Is USAID excluding too much funding from its definition of 'local'?

The U.S. Agency for International Development is being too generous to itself when assessing how much of its funding goes to local organizations. That's the conclusion drawn by the report “Funding the Localization Agenda” from the U.S. arm of Oxfam, published at the start of the year. The report builds on a methodology developed last year by Publish What You Fund, a British NGO that scrutinizes aid spending, which last year also questioned whether USAID’s metrics were too generous. The argument hinges on how much of USAID’s cash could go to local organizations. Oxfam has said USAID is currently undercounting this amount, meaning it is setting its localization targets at a much lower level than it should. Eligible funding In 2021, USAID committed to spend 25% of its funding with local organizations within five years. But it later clarified that the target only applied to “eligible” funding — that which could reasonably go to local organizations. It defined eligible funding as only that which is currently disbursed to academia, NGOs, and the private sector. Altogether, USAID awarded more than $35 billion a year in the last two years, according to USASpending.gov. However, less than half of this funding would be eligible for local organizations under USAID’s terms. In practical terms, this means that instead of needing to spend $9 billion a year with local organizations to hit its target in 2023, USAID would only need to spend around $4 billion. In 2022 it spent 10.2% of all eligible funding locally — around $1.6 billion. Oxfam disputes USAID’s eligibility criteria. Instead, it said in the report any funding that doesn’t go directly to governments should be considered eligible for local organizations. Right now, USAID excludes from its criteria funding that goes to programs implemented by multilaterals, global programs, and U.N. agencies. However, the Oxfam report argues these should be included because “local entities could implement projects and programs in place of these actors.” If Oxfam’s broader criteria were to be applied, this would increase the amount of USAID funding considered eligible to be spent locally. The increase could potentially be from around 45% of all spending to around 70%. For example, when Oxfam applied the PWYF methodology to eight countries, using data from the International Aid Transparency Initiative, it found the amount of funding that should be eligible in those countries rose from $2.3 billion to $3.9 billion. This would mean that USAID would have to spend half as much again to hit its localization targets. USAID’s own progress report shows it already has a long way to go, based on its own definitions. If Oxfam’s definitions were applied, USAID would have even further to travel. In addition, what counts as a local organization is also under dispute. A previous report from PWYF said USAID had counted too many organizations in its definition of local, including subsidiaries of international organizations, and the recent Oxfam report agrees. Other recommendations The report also identified other recommendations for USAID. For example, researchers call on the agency to base its calculations on publicly available data. This is because they found they could not replicate USAID’s data because it used proprietary datasets, which include information redacted from the public. The report calls on USAID to base its calculations on public data. The report also called on USAID to provide gender data when reporting to IATI, so that it would be possible to assess whether local funding also supports gender equality objectives. And it called on USAID to set country-by-country targets for minimum local funding because some countries are performing far better than others.