the capacity of local actors to be the agents of change and independent actors in their own right shows promise. Locally led development requires local actors to set their own agendas, develop solutions, and bring the capacity, leadership and resources to make those solutions a reality (Baguios et al., 2021[48]). As shown in Box 6, it is usually multiple changes that create an enabling environment for locally led development. During the broad consultation phase, the draft USAID Local Capacity Development Policy has been widely praised as a nuanced, principle-based and context-driven approach that responds flexibly to the needs and priorities of local actors (USAID, 2021[49]; InterAction, 2022[50]). The policy reflects the inherent tensions involved in locally led processes over issues such as the legitimacy and representativeness of local organisations and the potential mismatch between local and US priorities. There is a welcome desire to elevate diversity and equity in the partnerships, and the emphasis on a systems approach is laudable. Building the capacity of local and national governments are a core part of this system. As the policy is finalised, putting in place mechanisms to support missions in implementing the policy will be critical.

Co-creation shows promise as a mechanism to promote participation but will require a cultural shift to respond to local priorities.52 The scope is broad for co-creation as a mechanism to bring outside perspectives into various parts of the project cycle (King, Garber and Hirschfeld, 2022[39]). Co-creation ranges from consultation on project ideas to genuine co-design (USAID, 2021[35]). Ceding control to local actors is the core of locally led development. However, there is still some room for improvement in this regard (Baguios et al., 2021[48]). As USAID pursues co-creation, it will need to shift the institutional culture of seeing local partners as implementers of USAID programmes to one of supporting local initiatives. The mechanism also will require a different staff skillset – facilitation, listening, local knowledge and diplomatic sensitivity – as well as greater flexibility to define results locally (Fit-for-purpose development co-operation system). Consultations with civil society in both Indonesia and Kenya underscored the deleterious effects of short-term project cycles that result in the loss of expertise, experience and organisational capacity; burdensome compliance requirements; and a drive for project results to the detriment of institutional capacity building of local organisations and system strengthening.

Core funding to develop long-term partnerships with local actors would be a step change in approach. There are good examples across USAID of promoting better approaches to locally led development, notably the New Partnership Initiative awards.53 The new flagship Centroamérica Local Initiative, aimed at empowering partners to address irregular migration, will test out longer, predictable funding alongside open solicitation of interest and additional capacity to manage small grants through flexible procedures.54 However, in 2020, less than 1% of gross bilateral ODA was allocated to CSOs as core contributions while 22% was channelled through CSOs to implement projects initiated by the United States (OECD, 2022[41]; OECD, 2022[41]; OECD, 2022[41]; OECD, 2022[41]). Two avenues to explore would be to make institutional capacity strengthening (not compliance capacity) central to all awards and invest in some long-term relationships with more discretionary core funding of civil society. These will be particularly important where restricted or shrinking civil society space requires flexibility and political and financial support (Carothers, 2014[52]).

Building the evidence base for systems that support localisation should complement progress on reforming the internal incentives

USAID’s business model, awards and compliance requirements, despite reforms, remain a critical barrier to localisation. USAID is configured to administer large awards rather than small grants, and its compliance mechanisms and reporting burden create barriers to entry for new and underutilised partners. With the introduction of the 2018 Acquisitions and Assistance Strategy and prioritised recommendations, there have been significant efforts to make awards faster, more inclusive and more accessible using a variety of tools. Among these are milestone payment mechanisms such as fixed amount awards, prioritising local partners, translating documentation in local languages, the new www.workwithusaid.org portal, and mission outreach (USAID, 2018[53]; USAID, 2019[54]). While these internal reforms within the current system should continue, congressional and executive branch action would be required for further reforms, which could include consideration of longer funding windows, more human resources, increased thresholds and flexibility, and exempting smaller organisations from US government-specific documentation (Fit-for-purpose development co-operation system).

To deliver USAID’s ambitions on localisation, understanding and application of the agency’s risk appetite and appropriate risk mitigation mechanisms will be required. USAID’s 2018 public Risk Appetite Statement and robust enterprise risk management approaches are solid foundations for a strong risk management approach (USAID, 2018[55]). USAID is working on an update to the Risk Appetite Statement. It would be useful if this offers guidance on managing competing risks, notably the aversion to fiduciary risk and the appetite to take on more operational risk of working with local actors. As localisation and perhaps G2G assistance progress, there will be a need for stronger, more codified procedures to manage risks. This could include context-specific mitigation mechanisms, escalation procedures to provide political cover and surge support to enable USAID country offices to handle the necessary level of risk in their respective context.55 Without this supporting environment, missions will seek to limit their exposure. A more balanced and diversified portfolio approach that considers a number of different partners and modalities, might be considered. These could include working with organisations such as foundations that have a higher risk tolerance to pilot localisation efforts. However, USAID sits within a broader risk-authorising environment (set by statute, its Office of Office of Inspector General, Congress, etc.). Therefore, USAID may need to work with other stakeholders to negotiate a higher risk tolerance for part of its portfolio.

