The Missing Half of Foreign Assistance Reform

On August 6, 2026, the State Department announced nearly $2 billion in health and humanitarian assistance channeled through faith-based organizations, including World Vision, Compassion International, and Samaritan's Purse.[1] The department noted that faith-based providers represent 40 percent or more of health facilities in many recipient countries[1], a community presence that no embassy, no contractor, and no multilateral agency can replicate. Channeling resources through them is a step in the right direction.

It is also, arithmetically, a rounding error. UNCTAD's June 2026 estimate puts the annual SDG financing gap at $4.3 trillion for developing countries alone.[2] Total global official development assistance in 2025, across all 34 DAC members combined, was $174.3 billion, roughly 4 percent of that gap.[3] Two billion dollars matters to the organizations receiving it. Two hundred billion would still not close the gap this system is meant to address. Government aid, however well-targeted and however well-reformed, cannot close a gap this size by itself. Global personal wealth stands at approximately $518 trillion across the 56 markets covered by the UBS Global Wealth Report 2026.[4] The annual SDG gap represents less than one percent of that figure. This is not a scarcity problem. It is an engineering problem – a failure to build the instruments that connect available capital to development outcomes at scale. The question is what else enters the equation – and through what instruments.

The strongest reform framework in a generation

Daniel Handel's article in National Affairs, "Reforming Foreign Assistance,"[5] and the framework built around it at The New Foreign Assistance[6] represent one of the most structurally ambitious attempts to redesign how the United States channels tens of billions of dollars annually in foreign assistance since the Kennedy administration created the modern aid architecture. Handel's six principles – Focus on Economic Growth, Do What Only Governments Can Do, Commercial First, Partner with Reformers Not Failing States, Assess Everything End What Doesn't Work, Finite by Design[6] – ask Washington to stop treating foreign assistance as an open-ended grant-making exercise and start treating it as a portfolio with an exit strategy.

One of Handel's most consequential proposals is a revenue-diversification test. In his National Affairs essay, he argues that the State Department should require such tests to ensure that vendors can continue operating without indefinite government assistance;[5] The New Foreign Assistance framework similarly calls for financial sustainability through revenue diversification.[6] That requirement does not appear in the three major procurement executive orders cited by Handel. Executive Order 14402 emphasizes fixed-price and performance-based contracting;[7] Executive Order 14271 prioritizes commercial products and services;[8] and Executive Order 14275 seeks to simplify the Federal Acquisition Regulation.[9] None establishes a revenue-diversification requirement for organizations receiving federal funds. The State Department's "Advancing Global Health" Annual Program Statement likewise states that cost sharing or matching is not required.[10]

That leaves an important implementation gap. The emerging reform framework creates a stronger demand for financially sustainable organizations, but it says comparatively little about how traditional implementing organizations are supposed to develop that sustainability. Requiring revenue diversification establishes a standard; it does not by itself give organizations the capabilities, financing structures, partnerships, or revenue models needed to meet it. The policy architecture is beginning to define the destination. The corresponding supply-side infrastructure for helping implementers get there remains much less developed.

The rest of the world is not waiting

Other major donor governments have already moved from pure grant-making toward investment logic and catalytic capital, not as pilot programs, but as structural strategy.

France's AFD financing model is increasingly dominated by non-grant instruments. AFD's March 2026 investor presentation reports €13.0 billion in 2024 commitments, of which roughly 85 percent consisted of loans, guarantees, and equity rather than grants. [11] At the AFD Group level, total activity was €13.7 billion in 2024 and remained €13.7 billion in 2025; by 2025, loans accounted for roughly 90 percent of Group activity. [12]

Japan's JICA reported Finance and Investment commitments nearly 18 times its Grant Aid commitments in the fiscal year ending March 2025.[13] Germany's KfW and DEG committed a combined EUR 12.3 billion in 2025,[14] and the country's January 2026 BMZ reform plan explicitly calls for development cooperation to create greater opportunities for German and European businesses[15], language that closely echoes Handel's "Commercial First" principle. The Netherlands' FMO ranked first in Convergence's league tables for blended financial-services deals by commitment between 2018 and 2023.[16]

These institutions demonstrate that development policy can deploy loans, guarantees, equity, and blended-finance structures alongside grants, often using public capital to mobilize additional private investment. The track record shows that development finance can recycle capital, generate financial returns in appropriate instruments, open commercial markets, and attract investment that pure grant funding alone may not. The United States, with one of the world's deepest private-sector and capital-market ecosystems, is particularly well positioned to lead this shift. The current reform builds the policy architecture. The implementation architecture is missing: how organizations learn to operate with financial sustainability at their core, structure partnerships that generate mutual value, and tap investment capital alongside grants.

Parallel, not sequential

The historical record is consistent on what happens when reform addresses only the government side. Across administrations of both parties, reform repeatedly concentrated on government structures, funding mechanisms, and procurement without a comparable strategy for reshaping the implementation ecosystem.[5] The Clinton administration cut USAID staff by 22 percent, from 11,096 to 8,638, without cutting program scope.[17] The resulting reliance on contractors helped accelerate the development of the procurement-grant-dependent ecosystem the current reform now seeks to dismantle.[5] The Obama administration set a 30 percent local-funding target; USAID reached 18.6 percent before the initiative was retired.[18] The Biden administration set a 25 percent target; actual local funding reached 12.1 percent.[19]

PEPFAR provides a notable counterexample. USAID increased the share of its worldwide PEPFAR awards going to local implementers from under 15 percent in 2016 to more than 63 percent by 2021.[20] Its experience suggests that bounded objectives, sustained political support, and deliberate operational changes can produce ecosystem-level transformation. But it does not happen by accident.

