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US foreign aid, explained

If implemented, President Trump’s proposed foreign aid cuts would have many repercussions. Kendra Helmer/USAID, CC BY-ND

US foreign aid, explained

President Donald Trump seeks to fulfill his campaign promise to “put America first” in his proposed 2018 budget.

“This includes deep cuts to foreign aid,” Trump said in his opening message to his proposed budget. “It is time to prioritize the security and well-being of Americans, and to ask the rest of the world to step up and pay its fair share.”

His budget would slash funding for the State Department and U.S. Agency for International Development (USAID) to US$25.6 billion, down 28 percent from the current level. Although the budget doesn’t specify how much USAID alone would lose, if enacted, these deep cuts would significantly disrupt America’s ability to deliver foreign aid.

With foreign aid on the chopping block, it’s important for Americans to understand how it works, who benefits from it and how U.S. contributions stack up. I’ve done that here while attempting to debunk three common myths:

  1. The U.S. spends too much on foreign aid.
  2. The U.S. spends more than its fair share on foreign aid compared to other countries.
  3. Corrupt governments squander U.S. foreign aid.

My research is on nonprofits, which in the foreign aid sphere are often called nongovernmental organizations (NGOs). These groups are key actors in foreign aid. They deliver humanitarian services on the ground and, increasingly, are the direct recipients of foreign aid from governments such as the United States.

What is foreign aid?

Foreign aid consists of money, goods and services – like training – that official government agencies provide to other countries. Foreign aid falls into two broad categories: economic assistance and military (or security) assistance.

Economic assistance includes all programs with development or humanitarian objectives. That tends to include projects related to health, disaster relief, the promotion of civil society, agriculture and the like. Most economic aid dollars come from the State Department budget, including spending allocated by USAID.

According to data from the nonprofit Security Assistance Monitor, the top five recipients of U.S. economic assistance in 2015, the most recent year for which comparative data are available, were Afghanistan, Kenya, Ethiopia, Nigeria and Tanzania.

Official development assistance (ODA) constitutes the vast majority of U.S. economic assistance. This funding must be “concessional,” which means that some portion of it must consist of grants rather than loans. Military expenditures and peacekeeping expenditures don’t count.

Only countries that are considered low- and middle-income based on their gross national income (GNI) per capita are eligible. For example, Israel, the second-largest recipient of U.S. military assistance (see below), is ineligible for those overseas development funds, although it did receive $10 million in other economic aid in 2015.

While taxpayers are spending just a few bucks each on ODA, the impact is profound, saving millions of people from hunger, averting the worst of natural disasters like droughts and flooding, tackling life-threatening diseases like tuberculosis and malaria, and more.

Military aid includes military financing, which our allies use to buy weapons, funding intended to advance counterterrorism and anti-narcotics initiatives, and money spent on efforts related to military operations in Iraq, Afghanistan and other nations. Most military aid dollars come from either the State Department’s or the Pentagon’s budget.

The top five recipients of U.S. military assistance in 2015 were Afghanistan, Israel, Iraq, Egypt and Pakistan.

Myth #1: US spends too much on foreign aid

The United States consistently spends only about 1 percent of its budget on foreign aid – including military and economic support. The 2015 aid tab totaled $43 billion.

Americans tend to believe that their government spends a far bigger share of its budget on foreign aid than it does. In a survey the Kaiser Family Foundation published two years ago, it found that, on average, Americans believe that foreign aid accounts for more than a quarter of the budget. Only 5 percent of those polled answered correctly that foreign aid constituted 1 percent or less of total federal spending.

Myth #2: US spends more than its fair share

According to the Organization for Economic Co-operation and Development (OECD), the United States is by far the leading source of economic assistance dollars. In 2015, it contributed $31 billion in ODA, far outpacing the $18.7 billion spent by the United Kingdom, the second-biggest source of that kind of aid.

That only tells part of the story, however. The United States spends very little on foreign aid relative to the size of its economy, particularly compared with other rich countries. The U.S. spent about 0.17 percent of its GNI on ODA in 2015. By comparison, Sweden, the top contributor by this metric, gave 1.4 percent of its GNI in overseas development aid that year. The United States ranks among the bottom third of OECD countries, close to Portugal and Slovenia, in ODA spending.

In 1970, the United Nations General Assembly agreed that “economically advanced countries” would aim to direct at least 0.7 percent of their national income to ODA. Although developed countries have repeatedly mentioned this target in agreements and at summits since then, very few countries have reached that goal. In 2015, only six countries met the 0.7 percent target. The OECD average is just 0.3 percent – almost twice the 0.17 percent the U.S. provides.

Myth #3: Corrupt governments squander US aid

You may think that foreign aid consists of government-to-government transfers of money. But governments channel most aid through nonprofits, public-private partnerships, private companies like Chemonics International and John Snow Incorporated, and multilateral organizations such as the United Nations and the World Bank.

In fact, according to the OECD’s Creditor Reporting System, only 37 percent of U.S. ODA went directly to governments in 2015 – and that includes other countries distributing the assistance rather than receiving it. The rest of that funding bypassed governments altogether: NGOs received 26 percent of the money, multilateral organizations 20 percent, and other organizations, such as universities and research institutes, 18 percent.

When Simone Dietrich at the University of Essex researched this question, she found that the United States chooses to outsource foreign aid to NGOs especially in countries like Sudan and Sri Lanka with bad governance and more corrupt leaders who are likely to squander or swipe those funds.

It’s impossible to argue that corrupt governments never squander U.S. foreign aid. They do. But it is important to understand that most aid never enters the coffers of those corrupt governments in the first place.

Even without Trump’s proposed cuts, US fails to lead

As Congress decides whether to follow Trump’s lead by slashing foreign aid spending, lawmakers should take into account the fact that U.S. taxpayers already spend far less than our global peers on foreign aid.

Even without these prospective cuts, other countries, including Canada, the United Kingdom and Germany, are paying far more on economic assistance for the world’s poorest people as a share of their economy than we do. Slashing foreign aid would damage U.S. credibility with our allies, reduce U.S. influence around the globe and – a group of more than 120 retired generals and admirals predict – make Americans less safe.

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