EVALUATION BRIEF NUMBER 9
Summary
TO WHAT EXTENT IS USAID’s “sustainable 
development” goal similar to or different
from the poverty reduction approach adopt￾ed by many other donors and development banks?
USAID’s Center for Development Information and
Evaluation examined this question by looking in
detail at four mission programs: Honduras, Mali,
Uganda, and Romania. Honduras, Mali, and
Uganda are highly indebted poor countries (HIPCs)
that have developed national poverty reduction 
strategy papers (PRSPs) to qualify for debt relief.
Romania is a middle-income country that has not
developed a PRSP.
The assessment found the following: 
■ In HIPCs, most of USAID’s resources are 
allocated to direct delivery of services that are
highly focused on poor people in the areas of
health, nutrition, population, humanitarian 
assistance, education, microenterprise, and 
agricultural extension. 
■ USAID’s support for economic growth by means
of policy, legal, and institutional reform has
declined dramatically in HIPCs. The Agency’s
programs in Romania were significantly more
growth oriented than those in HIPCs.
■ In HIPCs, insufficient resources and attention
have been devoted to economic growth programs
and policy reform that could contribute to 
sustainable development and an enabling envi￾ronment for poverty reduction. Though the task
of promoting economic growth in very poor
countries is formidable, without growth, poor
countries will remain poor. 
1. In highly indebted poor countries,
USAID allocates most resources to
direct provision of social services to
the poor and has greatly decreased
support for programs that create
economic growth through policy,
legal, and institutional reforms.
2. Economic growth programs could
promote the sustainable develop￾ment necessary to permanently
reduce poverty in such countries. 
3. Two main factors have influenced
USAID’s resource shifts away from
economic growth programs—the
Agency’s reporting requirements
and congressional earmarks and
directives. 
4. The assessment recommends that
more attention be paid to removing
obstacles to economic growth,
including distorted exchange rates,
inappropriate fiscal policy, weak
banking sector, and distorted price
and regulatory regimes.
5. USAID should continue to exert
influence in the PRSP process to
increase attention to economic
growth and poverty reduction
issues.
KEY IDEAS
NOVEMBER 2003 BUREAU FOR POLICY AND PROGRAM COORDINATION PN-ACU-011
USAID’s Approach to Poverty Reduction
Synthesis of Studies in Honduras, Mali, Romania, and Uganda
2 Evaluation Brief No. 9
■ Reporting practices required by USAID’s
“management for results” system and congres￾sionally mandated soft earmarks have influ￾enced the shift from economic growth to
social services.
■ PRSPs generally encourage donors to support
social services to relieve the symptoms of pover￾ty rather than supporting economic growth to
address the fundamental causes of poverty. 
The assessment findings raise key policy questions:
■ Has USAID found the right balance between
economic growth programs and social expendi￾tures in HIPCs?
■ Are PRSPs neglecting economic growth?
Should USAID work with other donors to
increase the attention to growth objectives in
PRSPs and encourage private sector participa￾tion in PRSP processes?
Background
The assessment team examined how missions
have balanced service delivery priorities and
economic growth programs and what their
involvement has been in PRSP processes. Although
the sample is small, the findings may be instructive
for USAID policymakers endeavoring to meet the
Millennium Development Goal of cutting the 
incidence of extreme poverty in half by 2015.
Synthesis Findings
Shifting from Economic Growth to
Direct Delivery of Social Services 
In the HIPC missions studied, funding to support
economic growth and policy reform has declined
dramatically. In Honduras, Mali, and Uganda, eco￾nomic growth programming fell from 60 percent of
mission portfolios in the mid-1990s to less than 20
per cent in 2002. Romania did not experience such
a decline: over 50 percent of USAID funds in
Romania went to economic growth in fiscal years
1996–2001. This decline of growth-oriented aid in
HIPCs is worrying because economic growth is the
most effective way to reduce poverty and improve
social conditions over the long term. Growth
encourages investment, creates jobs, reduces unrest
and an exodus of skilled workers, and creates an
enabling environment that permits the poor to be
more productive. Growth is also necessary for social
services to be sustainable. 
Today, the Agency’s programs in HIPCs are heavily
weighted toward direct delivery of services. In the
three HIPCs studied, population, health, nutrition,
and education (PHNE) programs grew from 14
percent of USAID portfolios in 1995 to 53 percent
in 2002. This proportion substantially exceeds the
UNDP guideline that 20 percent of donor country
assistance be allocated to social services. In Mali
and Uganda, population, health, and nutrition pro￾grams may be receiving more money than can be
effectively absorbed.
This pattern is repeated in other HIPC USAID
programs. In 2003, nearly half the portfolio of 21
HIPC missions was devoted to PHNE services 
(see table). In these countries, total USAID alloca￾tions for economic growth declined from about
$441 million in 1995 to $152 million in 2003,
while PHNE allocations grew from about $93 
million in 1995 to over $400 million in 2003. 
The lion's share of PHNE funding was devoted to
health (including HIV/AIDS), population, and
nutrition. Education accounted for only one-fifth
of PHNE funding between 1999 and 2001. (This
was the average; the share of PHNE funds going to
education varied greatly by mission.)
Direct provision of services (such as in health,
nutrition, and education) can make people more
productive and improve the lives of the poor, espe￾cially if such services are targeted at low-income
people. However, improved services today often 
beg the question of how to sustain them tomorrow.
Jonathan Sleeper, Robert Navin, and Steve Brent
PPC, Evaluation Studies Division
U.S. Agency for International Development
Hilary Russell, Editor
International Business Initiatives
PREPARED BY
3
Clearly, improved provision of social services is not
sufficient to produce economic growth.
