Enhancing USAID's Effectiveness: From Shortfalls to Solutions

Presently, Trump administration has announced sweeping changes to USAID, by ordering a near-total freeze on all foreign aid. Elon Musk, head of DOGE, announced the intention of shutting down USAID. 

US Secretary of State Marco Rubio is the acting head of USAID under  Trump 2.0. Rubio has authorized Peter Marocco, the director of foreign assistance at the State Department, to also serve as Deputy Administrator at USAID — giving him the authority to “begin the process of engaging in a review and potential reorganization of USAID’s activities.”  

What is USAID?

The United States Agency for International Development (USAID) is an independent agency of the US government that is responsible for administering civilian foreign aid and development assistance in over 100 countries. With an annual budget of over $50 billion, USAID is one of the largest official aid agencies in the world and accounts for more than half of all US foreign assistance – the highest in the world in absolute dollar terms. USAID headquarters in Washington DC has 3,000 plus staff and field missions overseas have 7,000 plus staff, totaling over 10,000 staff members.

USAID's Shortcomings

In a passionate address, US Senator John Kennedy underscores the frustration among some Democrats regarding Musk’s involvement and the findings he has uncovered through the audit process. Citing examples of wasteful spending by the USAID, he argues that the American public is increasingly aware of such fiscal irresponsibility. 

Copyright: Forbes

John Kennedy Breaks Down Federal Spending 'Line By Line' In Epic Defense Of Elon Musk.

He narrates the preposterous and ludicrous use of USAID funds today in different parts of the world. The senator stresses the need for transparency and accountability in government spending, emphasizing that the American people are tired of the status quo and want to know where their tax dollars are going. He concludes by calling for an end to wasteful practices and urges support for Musk’s work.

This article, The Postmortem of USAID and What it Means for India, discusses the potential shutdown of USAID and its implications for India. It highlights concerns about USAID's past funding practices, including allegations of funds being funneled to organizations with ties to terrorist groups.

Copyright: Swarajya

Paths to Improvement

Elon Musk's announcement to completely shut down USAID has faced significant backlash from all Democrat senators and some Republican ones. The Democrats have labeled these actions as 'illegal' and a 'constitutional crisis.' They argue that USAID's work is vital for counterterrorism, disease prevention, and providing humanitarian aid globally. They view USAID as a crucial tool for US foreign policy and national security. Consequently, Democrats believe that instead of making the US government more efficient, Musk's actions are actually aiding and abetting adversaries worldwide.

Among these two extreme viewpoints, what is ideally required is a comprehensive review and reorganization of USAID's activities to enhance the efficiency and effectiveness of resource allocation. By doing so, the majority of USAID staff in Washington D.C. and overseas can be effectively utilized to continue the valuable work being done by the agency.

For this to happen, there is a budgeting method called Zero-Based Budgeting (ZBB), which Elon Musk should consider to right size USAID budgets and align its resources toward reprioritized activities.

What is ZBB?

The three letters ZBB encapsulate a powerful method of budgeting that requires each new budget to be built from scratch, or "zero base," rather than using the previous budget as a starting point. Traditional budgeting typically assumes a year-on-year continuation of activity and cost, while ZBB starts with a blank slate. 

Some of the key features of ZBB that would be especially useful to arrive at a new USAID budget are:

• No expense is automatically included. Even if an expense was included in previous budgets, it must be justified again in the new budget.
• ZBB ensures that resources are allocated to the most important priorities, rather than simply being carried over from previous budgets.
• In ZBB every expense must be supported by a clear and compelling rationale.

The main goal of ZBB is to help organizations reduce costs and promote fiscal responsibility. Even though ZBB is not as widely used as it once was, it is a valuable budgeting tool that will improve the efficiency and effectiveness of resource allocation. ZBB is an effective way to right size budgets and align resources toward reprioritized business outcomes. It requires all expenses to be justified and approved in each new budget period.

Enhancing Fiscal Responsibility

ZBB was quite popular in the late 1970s and early 1980s, but is less widespread in recent years. US federal government under President Jimmy Carter used it in the late 1970s. 

I remember participating in such a budget discussion at the Space Applications Center, Ahmedabad during the early 1980s, presided by late T N Seshan.

I am not sure whether ZBB is taught in management schools these days. However, there are consulting companies that will help you implement ZBB. For example, read about Gartner's article dated August 20. 2024 on Zero-Based Budgeting: 

Use of Zero-Based Budgeting to Right Size Your Function's Budget

Copyright: Gartner

In summary, there are several budget heads in USAID that need to be eliminated, and the total funds of the agency should undergo a thorough Zero-Based Budgeting scrutiny.