Congressional Divide on FY24 US Development Spending Brings More Questions than Answers

Last week’s Senate Appropriations Committee markup revealed a vast gulf dividing the Capitol with respect to development and diplomacy funding for the coming fiscal year. The two chambers’ State and Foreign Operations spending bill toplines are more than $9 billion apart, with the House coming in at $52.5 billion and the Senate at $61.6 billion—differences cutting across a wide range of programs and priorities. In light of such a gap and plenty of policy discrepancies to boot, the fundamental question is whether lawmakers will be able to reach agreement on a final bill—before (or more likely after) October.

But setting aside that more significant query for the moment, here are a few other questions for the US international affairs budget in FY24.

Will the US meet its commitments to the international financial institutions and find new opportunities to leverage finance for development impact?   

Back in March, we highlighted the administration’s ambitious—if scattershot—request for the international financial institutions. While the odds always seemed stacked against big asks for the Green Climate Fund and Clean Technology Fund, the House bill would also spell deep cuts for institutions that provide financing to the world’s lowest income countries.

In recent years, compounding economic shocks hit these countries particularly hard. That context makes it especially worrying that the House bill omits funding for the concessional lending window of the African continent’s largest development finance institution, the African Development Fund (pointing to the lack of authorization in justification), and shortchanges the World Bank’s International Development Association (IDA).

The Senate version, on the other hand, would keep the US current, preventing the accumulation of arrears on recent pledges and agreed-upon capital increases. (Though, sadly, the United States continues to rack up unmet commitments for past multilateral debt relief.) When considering the administration’s requests for new funding—including whether to support new funds and approaches (highlighted in the figure below)—appropriators in the upper chamber took an unusual approach, providing Treasury $200 million in flexible funding to pursue its priorities.

That funding—tagged as part of a multi-agency economic resilience initiative—is intended “to enhance partner country access to finance for infrastructure investments and energy transition activities, among other purposes” and could be used to cover the cost of loan guarantees to the World Bank’s International Bank for Reconstruction and Development and the Asian Development Bank’s Innovative Finance Facility. Increasingly, shareholders are using guarantees as a low-risk approach to helping MDBs stretch their balance sheets, two requests that did not receive dedicated funding in either bill. The leverage opportunity for the United States is impressive; with guarantees costing around $111 million, the US could unlock over $5 billion in additional financing at these institutions. The committee also leaves the door open to US participation in a capital increase for the Inter-American Development Bank’s private sector arm, IDB Invest, if authorized and having met certain certification requirements.

How do we avoid another dip in the panic-neglect cycle of global health security?

Appropriators in the two chambers identify different global health priorities—though both envision a slight reduction in total global health program funding compared to FY23. Further, it increasingly feels as though pandemic fatigue is taking root in Washington. While the Senate bill would provide $900 million for global health security, House appropriators cite the need to spend down a pipeline of unobligated funding as rationale for not including new dedicated money. Our colleagues had warned us of the panic-neglect cycle that has long plagued (pun intended) the international community’s approach to global health security—and to some extent it may be difficult to avoid. Nevertheless, this would seem an opportune time for the administration and lawmakers to rally behind investing to improve global health preparedness, including via the new US-supported Pandemic Fund at the World Bank. Members of CGD’s global health team recently delved into the evidence on surveillance to identify “best buy” interventions. It wasn’t easy—cost data in many areas is quite limited—but further work in this space could be important to driving both timely and sustained investment.

Can MCC protect its budget—and model—into the future?

The administration’s budget request would have put the Millennium Challenge Corporation back above $1 billion for the first time in over a decade, but neither committee-passed spending measure would deliver the bump. In fact, the House bill would reduce the agency’s overall budget while the Senate version would subject MCC’s unobligated balances to yet another rescission. When it comes to rescissions, the temptation for appropriators is somewhat understandable—especially in the face of tight caps—but it could create a strong disincentive to the agency walking away from country partnerships that aren’t shaping up or working out.

In slightly better news for the small agency, Senate appropriators signaled support for revisiting the income restrictions that limit MCC’s potential partners. (The agency’s country candidate pool—which comprises low- and lower-middle-income countries—has been shrinking as countries grow wealthier.) Bicameral legislation introduced this Congress would expand the agency’s candidate pool to include countries falling below the IBRD’s graduation discussion income threshold. Of course, whether that shift—were authorizers to endorse it—would change appropriators’ tune on MCC’s budget remains unclear.

Amid humanitarian needs that continue to outpace regular appropriations, how will Congress respond?

Facing growing humanitarian needs, including record levels of forced displacement and food insecurity, the Biden administration sought modest additional resources for base humanitarian funding in FY2024. Over the last few years, the administration and Congress have turned to emergency funding to address humanitarian challenges—whether related to COVID-19, displacement prompted by the Taliban’s takeover in Afghanistan, or consequences of Russia’s invasion of Ukraine. While the House would make significant cuts to chief humanitarian accounts, the Senate would boost humanitarian accounts above the administration’s request with the help of new emergency spending. On top of that, key Senate appropriators seem keen to include additional funding for humanitarian crises, including for Ukraine, in a supplemental funding bill.

Is there a risk of overloading DFC with directives?

The Senate bill would provide the administration’s full request for DFC—including a boost in administrative expenses as the development finance agency staffs up to manage its growing portfolio and improve its impact measurement. On the other side, the House would reduce funding to the agency. Still, lawmakers in both chambers seem to agree they want DFC to do more in more places, at least judging by the committee reports.

Appropriators hope to see DFC consider support for “strategic infrastructure projects in Tunisia,” explore “near-term paths for financing nuclear energy,” increase engagement in the Middle East, and pursue MOUs and Investment Incentive Agreements in the Caribbean, Africa, and the Indo-Pacific. In addition, they including language encouraging DFC to work alongside USAID and other federal departments to mitigate risks posed by Chinese financing in South and Central Asia, prioritize investment in biotechnology and also in port and other infrastructure projects to help create secure supply chains (the latter particularly in the Western Hemisphere). And the development finance agency should follow through on its Three Seas Initiative pledge, persist in advancing its 2X initiative, keep up its efforts to address ocean plastics, and continue to cooperate with other donors on the relocation of a vulnerable hotel in Palau.

On the one hand, it’s encouraging to see continued demand from lawmakers for the deployment of DFC’s financial tools. But given a limited presence in the countries in which it works, it could prove difficult for DFC to deliver on the fast-growing, and wide-ranging, list of requests and directives emerging from Capitol Hill.