Development Budget Nuggets and Some Cautions

The President’s much anticipated 2013 budget was released yesterday.  My initial reaction is that the request is a responsible one given the political dynamics of budget austerity.  There are some good examples of better matching resources to objectives, although I still believe country allocations have not been scrubbed well enough.With budget austerity driving much of the political discourse over the last year, many in the development community were concerned with what the numbers would look like.  Others, myself included, have been less concerned about the top-line numbers, and more concerned about how those funds are spent, even forming a working group to tackle the issue.  Instead of spreading aid money around to far too many recipients, I have been advocating for better focus in what we do in order to have the greatest development impact.The trap that people fall into is to judge a budget based largely on whether the funding they care about goes up or down from the previous year.  Rather, budgets should be judged on whether the resources are allocated in ways that match objectives and in places where a successful outcome is more probable.So let’s get the numbers out of the way.  The international affairs budget comes in at $56 billion, an increase of $1.3 billion or 2.4 percent more than 2012.  Foreign Operations, where the aid accounts are funded, would be allocated pretty much the same as the previous year -- $36.2 billion compared to $36.1 billion in 2012.Some items will likely generate concern and even organized pushback.

• Overseas Contingency Operations (OCO):  Is Temporary the New Permanent? The OCO request for international affairs was introduced last year to fund temporary and extraordinary costs of activities in the front line states of Afghanistan, Pakistan, and Iraq. These funds, just like the old fashioned emergency supplemental, do not count against budget caps.  Congress, knowing a good work-around when they see one, shifted roughly $3 billion from the base budget to OCO in 2012 in order to maintain overall funding levels similar to the previous year.

The administration rightly scaled back the OCO request from $11.2 billion in 2012 to $8.2 billion in 2013.  I will not put all the blame on Congress; there may have been some winks exchanged between the Appropriations committees and administration budgeteers, even as they recognized the danger of putting too much base funding into the temporary and extraordinary column.  Of course, this fear is predicated on the assumption that OCO will disappear at some point in the future, leaving shortages in the base.  But this may be a faulty assumption.  Just as supplemental funding bills that were supposed to be infrequent and in response to truly unanticipated needs became institutionalized on an annual basis, so too could the OCO mechanism.  But as my friend Gordon Adams notes with regard to the Pentagon’s OCO, using off-budget strategies does not contribute to reduced spending.

• A New Middle East Fund Responds to Arab Spring but Has Few Specifics. The administration proposes a new account – the Middle East and North Africa (MENA) Incentive Fund – with a $770 million pot. When Arab Spring demonstrations broke out last year, the administration found itself unable to deploy resources nimbly.  The new fund would tie assistance to democratic, institutional, and economic reforms.  Congress will likely have many questions about MENA since $700 million of the fund is currently undesignated.  Congress loathes the sight of big pots of money that remain unobligated for too long.  The administration will need to convince Congress that it will be consulted on allocations if Congress is to be able to resist the impulse to heavily earmark the fund.

• Decrease in Health Funding Will Generate Pushback.  Global health funding would decline by 3.8 percent in 2013, but the account still dwarfs any other economic assistance fund.  Health funding has mushroomed six-fold since 2001 with the President’s Emergency Program for AIDS Relief (PEPFAR) a driving force.  The budget request proposes to capture the efficiencies of generic drugs, cheaper shipping costs, and greater use of nurses and community health workers.  These and other efficiencies have reduced the PEPFAR per person treatment costs from $1,100 to $335.  The administration believes that it will still be on track to fulfill the President’s pledge to support six million people on ARTs by the end of 2013. The budget also proposes to contribute $1.65 billion to the Global Fund to Fight AIDS, Tuberculosis, and Malaria, a 27 percent increase from 2012.  This amount would fulfill the U.S. pledge of $4 billion by 2013.

However, this increase and the slightly reduced top-line health number will put a squeeze on some bilateral programs, and this will activate health advocates to lobby Congress for higher numbers.  Scaling back PEPFAR dollars in some countries may be justified on the basis of absorptive capacity, transferring some costs to recipient countries, and considering where other resources are available.  Focusing resources where PEPFAR can have the most significant impact is a good thing.

• AEECA Declared a Success and Eliminated….Kinda. The AEECA account (Assistance to Europe, Eurasia, and Central Asia) is zeroed out, but that does not translate to a $630 million savings.  AEECA funds will be mainlined back into the Economic Support Fund (ESF), Global Health, and International Narcotics Control and Law Enforcement (INCLE) accounts which represent the type of programs that had been funded.  AEECA replaced two earlier accounts targeted at Eastern Europe and the former Soviet republics soon after the dissolution of the Soviet Union.  This account was ripe for elimination (see my recommendation here).  Kudos for the administration for doing it.  The next step is to more closely look at many former AEECA countries to reorient the aid relationship given their record of growth and stability. While the budget proposes spending 18% less on AEECA countries, this region presents opportunities for greater savings.

There’s plenty more in the budget to talk about, and the Rethink team will have a fuller analysis out soon.  In the meantime, feel free to give us your perspectives.