USAID Budget Just Got Cut by 90%. What and How does USAID Actually Fund?
And why it might be an immediate health disaster for millions of people, from new mothers and their babies, to HIV/AIDS and malaria patients
USAID funding freezes and cuts are in the midst of disintegrating the international aid sector. Yesterday, we learned that the USAID budget is being cut by 90%:
The Trump administration has said it is eliminating more than 90% of the US Agency for International Development’s foreign aid contracts and $60bn in overall US assistance around the world…
… [The administration] would eliminate 5,800 out of 6,200 multi-year USAid contract awards, for a cut of $54bn. Another 4,100 of 9,100 state department grants are being eliminated, for a cut of $4.4bn.
PEPFAR, perhaps the most impactful USAID programs, seems to be a part of the massive cuts, alongside other key interventions that help malaria patients, new mothers and their babies:
The list of programs cut included many aimed at saving lives. Among them were funds provided by the President’s Emergency Plan for AIDS Relief, better known as PEPFAR, a program credited with saving 25 million lives globally since former President George W. Bush started it in 2003.
The hollowing out of programs across the board had already started, from the ones that combat tuberculosis, to the ones that assist the humanitarian crisis amongst Rohingya populations or provide a lifeline to women and girls facing scathing circumstances. NYT laid out a few early examples:
https://www.nytimes.com/2025/02/21/briefing/the-influence-of-foreign-aid.html
According to the ongoing analysis of terminated contracts, election-related programs appear to be effected most severely, followed by funding for women and youth.
Meanwhile the international development sector is facing a severe crisis, as four of the top-ten USAID partners, Chemonics, DAI, FHI 360, and RTI, ”have seen cancellations worth between about 22 and 55 percent of their FY2024 agreement values.”
It’s very challenging to think about what will happen to the international development sector more broadly? Two posts - both written after the general freeze on USAID, but before the 90% cut was announced - chart out interesting arguments.
has a great piece on “What will become of international development after the end of the aid paradigm?” He sees the changes as the potential beginning of a new age in international development:also has a great post from a related perspective. He explains the role of US assistance in growth miracles of Taiwan and South Korea, but also adds that these episodes could likely not be replicated due to the [ironically smaller] size of US assistance today:“Everyone must be clear-eyed about the fact that this is the end of the aid paradigm and that it’s imperative to prepare for what comes next. Nobody should have any illusions of rebuilding what existed before — it achieved some good outcomes (notably in health and humanitarian relief), but was ultimately not good enough to help low-income countries grow and achieve structural economic change.”
“At the end of what will undoubtedly be a painful transition period, the goal shouldn’t be to simply re-establish the situation ex-ante… There shouldn’t be a rush to sweep all the valid critiques under the rug lest they get weaponized by administrations bent on slashing programs. Reforms of big systems like the global aid industry only happen when there are strong pressures from multiple directions.”
But take it from an expert in the niche subfield of 1950s Taiwanese development: American aid helped a lot, too. In both countries, food and military aid supported countries which might not otherwise have survived. In Taiwan, it was American funding of the Joint Committee on Rural Reconstruction that enabled the famous 1950s land reform, and paid for an army of agricultural extension workers to canvas the country spreading best practices… In South Korea during the late 1960s, USAID gave technical assistance to the infant export industry, and USAID procurement contracts helped provide a crucial demand stimulus for Korean firms…
The potential end of USAID is an unfolding public health and humanitarian disaster, but it does not permanently doom the task of growth—in large part because these aid flows were far too small to begin with. For people like me working on global development in the West, the bitter pill to swallow is that aid is not development. NGO leaders and aid workers and development economists were never the protagonists; the key players are still there, in their home countries, scrimping and saving and hustling, and the task ahead for them remains largely unchanged.
The future of international aid and international development is more uncertain that it has been for a very very long time. Given the incoming $60 billion hole to the system, it’s helpful to look at what USAID actually funds, and how these funds are distributed.
What does the USAID fund?
As the the Global Health Council aptly summed up, “American foreign assistance programs are not charity; they are strategic investments that directly advance U.S. security, economic interests, and global influence.”
Saving/improving lives in the short-term, and fueling inclusive economic growth in the long term are the parts that interest me. But it is an undeniable and probably unavoidable fact that aid is a part of soft power. That’s why USAID has generally received bipartisan support until now.
To that end, it’s informative to take a look at the overall funding structure of USAID. USAID’s total obligations in 2023 were $42.45 Billion, making up around 60% of the overall foreign assistance obligations of the US in the same year. The details of funding sources and management among different actors like the Departments of State and Treasury and USAID get a bit convoluted. But foreignassistance.gov displays the following breakdown for USAID obligations in 2023.
