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Race to Reauthorization: What a New House Bill Would Mean for DFC

The House Foreign Affairs Committee recently advanced bipartisan legislation to reauthorize the US International Development Finance Corporation (DFC). But the committee-approved bill, the DFC Modernization and Reauthorization Act of 2024, does more than reauthorize the agency—it also includes several provisions that would shape the US development finance agency’s direction of travel for the next seven years. Standout elements include increasing DFC’s lending capacity, expanding the range of countries where the agency can invest, and fixes that would enable DFC to deploy its full range of instruments more efficiently.  

We’ve argued previously that DFC’s reauthorization provides an important opportunity for lawmakers to reaffirm DFC’s core mission as a development agency. Some provisions in the bill do precisely that, while a few threaten to pull DFC in the opposite direction.  

Here’s a brief rundown on the bill, highlighting encouraging signs and areas where we hope legislators will exercise caution.  

Early bipartisan momentum to reauthorize DFC and ensure the agency has room to grow 

The establishment of DFC was only possible thanks to strong bipartisan support, so it’s great to see the reauthorization effort led by key champions on both sides of the aisle—House Foreign Affairs Chair Mike McCaul (R-TX) and Ranking Member Greg Meeks (D-NY). And given Congress’s penchant for running up to (and sometimes even past) deadlines, we’re pleased to see committee action well ahead of October 2025, when DFC’s current authorization expires. 

In a vote of confidence for DFC, the new legislation would double DFC’s maximum contingent liability to $120 billion. DFC has been ramping up its annual investments and growing its portfolio since the Better Utilization of Investments Leading to Development (BUILD) Act’s passage (or, more precisely, since the agency officially opened its doors in December 2019) and is creeping closer to its exposure limit of $60 billion. A sizeable portfolio cap increase will give DFC headroom to steadily expand over the next seven years.  

Much-needed fixes that will reduce unnecessary budget pressure 

The BUILD Act bestowed DFC with the authority to make direct equity investments. Unfortunately, the agency has been hamstrung by the budget treatment of this financial instrument. Notably, DFC is required to score equity deals, like grants, on a dollar-for-dollar basis which assumes the investment will not be recuperated. This has significantly hampered DFC’s ability to build up its equity portfolio. The House reauthorization provides a much welcome fix—directing that equity be scored on a net present value basis—a more logical approach that doesn’t treat these investments as immediate and total losses. This change would also be good news for the broader US international affairs budget. Since DFC must allocate a dollar of program budget for every dollar in direct equity, the agency requires more substantial appropriations than it otherwise would. In addition, the legislation provides DFC greater flexibility in using the fees it charges clients without subjecting the funds to the administrative budget cap set by congressional appropriators.  

Inventing new income categories to include wealthier countries could detract DFC from poorer frontier economies 

While not a surprise—since Capitol Hill and the agency alike have been clamoring for “flexibility” that would give DFC the ability to pursue projects in a broader set of countries—the bill would adjust the BUILD Act’s income restrictions. DFC is currently directed to prioritize investments in low-income and lower-middle-income countries and authorized to pursue investments in upper-middle-income countries that would support foreign policy interests and provide significant developmental benefits. 

The DFC Modernization and Reauthorization Act delineates new country income categories, several of which (confusingly) share names or acronyms with existing well-known classifications. 

Proposed country income categories under the DFC Modernization and Reauthorization Act 

  • “Less developed countries” = Low-income, lower middle-income, and upper-middle-income countries below the World Bank’s graduation threshold (known as the “IBRD’s graduation discussion income (GDI)”. 

  • “Upper-middle-income countries” = Upper-middle-income countries above the GDI. 

  • “High-income countries” = High-income countries that are not “wealthy countries.” 

  • “Wealthy countries” = Countries among the top 40 countries in terms of GDP/capita at purchasing power parity (PPP). 

The measure directs DFC to prioritize “less developed countries”—to an extent, this should help maintain the agency’s focus in less established markets, but it’s worth noting that the newly defined category includes a subset of World Bank-designated upper-middle-income countries with a GNI per capita below the Bank’s Graduation Discussion Income (GDI) threshold—currently $7,895. DFC can continue to do deals in upper-middle-income countries above the GDI cut-off where the project supports foreign policy interests, provides development benefits, and maximizes private capital mobilization, as certified by DFC’s CEO. But the legislation also authorizes projects in high-income countries that are not (this is where it gets more complicated) among the top 40 based on GDP per capita (PPP) if the CEO certifies that the agency has attempted to minimize its support and certifies that the investment counters foreign countries of concern, would not go forward without DFC support, provides development benefits, and is structured to maximize private capital mobilization. DFC’s investment in the new “high-income countries” would be limited to 10 percent of DFC’s maximum contingent liability (i.e. $12 billion with the new $120 billion portfolio cap).    

The restrictions on projects in UMICs and HICs are important guardrails to keep DFC focused on the poorest countries. Still, the new categories ultimately provide an avenue for DFC to work in wealthier countries. That’s not where DFC’s investments are best positioned to deliver impact. The need for development finance is far greater in low- and lower-middle-income countries.  

Similarly, noting that the new “less developed country” category includes a grab-bag of economies as different as Sierra Leone (LIC) and Indonesia (a below GDI-UMIC), we’d hope to see DFC continue to prioritize investment in more challenging LICs and LMICs.   

Admittedly, the World Bank’s income classifications cannot fully capture the need for development financing. When determining its lending groups, the World Bank looks beyond GNI per capita alone and provides more favorable terms for several UMIC and HIC small island states—suggesting an alternative compromise for lawmakers to consider.  

Embracing appropriate risk 

To prioritize investments in LICs and LMICs, the agency will need an appropriate risk appetite. We’ve argued one of DFC’s primary goals should be “crowding in” investment in markets deemed too risky for the private sector, so we were encouraged that the new legislation urges DFC to increase its risk tolerance. The measure provides important signaling with explicit references to DFC accepting subordinator creditor status, issuing 100 percent loan guarantees (a point of contention with OMB), and using insurance to mobilize capital. 

Increasing transparency 

Several development-oriented provisions were added to the measure during markup thanks to an amendment from Representative Joaquin Castro (D-TX). Under the amended bill, DFC would need to publish more detailed information about the development impact of its projects, including the ex-ante development scores and ex-post results. We’ve long urged DFC to publish this information in a searchable, machine-readable format—and it should be a relatively easy lift for the agency. The Castro amendment would also codify the critical post of vice president for development policy, which oversees the office tasked with measuring and maximizing the development impact of DFC investments.  

We would like to see the transparency requirements go even further, better enabling stakeholders to track the agency’s progress, particularly in mobilizing private capital. Providing disaggregated mobilization data would be far more meaningful than an aggregated total. For more on how and why, check out this report and accompanying material from Publish What You Fund.  

Conclusion 

Overall, the House committee-approved bill sends a strong message that Capitol Hill sees a role for the United States in deploying financing tools that harness the private sector to achieve development goals. We’ll be keeping a close eye on how the Senate approaches reauthorization—particularly when it comes to DFC’s country eligibility issues—and hope that lawmakers will look to reinforce the agency’s development mandate.  

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.


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