Successful localisation will require both stronger central direction and greater local discretion. USAID has a wide if diffuse body of initiatives, approaches and tools to support localisation, but currently little is mandated. Missions may require stronger, clearer guidance on localisation – for instance, support to country missions through an organisational playbook rather than having each mission negotiate its own path. Conversely, localisation, by its very nature, requires that country missions have the flexibility and discretion to respond to changing needs; there is no one-size-fits-all localisation approach. A case in point is USAID’s strong internal systems for results management, which will need to incorporate more locally defined and contextual measures into programmes, including alignment to national programmes.56 USAID, using mixed methods and case studies, has contributed to building the evidence around locally led and community-led development.57 Evaluations can help explore longer-term system change and impact. The evidence is mixed for community-led development58 (Mansuri and Rao, 2004[56]; White, Menon and Waddington, 2018[57]; Waddington et al., 2019[58]). Ensuring that credible evidence, in a way that supports local leadership and reflects local voices, underpins the future direction on localisation will be critical to maintaining support among Congress and other key stakeholders as well as with external partners.

The United States provides substantial support to fragile contexts backed by a new set of policy priorities

The United States remains the largest single DAC donor to fragile contexts. The United States understands that long-term, systemic and locally owned stabilisation investments are needed to create the conditions for long-term self-sufficiency and to address fragility, and it has made efforts to pivot its policy towards conflict prevention, with development co-operation seen as an important tool (US Department of State/USAID/US Department of Defense, 2018[59]). As a result, the United States strives to empower and support reform-minded partner governments, subnational authorities outside of capitals, and CSOs, especially where the national level is less receptive to its political and economic offer.

Since the last peer review, a significant body of new legislation has accompanied this shift in policy and has established the principles of an integrated approach to addressing both the drivers and impact of crises and fragility. Several laws and policy documents provided strong impetus for directing US development co-operation towards preventing violent conflicts and mitigating the effects of fragility when it represents a threat to US interests. Among these were the 2017 National Security Strategy (White House, 2017[4]); the 2018 Stabilisation Assistance Review; (US Department of State/USAID/US Department of Defense, 2018[59]) the Global Fragility Act (United States Congress, 2019[60]); and the resulting Strategy to Prevent Conflict and Promote Stability (US Department of State, 2020[61]). This policy direction spans administrations, and the 2021 Interim National Security Strategic Guidance acknowledges that development co-operation is inherently a foreign policy instrument that can help prevent conflicts (White House, 2021[5]).

As a cornerstone of the US conflict prevention efforts, the Global Fragility Act and related strategy are widely embraced across the government in Washington, DC, as evidenced by a high-level co-ordination structure and interagency approach through the State Department, USAID, Department of Defense, Department of the Treasury, and other departments and agencies. The Global Fragility Act and related strategy are rooted in a thorough understanding of how fragility evolves and manifests across different dimensions. Its focus on empowering national and local actors to address the concerns of citizens and the underlying causes of fragility is an opportunity to engage women as agents of change and essential drivers of peace. Because it takes a ten-year perspective on US engagement, the Strategy to Prevent Conflict and Promote Stability, with sufficient financial underpinning, has the potential to profoundly change how the United States strategically engages in fragile contexts in partnership with local partners to strengthen local institutions and systems to peaceably manage conflict and prevent violence. In particular, the United States aims to mobilise all parts of the federal government towards conflict-sensitive development co-operation, which is at the core of the strategy.