Growth requires good policies, strong institutions,
and favorable business climates. These have to be
built by local leaders dedicated to improving their
economies; they cannot be produced by foreign aid.
However, aid programs can help internal efforts to
improve growth conditions achieve results. Where
local political commitment is strong, such assistance
can bring long-term benefits to national economies.
The case studies found that USAID missions 
rely heavily on local NGOs and U.S.-based PVOs
to deliver social services in many HIPCs. This
practice may be necessary where governments are
weak or corrupt, but it raises questions about 
long-term sustainability. Some donors believe that
aid should support capacity building in govern￾ments—to improve their effectiveness to provide
social services.
Finally, the case studies found that USAID 
programs in the HIPCs often favor decentralized
regional or municipal programs as a way of avoid￾ing centralized inefficiencies and giving voice to
local populations in their own affairs. However,
such programs have to avoid the pitfalls of empow￾ering local elites. 
Earmarks and Management for
Results
What drove the shift in Agency programs from 
economic growth toward social services? The case
studies found two factors to be most important.
First, congressional earmarks and directives in 
population, child survival and disease, nutrition,
education, and agriculture favored the social 
sectors. Economic growth is not included in the
functional accounts, and the demand for funds 
for growth programs has far exceeded what
Congress has appropriated. 
Second, USAID’s results-based reporting system
encourages missions to favor social service 
programs because the outputs, beneficiaries, 
and national impacts of these programs are 
more easily measured than those for economic
growth programs. Progress in improving central
bank transparency or reform of exchange rate
policies is difficult to measure, especially on a
short-term basis. 
Special Challenges 
The case studies found widespread obstacles to 
private investment and growth in HIPCs. 
In all three HIPCs, insufficient attention has been
given to the following:
■ exchange rate policies that penalize exports
■ fiscal deficits that put a drag on growth
■ incomplete privatization agendas and outdated
regulatory structures
1995 1996 1997 1998 1999 2000 2001 2002 2003
Economic 
Growth 441 438 219 228 160 151 144 168 152
PHNE 93 118 198 196 253 251 324 334 410
Democratic
Governance 45 40 56 46 65 57 58 54 90
Environment 65 65 82 60 66 68 75 36 34
Humanitarian 
Assistance 75 85 224 233 119 158 164 168 154
Total 720 746 779 763 663 685 765 761 840
Requested USAID Program Levels in 21 HIPCs 
($ millions)
Source: USAID congressional presentations. Totals reflect rounded numbers.
USAID’s Approach to Poverty Reduction
4 Evaluation Brief No. 9
■ weak or risk-averse banking sectors that fail to
finance domestic investment
■ chaotic transport and freight regimes that make
it difficult to export
Other problems vary by country. In Uganda, an
appreciating local currency (in 2001–02) has hurt
exports and private investment. Mali suffers from
poor physical infrastructure and governmental 
mismanagement. In Honduras, inadequate rule of
law is a major obstacle to increased investment.
Honduras also has higher than average income
inequality in a region with the highest level of
income inequality in the world. This suggests that
more activities are needed to strengthen the human
capital of poor households, increase their access to
productive assets, and provide infrastructure that
expands their access to markets. 
In Romania, evaluators noted stubborn pockets of
poverty in spite of recent gains in national growth
rates, and noted that the mission’s strategic plan
for 2002–06 calls for increased attention to vulner￾able groups.
Involvement of USAID
Missions in PRSPs
I
n Mali, Honduras, and Uganda, PRSP processes
did not involve the business community. They
did involve civil society (mainly local NGOs), but
the extent of civil society participation varied. Civil
society participation was relatively strong in
Honduras, weak in Mali, and nonexistent in Uganda. 
USAID’s participation in PRSP processes was
mixed. In Mali it was limited to facilitating con￾tacts between government and civil society and
encouraging a gender component in the PRSP’s
governance sector. In Uganda and Honduras
USAID participation was strong: missions were
fully engaged in policy dialogue and implementa￾tion discussions. In Uganda, the USAID mission
played a key role in developing education and
health policies. In Honduras, the mission pushed
for the adoption of many USAID programming
goals and incorporation of transparency and anti￾corruption objectives in the PRSP. As part of IMF
and World Bank adjustment programs, USAID 
also provided technical assistance to the Honduran
Government to assess the effects of macroeconomic
and sectoral policies on economic growth and
poverty reduction. 
In general, USAID participation in PRSPs had 
the effect of strengthening attention to economic
growth issues. Most PRSPs tend to focus on poverty
alleviation and improving social services. USAID
missions encouraged PRSPs to also address broader
issues that can affect long-term growth and poverty
reduction, such as policy reforms, institutional
improvements, and improvements in transparency
and control of corruption. Mission participation
also contributed to improved donor coordination.
About this publication: Editorial, design, and production assistance was provided by IBI–International Business Initiatives, Arlington, VA, under
contract no. HFM-C-00-01-00143-00. For more information, contact IBI’s Publications and Graphics Support Project at 703-525-2277 or
mail@ibi-usa.com. 
To order copies or download: This document can be ordered from USAID’s Development Experience Clearinghouse (DEC). To order or 
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Evaluation Briefs on USAID’s Approach to 
Poverty Reduction 
Honduras (PN-ACR-351)
Mali (PN-ACR-352)
Romania (PN-ACR-353)
Uganda (PN-ACR-354)
PPC Evaluation Working Papers on USAID’s
Approach to Poverty Reduction 
Honduras (PN-ACR-481)
Mali (PN-ACR-482)
Uganda (PN-ACR-483)
Evaluation Briefs provide summaries of key findings. Evaluation Working
Papers provide additional background information and data.
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