US Development Aid and the Millennium Challenge Account: Emerging Trends in Appropriations

This paper takes a closer look at whether the Millennium Challenge Account (MCA) is cutting into existing U.S. development aid funding. The MCA was intended as a supplemental aid program that would complement--not replace--existing aid structures. But there are concerns that increases in MCA funding are diverting funding away from USAID. This paper presents aid numbers with pre-MCA and post-MCA analysis for the first time. The main conclusions are:

1. While development assistance has increased in recent years--thanks in large part to Iraq and Afghanistan--core development aid targeted specifically at poverty reduction and economic growth (the MCA’s mandate) has remained stagnant on a global level for the past several years.
2. MCA eligible countries on average have received fewer reductions in appropriations than non-MCA eligible countries, suggesting that the downturn in aid may be part of a more general trend.
3. MCA eligible and compact countries have seen concentrated reductions in the Development Assistance account of U.S. development aid, which could potentially be part of a broader strategy to move funds away from those sectoral areas where MCA compacts and proposals primarily concentrate.
4. Greater transparency and accessibility of data on U.S. foreign aid is necessary. The Director of Foreign Assistance should establish a centralized and comprehensive database, which would help spur more effective decision making and oversight by the U.S. government and key aid constituencies.
5. The budget process should be a strategic decision-making tool to assign priorities across the multitude of programs making up the entire foreign aid budget. The place of the MCA in the overall U.S. development framework must be considered.