On July 1, 2025, the U.S. Agency for International Development (USAID) officially ceased to exist, with its few remaining programs and staff absorbed into the U.S. State Department. With its closure, U.S. foreign assistance funding dropped to $13 billion, a substantial decrease from the average $51.4 billion that the United States spent annually between 1946 and 2023. Historically, the United States has been the largest funder of development and humanitarian assistance worldwide and a global leader in the sector. In the future of foreign aid series, SFS faculty and alumni weigh in on the impact of these changes and the opportunities that they may present.
Professor Shantayanan Devarajan, professor of the practice and international development concentration chair for the MSFS program, encourages the United States to continue to lead in development of ideas for re-imagining aid, regardless of whether its funding contribution has decreased. Devarajan came to Georgetown from the World Bank, where he was the senior director for development economics, the chief economist of the Middle East and North Africa, Africa, and South Asia regions and the Human Development Network.
Despite tremendous progress in development over the past 35 years—the percentage of people living in extreme poverty fell from 40 percent to less than 10 percent, for example—developing countries still face huge challenges. Six hundred million people live on less than three dollars a day; nine out of ten children in primary school in Sub-Saharan Africa cannot read; climate change is threatening people’s livelihoods; and armed conflict, which undermines economies, is spreading.
The sharp reduction in the U.S.’s foreign aid contribution and similar cutbacks by other major donors undoubtedly make it harder to meet these challenges—and could possibly undermine the gains of the past. But we can overcome this, making foreign aid even more effective in the future.
Development gains through policies and institutions
It takes a lot more than aid to achieve development. Most, if not all, of the development gains in the past have come from changes in policies and institutions. The most successful developing country, China, experienced rapid and inclusive growth first by changing incentives in agriculture and then by opening up industry to foreign trade and investment. These changes were the result of ideas rather than money.
One of the most powerful innovations in development, conditional cash transfers (CCTs)—giving poor people money, provided they send their kids to school and take them for health checkups—was developed and implemented without a penny of foreign aid. The Mexican government, which pioneered CCTs, did not want donors involved lest they interfere with the program design.
Leading the production of new ideas
The fact is that the United States—government, think-tanks, universities—has been a leader in the development of these ideas. It was the first country to use randomized control trials in evaluating public programs, an idea that now dominates the development landscape. Although the U.S. has reduced its financial contribution, there is no reason why the production and dissemination of these ideas need to stop. We have an opportunity to re-imagine aid as the transfer of ideas and to help the people of developing countries achieve a consensus around policy and institutional reforms that promote inclusive growth. Not only will these reforms help reduce poverty, as they have in so many countries, but they may increase traditional foreign aid, as donors see how their financial transfers can be increasingly productive.continue to adapt and improve.