Obama's 2015 aid budget proposal: What you need to look out for

In Washington, the U.S. development community is abuzz about the Obama administration’s release of its fiscal 2015 budget request tomorrow. In last year’s budget request, the administration unveiled its ambitious food aid reform proposal, of which a pared-down version was enacted by Congress in the fiscal 2014 omnibus earlier in January. What will the fiscal 2015 budget request have in store for the U.S. foreign aid program? We know the budget can be a rather unwieldy document to read, so here are seven things you need to look out for in the administration’s proposal, as well our analysis of what they might mean for the broader U.S. aid agenda. 1. Which countries are next in line for PEPFAR’s transition to host governments? In November, Congress reauthorized the U.S. President’s Emergency Plan for AIDS Relief, a rare moment of bipartisanship just weeks after the government shutdown. PEPFAR’s latest reauthorization reaffirmed the U.S. government’s commitment to shift greater ownership and responsibility for the initiative to host governments — part of a multiyear effort to bolster PEPFAR’s long-term sustainability. The Obama administration has already begun to handover the initiative’s financial and managerial burden to South Africa, Botswana and Namibia — all middle-income countries that are seen as increasingly capable of leading their own responses to HIV and AIDS. Currently the largest recipient of PEPFAR assistance, South Africa’s funding from the initiative is slated to fall to $250 million in 2017, or just above half of 2012 levels. Amid the squeeze on the PEPFAR budget, some analysts say the administration could quicken the pace of the initiative’s transition to host governments elsewhere in the PEPFAR portfolio, particularly among higher-income countries. Bilateral funding levels for PEPFAR in the fiscal 2015 budget request may yield clues on which countries will be next. 2. Will USAID funding levels track closely with the agency’s overseas restructuring? In a bid to focus its resources more strategically, the U.S. Agency for International Development announced a major restructuring of its overseas presence in last year’s budget request. By the end of September 2014, USAID intends to establish a presence in 10 countries in sub-Saharan Africa (6), Asia (2) and North Africa (2). At the same time, USAID will be downgrading 10 of its missions in sub-Saharan Africa (3), Asia (2), Eastern Europe (2), and Latin America and the Caribbean (3). In the most high-profile countries (Myanmar, Libya, Tunisia, Brazil) listed above, the administration’s fiscal 2014 budget fit in neatly with what might be expected from USAID’s overseas restructuring — more U.S. aid money for the upgraded offices and missions, and less for the downgraded ones. For instance, in Myanmar, where Obama personally dedicated the re-opening of USAID’s mission, the administration set aside 21 percent more in assistance than fiscal 2013 levels. Meanwhile, in Brazil, where USAID plans to transition its mission to a senior development adviser, the administration’s fiscal 2014 budget slashed nearly three-fourths of the previous year’s U.S. aid budget for the country. USAID’s senior development adviser for Brazil is expected to take the lead on strengthening the agency’s trilateral cooperation with Brasilia’s emerging aid program. As of yet, however, the budgetary implications of USAID’s overseas restructuring are far less clear in the remaining affected countries. The administration’s fiscal 2014 budget cut aid to each of the six sub-Saharan countries where USAID intends to set up a presence, even as it substantially increased aid to two countries where USAID is downgrading its missions: Paraguay and Mongolia. The fiscal 2015 budget request could help clear up the fog. 3. Will there be more traditional U.S. aid money for Power Africa? In a sign of further momentum for Power Africa, the House Foreign Affairs Committee passed on Thursday the Electrify Africa Act, a bipartisan bill which lends congressional support to the Obama administration’s latest marquee aid initiative. As the wheels begin to turn on Power Africa, what is often overlooked is that the administration has, thus far, set aside relatively little traditional U.S. aid money for its ambitious goal of doubling access to electricity in sub-Saharan Africa. While the administration has pledged $7 billion for Power Africa over five years, it has slated only $285 million for USAID, a drop in the bucket when compared with the lead U.S. aid agency’s $20 billion annual budget. The administration has also set aside $1 billion in compact funding for the Millennium Challenge Corp. The rest of the $7 billion will come in the form of development finance vehicles such as loans, credits and guarantees through the Overseas Private Investment Corp. and the Export-Import Bank of the United States. Self-sustaining from their own revenues, the two agencies are expected to provide Power Africa financing for the private sector at no net cost to U.S. taxpayers — a big draw for House Republicans backing the Electrify Africa Act. If the fiscal 2015 budget proposal requests little or no new USAID and MCC money for Power Africa — the only presidential aid initiative since the early days of Obama’s first term — then that is likely to fuel further speculation that development finance could be well on its way to becoming spending-wary Washington’s preferred channel for U.S. aid engagement. Against this backdrop, analysts are understandably skeptical that USAID — which currently houses Power Africa — will be in a position to effectively coordinate Power Africa’s activities given that much of the initiative’s teeth lie outside the agency. 