How is the US government shutdown impacting development?

WASHINGTON — Catholic Relief Services received approval in early December from the U.S. Agency for International Development for an ongoing program in Malawi and submitted the necessary documents, but was then told by USAID it could not disburse the funds because of the partial U.S. government shutdown. CRS had to use its own money — hundreds of thousands of dollars — to keep the program going as it waits for the government to reopen.

CRS’ situation seems to be an isolated case, at least among development organizations contacted by Devex. Most said the shutdown, now in its fourth week, has had limited effect on their work so far, although with many employees furloughed from U.S. government agencies that work on development, smaller staffs are trying to process some requests. The approval process has been slow, and it is difficult to find anyone to respond to questions about open requests for proposals.

“Right now, it’s more of a nuisance,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council, adding that it could “become a pain, then a crisis.”

But while impacts are not severe yet — in part due to the fact that the shutdown began just before the Christmas and New Year’s holiday season — they will be felt more as the shutdown continues. In addition to slowed processes, the shutdown and the uncertain budget environment may erode the trust of U.S. partners, make recruiting harder in some countries, and be undermining U.S. leadership, some development leaders told Devex.

Because the U.S. budgeting process can be hard to understand, some may perceive any issues arising from the shutdown as a lack of commitment from USAID or its staff, which isn’t the case, said Zan Northrip, the senior vice president of the U.S. government business unit at DAI.

“The most significant long-term impact is — what does this do to the perception of USAID as a reliable partner, operating in a context with other donors, including national governments?” he asked.

When CRS works with local partners, those partners trust that the organization will deliver the assistance, goods or training that has been promised. But with funding delays, budget debates, and threatened rescissions, “it undermines, drop by drop, the trust that is so important to successful development and is also so important to successful foreign policy,” said Bill O’Keefe, vice president for government relations and advocacy at CRS.

“This is one in a series, in the last couple years, of actions or inactions that have thrown sand into the bureaucracy and uncertainty into our government, and development is a process that thrives with certainty, not uncertainty,” he said.

While most programs are running on prior year funds, they may eventually run out. That could then lead to more tangible impacts of the shutdown, said Patrick Fine, CEO at FHI 360.

“The uncertainty it creates, it affects the morale of people. It creates uncertainty with our local counterparts, both in the governments we work with when implementing and with researchers or local institutions. That has a negative impact on the work,” he said.

Small and indigenous organizations may feel the impacts first, several people told Devex. Large NGOs or contractors have more capacity to manage the uncertainty and typically have working capital or lines of credit they can use to keep programs going. Organizations such as FHI 360 will sometimes use working capital to cover costs where a donor has promised funding and wants an activity to start but the funding is not yet available, Fine explained.

“Many, if not most, developing country CBOs [community-based organizations] and NGOs don’t have the working capital or the experience to work at risk in this way and to do so could put them in a very vulnerable position,” he said.

The shutdown has led to a slowdown of work, as planning and consultations take longer or are delayed so program activities are slowed down, Fine said. The day-to-day discussions with USAID outside of formal approvals have also been limited, several people told Devex.

“USAID is not just a contract management agency, it provides substantive technical input to program that is vital to achieve the objectives set out,” Fine said.

Fine and others were quick to say that they didn’t blame the delays on USAID staff, who were working hard.

“It would be ridiculous to think that furloughing the bulk of your workforce won’t have a significant detrimental impact on work that needs to be done, even if you have cadre of leaders excepted and working flat out, and that’s exactly what’s happening,” Fine said.

Another potential longer term impact is on planning processes, O’Keefe said. For example, the President's Emergency Plan for AIDS Relief earlier this year announced that it wanted to transfer 70 percent of its work to local prime contractors by 2020. The window for planning that work is January to April and consultations with implementing partners have been postponed due to the shutdown, he said.

“We’re all in on localization but it takes time, planning, and capacity building,” O’Keefe said, adding that it will be difficult to responsibly and intelligently build the capacity needed for the transition without a proper planning process.

Procurement processes and start dates of new projects may also be delayed. Anything that was planned to be released is on hold and no new requests for proposals have been released, with new business pushed back. There were quite a few requests for proposals released in December, however, so staff at companies such as Chemonics still have business development work putting those proposals together. It is unclear, however, when those might be reviewed or awarded, said Susanna Mudge, president and CEO at Chemonics.

USAID opportunities listed under FedBizOpps.gov are still being updated — one contract has so far been awarded this month, while a range of others have been updated will new submission dates.

Chemonics calculated that if the shutdown extends into late February, the company will likely start taking some actions, such as not paying vendors so it can reserve money for payroll and critical operations, Mudge said. Other companies or NGOs might not have as long a grace period, and small companies in particular may feel the pressure earlier, she said.

Chvotkin predicted mounting impacts if the shutdown continues another two weeks, adding that repercussions will continue even after it ends as it will take time for operations to get back to normal.