Despite the United States’ stated focus on peace and conflict prevention, only humanitarian assistance is increasing and the scope of the Global Fragility Act is limited

The evolution of US ODA is not in sync with its policy intentions. As illustrated in Figure 4, humanitarian ODA as a share of the United States’ gross ODA has increased continuously over time, growing from a 17.8% share in 2010 to a 28.3% share in 2020, the highest proportion among DAC members. Concurrently, its ODA for peace activities, which include conflict prevention, has declined in fragile contexts59 both in absolute terms and as a share of gross US ODA, from an 18.3% share in 2010 to a 10% share in 2020.60. While humanitarian needs are high, humanitarian assistance is not a conflict prevention tool and cannot serve US policy purposes in that field. The DAC Recommendation on the Humanitarian-Development-Peace (HDP) Nexus (OECD, 2019[62]) acknowledges that development co-operation has a conflict prevention aspect when it is programmed with a substantial level of conflict sensitivity. Going forward, it will be necessary for the United States to be more consistent with its development policy pivot towards conflict prevention and to allocate sufficient resources to conflict prevention, including but not exclusively to implement the Global Fragility Act61 consistently alongside other policy priorities, for example the US Women, Peace and Security Act (US Congress, 2017[63]).

Figure 4. Evolution of US official development assistance to fragile contexts

Gross ODA disbursements (2009-20) from the United States to fragile contexts

Note: The figure shows ODA disbursements, constant USD price.

Source: OECD (2022[41]), Creditor Reporting System (CRS) (database), https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

 StatLink https://stat.link/hmbgt6

Continued learning while piloting the Global Fragility Act over the next ten years will be important to keep conflict prevention high on the US global policy agenda. The United States has chosen to first pilot its new strategy in four countries and one region.62^. Given the scope and ambition of the Global Fragility Act, it will be particularly important for the United States to keep the momentum going on conflict prevention and conflict-sensitive programming in the many fragile contexts that are not in crisis. In these contexts, relatively modest but well-co-ordinated political and financial engagement can make a difference; in contexts experiencing full-blown crisis, however, the contextual complexity and political constraints can limit the co-operation options and induce a protracted humanitarian response. In Kenya, for example, 2.5% of US bilateral ODA went to peace-related activities, which is modest in light of the significant national and regional risks that are fully recognised by the embassy ahead of general elections in 2022.63 As Kenya is not a pilot country, the Global Fragility Act does not serve as a rallying point for conflict prevention. The United States should find ways to use the pilot contexts not as a precursor to a global change of practice but as a source of continued learning for conflict prevention and stabilisation, with these policy goals standing as a core pillar of integrated country strategies for contexts beyond the Global Fragility Act pilot countries.

The United States is well prepared for crises and conflicts but is less well equipped for recovery and peace

Protracted crises require a smooth layering of programmes. The United States knows how to respond quickly to emergencies. For example, USAID pioneered the use of crisis modifiers to quickly inject emergency funds into existing development programmes during crises (USAID, 2017[64]), and the United States is championing responses to food insecurity and building resilience in fragile and conflict-affected contexts (Hendrix and Anderson, 2021[65]). At the same time, the United States struggles to navigate the protracted crises situations that now make up the majority of crises around the world. In these contexts where the need for humanitarian assistance and development assistance overlap, nimble programming and financing across the HDP nexus is necessary. Yet, it remains difficult for US partners to maximise their impact by smoothly complementing their humanitarian programmes with recovery programmes as soon as the situation allows.

The lack of interoperability of compartmentalised instruments prevents the United States from truly working across the HDP nexus. Strategies are as good as the availability of instruments and resources that are allocated to implement them. In spite of impressive achievements to improve policy coherence and co-ordination within the administration – for example with joint policies and strategies across the government – the United States has not fully reaped the benefits of its efforts because it still works with a set of inflexible instruments, each with its own structure and procedures. The merger of USAID’s Office of Food for Peace and the Office of US Foreign Disaster Assistance into the Bureau for Humanitarian Assistance has helped to align and make USAID’s humanitarian assistance activities more coherent, the goals of making assistance more streamlined and efficient remain a work in progress. For example, on multi-annual programming – and the administrative burden for USAID NGO partners has further increased since the last review. It also remains challenging for partners to support the integration of refugees supported by the Department of State’s Bureau of Population, Refugees, and Migration into development programmes within USAID portfolios. This challenge is an obstacle to finding durable solutions and local integration of forcibly displaced people, when relevant.