4. Will the administration try again on the MENA Incentive Fund? In its fiscal 2013 budget request, the Obama administration proposed the $770 million Middle East and North Africa Incentive Fund, an MCC-style funding envelope designed to incentivize democratic reform in the region. Stymied by lawmakers the first time around, MENA-IF was put forward yet again by the administration in its fiscal 2014 budget proposal — albeit with a much smaller request of $580 million. Congress still didn’t budge, however, and the MENA-IF proposal was left out in last month’s omnibus spending bill for fiscal 2014. Could the third time be the charm for MENA-IF? Despite fears that the recent wave of political reforms in the region may be receding, the administration — stung by the rejection of its marquee post-Arab spring initiative two years in a row — may not be too inclined to give it another go, some analysts say. A retreat on MENA-IF will likely add to the conventional wisdom in Washington that democracy-promotion in the region has largely fallen off the administration’s radar. The administration could, however, boost funding for more modest democracy-promotion funding streams that have proven to be far less contentious in Congress, including the Bush-era Middle East Partnership Initiative and the National Endowment for Democracy. 5. Does the Partnership for Growth mean more money for its partner countries (or not)? Since the Partnership for Growth was unveiled halfway through Obama’s first term, aid advocates and analysts alike have been urging the Obama administration to provide further clarity on its goals and objectives. Sources close to the administration say PFG was designed to promote and showcase a “whole of government” approach to U.S. foreign aid in El Salvador, Ghana, the Philippines and Tanzania. A recent report from the Center for Strategic and International Studies in Washington credited PFG with improving strategic coordination across U.S. development agencies in its partner countries. On the ground, however, partner country officials and local media have further touted PFG as proof positive that the United States is also ramping up its aid commitments in these countries — fueling perceptions that more U.S. aid money is on the way. As the chart below shows, that hasn’t always been the case in the PFG countries. Three years into PFG, and amid signs that the initiative may be losing momentum, the fiscal 2015 budget request could reset expectations in the partner countries moving forward. 6. How will the administration apply its directive linking U.S. aid with recipient countries’ LGBT policies? In December 2011, Obama instructed U.S. foreign aid agencies to consider the treatment of lesbian, gay, bisexual and transgender people when making funding decisions. Following Ugandan President Yoweri Museveni’s decision to sign a highly divisive anti-gay bill into law last week, U.S. Secretary of State John Kerry announced an internal review of U.S. aid engagement in Uganda — in line with the directive. In stark contrast, Nigerian President Goodluck Jonathan’s backing for a similarly harsh anti-gay law in January prompted a more muted response from the administration. To date, Kerry has given no clear indication that an internal review of U.S. assistance to Nigeria is also underway. As a punitive measure, major donors to Uganda, including the World Bank and the Netherlands, have frozen assistance to the aid-dependent East African country. Whether the Obama administration will follow suit in either Uganda or Nigeria — perhaps as soon as the fiscal 2015 request — remains to be seen, but some skepticism that this will happen does seem warranted. Most critically, unlike several other donors, the United States is known to channel the bulk of its aid to both Uganda and Nigeria through off-budget and project-based mechanisms which bypass government coffers. Major cut backs in U.S. aid to the two countries could hurt PEPFAR implementers and patients alike, but without packing a punch in either Kampala or Abuja. PEPFAR accounts for the vast majority of U.S. aid to both countries, which are also among the five largest recipients of U.S. aid in sub-Saharan Africa. The fact that U.S. aid levels in Uganda have remained steady in the four years that the country’s anti-gay law has been under consideration — Obama first called the bill “odious” in February 2010 — suggests the administration shares this assessment. 7. Which countries might be the big winners and losers in the budget request? We’ll have more on this in our upcoming analysis of bilateral figures in the fiscal 2015 budget request — see last year’s version here — but ahead of its release tomorrow, which countries seem likely to gain or lose out in the proposal? In the aftermath of developments in the Ukraine, Kiev could emerge as a big winner in the budget request. Backed by broad and bipartisan support, the administration seems eager to ramp up U.S. assistance to Ukraine’s newly installed, pro-Western transitional government. Even under the regime of former President Viktor Yanukovych, Ukraine had outpaced Georgia to become the largest recipient of U.S. foreign aid in the region — part of the administration’s ultimately unsuccessful efforts to sway the ousted leader in a westward direction. As Russia gears up to reassert its influence elsewhere in the former Soviet Union — including through its emerging aid program — the administration could reconsider plans to reduce USAID’s footprint in Georgia. The administration will likely be keen to shore up ties with Georgia’s new government, which is seen in some quarters as less sympathetic to Washington than the previous administration of known U.S. ally Mikheil Saakashvili. On the other hand, Afghanistan may well end up on the losing end of the fiscal 2015 budget request, as was also the case last year. In January, lawmakers slashed the president’s $2.2 billion fiscal 2014 aid request for Afghanistan by half — further evidence that bipartisan congressional support for the U.S. aid program in the war-torn country is in short supply. In recent years, the administration has consistently requested less aid money for Afghanistan than the previous year’s levels. The administration will be hard-pressed to make the case for increased funding for the Afghan reconstruction effort, at least until Afghan President Hamid Karzai signs a bilateral security agreement with the United States. The pact is considered by lawmakers as a precondition to post-drawdown aid engagement in Afghanistan. Stay tuned for more Devex coverage on Obama’s 2015 aid budget proposal. Join the Devex community and gain access to more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.