Foreign aid, explained: 5 things you should know

January 3, 2021

Foreign aid’s fortunes change with each annual federal budget, but the decisions made can have lasting impacts. Here’s a quick explainer on foreign aid — and why it matters for our work. 

The short-term future of American foreign aid is determined in part by the US government’s federal budget, but each budget can have long-term effects. This small but important line item has been consistently threatened with cuts (most recently, a proposed 21% cut for fiscal year 2021), despite accounting for just over 1% of the total federal budget. 

Reporting from DevEx suggests that, for at least the next four years, foreign aid and development will fare a little better in terms of funding. With an ongoing global pandemic, there is certainly a need to focus on global development, global health, and humanitarian assistance. But despite an annual budget, each decision made regarding US foreign aid leaves its mark on its long-term future. Here’s a quick explainer on why this all matters — especially for humanitarian and development work.

1. Foreign aid is not just money

Broadly speaking, the term “foreign aid” refers to anything that one country gives for the benefit of another country. Usually, this means higher-income countries providing development assistance to lower- and middle-income countries. This assistance includes money, but can also be provided in the form of in-kind donations of goods or services. Some of these goods and services include:

The goal with all of these forms of international aid is to maintain a functioning global society. What we now know as US foreign aid began in 1948 with the Marshall Plan, which supported the reconstruction of Europe after World War II. Thirteen years later and with a shift in US foreign policy, the federal government authorized the Foreign Assistance Act of 1961. This remains the organizing principle for our current foreign assistance efforts. 

Smiling woman with hard hat and pick axe, standing on road beside a sign

Yasseka Veronique is helping build flood prevention ditches near Kolongo village in Central African Republic as part of Concern’s cash for work activities, funded by USAID.

2. It meets many kinds of needs

About two-thirds of US foreign assistance funds are earmarked as economic aid. These funds are managed by the Department of State or an implementing agency — most often USAID (the United States Agency for International Development) — which award grants to organizations like Concern for specific projects and initiatives. Economic aid covers a number of sectors and initiatives. USAID specifies the following subsectors: 

  • Conflict, Peace, and Security
  • Emergency Response
  • Government and Civil Society
  • Operating Expenses
  • Basic Health
  • Economic Development
  • Environmental Protection
  • Basic Education 
  • Agriculture

Funding can also be multisector, unallocated, or classified as “other” to fit more unique situations. 

The remaining third of foreign aid is classified as military aid. These funds come from the Department of Defense and are used to strengthen the military of US allies, or to increase US national security by bolstering foreign counter-terror or anti-narcotic missions.

Learn more about our work (supported in part by foreign aid)

3. It doesn’t just go to governments

Only a small portion of US foreign assistance goes directly to governments (known as bilateral aid). In 2017 (most recent complete data as of 2020), USAID reports that less than 3% of all foreign aid disbursements went directly to governments. The other 97% goes to a combination of multilateral organizations (like the United Nations or World Bank), nonprofits, and other non-governmental organizations (NGOs). 

This is where an organization like Concern comes in. We’re a channel through which foreign aid flows from the source of funding to the countries that need it most. To go back to our example of 2017, we received 8 separate grants from USAID that are classified as economic aid. These grants included funding for our response to civilians affected by conflict in South Sudan, supporting civilians and refugees left vulnerable by the ongoing Syrian crisis, response to a natural disaster in Sudan, offsetting the impact of drought in Malawi, and providing access to quality education in Liberia

Clean water truck in Syria

Displaced Syrian families congregate at a water truck, which Concern fills with clean water regularly.

4. It helps others — but it also helps the US

As a humanitarian organization, we believe that there is a moral imperative to alleviate human suffering wherever it happens. The more people lifted out of global poverty, the more the world benefits on the whole. Foreign aid plays a huge part in this. 

But there are also many more pragmatic and immediate arguments for foreign aid. The world is more interconnected than ever, and what happens on one side of the globe can now have direct impacts in the US — and vice versa. We originally wrote this sentence long before 2020, but the ongoing effects of COVID-19 have only served to underscore this point. 

5. The US gives much less than you might think

Many Americans think we spend about a quarter of the national budget on foreign aid. In reality, it’s just over 1.2% — and that includes military aid. Even if foreign aid was cut completely, it would do very little to reduce the United States’ $429 billion deficit. 

It’s true that, in absolute dollars, the United States gives more to foreign assistance than any other country. However, as a proportion of our gross domestic product, it’s only 0.18%. Adjusted for income, this places us 35th out of 40th on the Center for Global Development’s Commitment to Development Index. (Last year, we were last out of 27 countries evaluated.) 

Rwanda smallholder farmer

Genevieve Manishimwe’s husband was killed in the genocide. Thanks to Concern & USAID she is now able to support her four children

How Concern uses foreign aid

Concern has as many as 20 programs that are funded by the US government — and many more have already been successfully completed. These projects take a variety of different forms.

  • Direct programming: This is where Concern operates a program itself, interacting with communities directly.
  • Through local partners: Where smaller, local organizations have the capacity to do their own programming, Concern will often choose to partner with them rather than directly program. Local partners have invaluable local knowledge, and can often gain access to areas we can’t reach. Concern provides support to these partners, such as technical expertise to scale up existing programs, and financial resources. 
  • In partnership with other large organizations: Sometimes Concern will work with other organizations in a consortium to run big or complex projects. For example, Concern currently leads a consortium of agencies that are improving water, sanitation, and hygiene conditions in the Democratic Republic of Congo.

We’re proud of the transformative impact we’ve been able to achieve with the help of humanitarian aid and development aid from the US government. Check out the below videos for some of those initiatives in action: 

Foreign Aid Explained