Handel identifies a narrow reform window, roughly 24 months.[5] The revenue-diversification test his framework proposes is the right gate. But a gate without a pathway through it is just a wall. Implementers need to build structured revenue independence, attract capital beyond government grants, and adopt intentional revenue design instead of defaulting to single-source dependency. That work has to happen in parallel with the policy reform, not after it.

Reform creates the demand for financially resilient implementers. The question this system has never answered is who builds the supply.

Endnotes

[1] U.S. Department of State, "United States Announces Historic $2 Billion in Health and Humanitarian Assistance to Faith-Based Organizations," August 6, 2026. https://www.state.gov/releases/office-of-the-spokesperson/2026/08/united-states-announces-historic-2-billion-in-health-and-humanitarian-assistance-to-faith-based-organizations

[2] UNCTAD, Financing Development: External Flows of Financial Capital to Developing Countries and Their Cost, June 2026. hhttps://unctad.org/publication/financing-development-external-flows-financial-capital-developing-countries-and-their

[3] OECD, "A Historic Decline in Foreign Aid: Preliminary 2025 ODA Data," April 2026. https://www.oecd.org/en/data/insights/data-explainers/2026/04/a-historic-decline-in-foreign-aid-preliminary-2025-oda-data.html

[4] UBS, Global Wealth Report 2026 (17th edition), June 30, 2026. The report does not present a single headline total for global personal wealth. However, its 2025 global wealth pyramid reports $200.72 trillion held by adults with net wealth above $1 million, $250.59 trillion in the $100,000–$1 million band, $63.16 trillion in the $10,000–$100,000 band, and $3.22 trillion below $10,000. Together, these sum to $517.69 trillion, or approximately $518 trillion. UBS defines "global" here as the 56 markets in its sample, which it estimates account for more than 92% of worldwide wealth. https://www.ubs.com/content/dam/assets/wm/static/gwr/global-wealth-report-en-2026.pdf

[5] Daniel Handel, "Reforming Foreign Assistance," National Affairs, 2026. https://nationalaffairs.com/publications/detail/reforming-foreign-assistance

[6] The New Foreign Assistance, "Reform Framework." https://thenewforeignassistance.org/framework.html

[7] Executive Order 14402, "Promoting Efficiency, Accountability, and Performance in Federal Contracting," April 2026. https://www.whitehouse.gov/presidential-actions/2026/04/promoting-efficiency-accountability-and-performance-in-federal-contracting/

[8] Executive Order 14271, "Ensuring Commercial, Cost-Effective Solutions in Federal Contracts," April 2025. https://www.whitehouse.gov/presidential-actions/2025/04/ensuring-commercial-cost-effective-solutions-in-federal-contracts/

[9] Executive Order 14275, "Restoring Common Sense to Federal Procurement," April 2025. https://www.whitehouse.gov/presidential-actions/2025/04/restoring-common-sense-to-federal-procurement/

[10] U.S. Department of State, Bureau of Global Health Security and Diplomacy, "Advancing Global Health" Annual Program Statement, March 2026. The APS states: "Cost sharing or matching is not required and will not be a factor in the merit review of applications."

[11] AFD Group, Investor Presentation, March 2026. https://www.afd.fr/sites/default/files/2026-03/investors-presentation-march-2026_0.pdf

[12] AFD Group, 2025 Annual Results. Commitments of EUR 13.7 billion, with loans representing approximately 90 percent of activity.

[13] JICA, Financial Statements and Investor Information, Fiscal Year Ending March 2025. Finance and Investment commitments of ¥1,873.3 billion versus Grant Aid agreements of ¥104.6 billion. https://www.jica.go.jp/english/about/investor/financial/__icsFiles/afieldfile/2025/10/21/printmgr_file.pdf

[14] KfW, "KfW in 2025: Strong Promotional Year and Stable Profitability," 2025. Promotion of developing and emerging economies reached EUR 12.3 billion (EUR 10.0 billion through KfW Development Bank and EUR 2.4 billion through DEG). https://www.kfw.de/About-KfW/Newsroom/Latest-News/Pressemitteilungen-Details_886400.html

[15] German Federal Ministry for Economic Cooperation and Development (BMZ), "Shaping the Future Together Globally: Reform Plan," January 2026. https://www.bmz.de/resource/blob/292870/reform-plan-shaping-the-future-together-globally.pdf

[16] FMO, "Blended Finance." FMO reports ranking #1 in blended financial-services deals by commitment, 2018–2023, based on Convergence data. https://www.fmo.nl/blended-finance

[17] U.S. General Accounting Office, "Foreign Assistance: Status of USAID's Reforms," GAO/NSIAD-96-241BR, September 1996. Reports USAID direct-hire staff declining from 11,096 in 1992 to 8,638 in 1996. https://gao.justia.com/department-of-state/1996/9/foreign-assistance-nsiad-96-241br/NSIAD-96-241BR-full-report.pdf

[18] Center for Global Development, "USAID Didn't Hit Its 30 Percent Target for Local Solutions." https://www.cgdev.org/blog/usaid-didnt-hit-its-30-percent-target-local-solutions

[19] USAID, Growing Momentum: USAID Localization Progress Report FY 2024. Reports direct local funding reaching 12.1 percent against a 25 percent target. https://www.developmentaid.org/api/frontend/cms/file/2025/01/FY2024-Localization-Progress-Report_Final_508_2.pdf

[20] George W. Bush Presidential Center, "PEPFAR and Communities." Reports that fewer than 15 percent of USAID-managed PEPFAR prime recipients were local in 2016, and that by 2021 USAID had shifted more than 63 percent of its worldwide PEPFAR awards to local implementers. https://www.bushcenter.org/publications/pepfar-and-communities