Shared strategic objectives in fragile contexts can streamline the response and decrease the costs of co-ordination. In fragile contexts where risks are higher, co-ordination and interoperability of policies and instruments will always be challenging for a government as large and extensive as that of the United States. A substantial amount of co-ordination is already taking place through the interagency and national security structures. It is unlikely that more co-ordination among bureaus in the same agency or across different agencies will bring significant impact in either Washington, DC or in US missions (A coherent whole-of-government policy). The US Kenya mission has been able to decrease the number of thematic task teams in the embassy from 22 to 5, which can serve as an example of reducing co-ordination costs for other missions. In such a complex system where many parts of the US administration operate jointly, the clarity and the ownership of the Integrated Country Strategy is key. As stated in the DAC Recommendation, developing a shared understanding of the desired outcome across the humanitarian, development and peace pillars can help the different parts of the government operate according to their own mandates, procedures, financing and programming cycles towards a common peace and stabilisation objective. When agreed at all levels, the common direction expressed in the strategic objective provides space for ad hoc and organic co-ordination at headquarters or at country level.64

Regional programmes remain a challenge in practice

Most crises have regional causes and consequences, but peace and security regional programmes are complex because of their political nature. The regional strategies elaborated by the Department of State in partnership with USAID all prioritise peace and security, underlining its articulation with development challenges (US Department of State, 2022[66]). USAID regional strategies aim to address transnational issues that cannot be addressed by one country alone. The United States thoroughly analyses the transnational nature of risks. For example, it links wildlife preservation in Kenya to regional illicit trade and terrorism (USAID, 2022[67]). Yet, the US development co-operation system is based on bilateral relations and, as is the case for many DAC members, the United States struggles to design programmes beyond the country level without relying on regional organisations. As a result, it has ended some regional programmes, for example in the Horn of Africa. Some DAC members have found ways to invest human and financial resources in order to engage at both the national and regional level to help address cross-border and circular criminal patterns.65

The long-term development impact of sanction regimes is overlooked

Development co-operation and the use of sanctions are both US foreign policy instruments, and there should be further interdependence and consistency between them. A diverse range of sanctions regimes is used to deter major risks to US national security, and the use of sanctions increased by 933% between 2000 and 2021 (US Department of the Treasury, 2022[68]). As of 2021, the Office of Foreign Assets Controls was administering and enforcing 37 sanctions programmes (US Department of the Treasury, 2022[69]). Most sanctions regimes target contexts in which the political context creates an environment that can deepen several dimensions of fragility. These contexts are often major recipients of US humanitarian assistance.66 Thanks to a whole-of-government approach, the United States has made genuine efforts to review and mitigate the impact of its sanction regimes on humanitarian delivery (US Department of the Treasury, 2021[70]), an effort acknowledged by most of the United States’ UN partners. For example, the US government is granting licences that allow easier humanitarian delivery and is easing restrictions on financial transactions in Afghanistan (US Department of the Treasury, 2022[71]). Yet the majority of the people in sanctions-affected countries are not likely to be recipients of humanitarian assistance. For some of these populations, including the working lower and middle classes who feed and build countries’ economies, sanctions regimes may have long-term consequences that are not consistent with US development objectives and may also undermine some of the intended political objectives.

Authorisations do not fundamentally change the level of perceived risk and uncertainty on the part of economic or humanitarian actors (International Peace Institute, 2019[72]). For humanitarian actors, navigating the due diligence requirements of sanctions adds significantly to their administrative workload, a cost that often represents an insurmountable obstacle for local humanitarian or development providers. At the same time, private banks and other private sector actors have limited commercial interest in operating in such high-risk environments (Center for Strategic and International Studies, 2021[73]), meaning there may be an increase in the use of less regulated or formal alternative financial transfers. As a result, the perceived risk level remains particularly high for all international or local operators in those extremely fragile contexts where ODA – and not only humanitarian assistance – can be an important external financial flow (OECD, 2020[74]).

Current efforts to adapt sanction designs should continue to look at long-term development impacts in addition to humanitarian assistance delivery. Several economic studies have highlighted the negative impact of economic sanctions on the population in targeted countries and argue that elites generally find ways to circumvent any impact (O’Driscoll, 2017[75]; Haass, 1998[76]). For example, economic sanctions have a substantial impact on export-oriented or financing industries due to the resulting decrease in foreign investments. This in turn affects employment opportunities and sources of domestic revenue, therefore impacting poverty levels (Neuenkirch and Neumeier, 2011[77]). In recent years, increased collaboration between the US Department of the Treasury, the State Department and USAID has allowed the United States to be more nuanced in the design of its sanctions so that they cause less collateral damage (US Department of the Treasury, 2021[70]). There is scope going forward to further this co-operation to analyse risks and balance the potential long-term development effects of sanctions against their intended political objective.