Source: https://foreignassistance.gov/1
First thing to notice is the massive piece of the pie for Ukraine, which is recent and temporary, in terms of the USAID budget.2 If we take out Ukraine, and group the remaining sectoral categories in 3 large buckets, we get the following breakdown for $26 Billion:
61% Life Saving Aid (Humanitarian and Health)
18% Life Enhancing Aid (Economic Development, Education and Social Services)
7% Governance Aid (Democracy, Human Rights, Peace and Security)
14% Program Support
This breakdown is quite similar to the pre-Ukraine period, for example in 2019, when USAID obligations were $21 Billion. Of this total, 59% was for Life Saving Aid, 18% for Life Enhancing Aid, 9% for Governance Aid, and 13% for Program Support.
These decompositions show that once the economic support for war is taken out, USAID does in fact have a pretty heavy focus on core humanitarian and development areas. Among these, the Life Saving aid tends to get the most applause from the international community, and with good reason.
PEPFAR already came up, but here’s a more general account of it’s impact
PEPFAR has saved between 7.5 and 30 million lives, at a cost between $1,500 and $10,000 per life saved. The US government is willing to spend at least a thousand times this much to save an American life.
PEPFAR helped decrease the cost of first-line HIV medications from $1000 a month to only $60 a year ($5 a month). Because of the declining cost of medications, PEPFAR is more cost-effective each year, and is doing more and more on a budget that has been declining in real dollars since 2009.
There is also Dispensers for Clean Water
One of its biggest successes was the program Dispensers for Clean Water, which provides chlorinated water dispensers. Chlorine is an incredibly cost-effective way to kill bacteria, viruses, and parasites that are fairly common in other water sources in poor countries, and which contribute to the deaths of an estimated 1.4 million people a year. The program, a randomized trial found, was so effective that after four years, child mortality in treated villages fell by 63 percent.
These type of life-saving interventions, alongside many other efforts related to diseases like malaria and tuberculosis, preventive efforts like vaccinations, pregnancy care and infant health, will all be severely impacted or come to an end with the USAID budget cuts. These programs are generally not the ones that have been under fire recently, but nevertheless face the threat of extinction.
Programs that receive the most typical criticisms around exercises of state-building and peddling soft power/influence, tend to fall under Governance, and account for less than 10% of the budget.
Of course, that still amounts to about $2 Billion a year, and the economic support for wars is a rather sticky theme in USAID’s budget. Programs that are earmarked under health or humanitarian efforts might also be controversial, either from an ideological sense (family planning), or effectiveness argument (aid dependence, short-term focus).
How does the USAID fund?
Through (i) US Agencies, (ii) American companies and non-profits, (iii) multilateral agencies and (iv) foreign governments, companies, or nonprofits
https://www.cgdev.org/blog/no-90-percent-aid-not-skimmed-reaching-target-communities
At first glance, this visual is kind of shocking, or at least concerning. Only 11% of US foreign aid goes directly to foreign organizations (let’s call them local organizations). And this is clearly a problem, but one with some context. Basically, Congress appropriates money, USAID chooses a prime partner to implement, and that prime partner often works with multiple other partners through sub-awards. And the money that isn’t sent to local organizations as prime partners can and do directly ending up reaching local populations.
Still, the prime partners tend to be more often than not multilateral agencies or American organizations, because either due to fraud concerns:
…a key reason USAID relies on American and multilateral intermediaries is to protect against fraud and corruption. The agency demands that its partners provide a detailed paper trail to account for every dollar spent—creating administrative hurdles that few local organizations can clear. Musk has this totally backwards.
or the administrative difficulty of processing thousands of smaller contracts that local organizations would need
If you talk to current or former USAID people about the drive for localization, the bottleneck that always comes up is staff bandwidth to process thousands and thousands of awards to small, local organizations.
https://www.cgdev.org/blog/usaid-localization-numbers
Concerns over fraud and administrative difficulties might not sound as persuasive explanations, and probably shouldn’t be, when only 10% of funding is directly sent to local organizations. But they are real life reasons that would impact any entity with a budget of tens of billions of dollars. Of course, the indirectness of how funds reach recipients inflates overhead costs as well. Each organization that awards and subawards funds has their own indirect costs, which reduces the overall efficiency of the system.
There are many other criticisms of USAID, and the overall aid ecosystem. I will discuss the more serious ones and try to think about how things can get better i in another post. But all of these criticisms aside, USAID currently spends billions of dollars in health and humanitarian related programs across the world, reaching millions of people in need.
Is the current set up of international aid the most beneficiary system to achieve prosperity in lower income countries in the long run? Most likely, no. But, in the short run, if a disruption of this scale and ferocity is not mitigated, many in need will suffer, fall sick to preventable/treatable diseases, and die.
Spending related to Ukraine is removed from all categories other than “Support for Ukraine”
Only Afghanistan and Iraq had similar sized portions of the USAID budget in the last 25 years. This kind of war-related economic support is not infrequent in the USAID budget, but it is temporary in terms of support going to a particular country.