This year would be remembered as one in which the global development landscape was thrown into unprecedented chaos. Shortly after US President Donald Trump’s administration effectively dismantled the US Agency for International Development (USAID), the British government cut its aid budget to redirect funds toward defense spending. Facing similar pressure to support Ukraine and bolster their own military capabilities, other European donor countries are following suit. Meanwhile, developing countries and international organizations are scrambling to fill massive funding gaps that threaten to disrupt life-saving efforts around the world.
These trends raise fundamental questions about the future of international development. With traditional donors stepping back, how would low-income countries and aid institutions secure the resources needed to fight poverty, build infrastructure and deliver essential public services such as health care and education? How can the global development architecture — the organizations, practitioners and relationships established to serve these goals — adapt to this harsh new reality?
It is important to remember that most countries have historically financed their own development, with foreign aid playing a relatively small — albeit important — supporting role. Even among the world’s poorest countries, aid typically accounts for only 10 percent to 30 percent of public spending. In middle-income countries, aid contributions have rarely exceeded 5 percent of government expenditure, and most public services and investments have been funded through taxes on trade, value-added goods and services, income and natural resources. It is also worth noting that non-traditional donors such as China, the Gulf countries and Turkey are growing in importance alongside traditional providers of aid such as the US, Europe and Japan.
Illustration: Yusha
Nevertheless, we are at a turning point where levels of official development assistance are likely to fall and developing country governments would be under growing pressure to boost domestic revenues, particularly in sectors that have traditionally relied heavily on external support, such as health and education. While targeted excise taxes on harmful products such as tobacco, alcohol and sugary drinks could be part of the solution, broader tax policy reforms and stronger revenue collection systems are also necessary.
Unsustainable debt burdens severely constrain developing countries’ ability to replace lost aid with borrowing. The IMF said more than half of the world’s low-income countries are either experiencing or are at high risk of debt distress.
Compounding the problem, progress on debt restructuring has been slow, hampered by disagreements among the world’s largest creditors, including China. For the poorest countries, their room to maneuver is extremely limited. Inevitably, public services would have to be cut, and teachers and healthcare workers would be laid off, putting hard-won development gains at risk.
So, in the aftermath of reductions in development aid by the US, the UK and other major donor countries, what would remain of the world’s aid institutions? Moreover, how would the existing resources — domestic and reduced donor aid — be spent? Many developing countries would focus even more on economic growth and job creation to generate the revenues needed to fund the public services that their populations are demanding.
Among donors, there is a need for renewed public debate about the purpose of foreign aid, especially at a time when government budgets in developed and developing countries are under strain. Some say that developed countries should focus on their own citizens’ well-being and abandon aid altogether; others want to use aid to advance narrow national interests; and many contend that wealthier countries have a moral obligation to help those less fortunate. However, I believe that the most compelling argument for aid — and the one that is likely to resonate with the most people — is that it can benefit donor and recipient countries alike.
PILLARS OF DEVELOPMENT
Many of the things we value today are globally connected, as are the challenges we face. Following decades of globalization, and despite current trade disruptions, economic growth still spreads across borders. Tackling climate change means cutting greenhouse gas emissions wherever it is most cost-effective to do so. And stronger health systems, supported by global disease surveillance and rapid response mechanisms, are critical to containing outbreaks before they turn into pandemics.
In an interconnected world, the case for aid must be based on evidence of such cross-border spillovers. The migration crisis is a case in point: reducing the number of refugees arriving in developed countries requires addressing root causes such as conflict, climate change and poverty in countries of origin.
However, with less money in the system, existing resources would have to be used more effectively. As traditional donors such as the US, EU and the UK reduce their aid budgets, the funds that remain must be directed toward the most efficient programs and institutions. For example, we know that investment in vaccinations, maternal and child health, and early childhood care have some of the highest social returns. Similarly, relying on local capacity and partners is far more effective than foreign consultants and parallel delivery systems. Programs and organizations that do not meet a high bar for effectiveness and efficiency would have to consider downsizing, consolidating or winding down operations if they are no longer fit for purpose. While such changes are difficult, they are necessary to preserve the most valuable elements of the international aid architecture.
So, what would the future of aid look like? I believe that, moving forward, development would rest on four pillars: humanitarian assistance, global public goods, multilateral financing and bilateral aid for a smaller subset of countries, driven by a variety of motives.
The first pillar, humanitarian assistance, represents a growing share of global aid, accounting for roughly 10 percent of total flows — US$25 billion — in 2022. That same year, donor countries spent US$29 billion on housing and caring for refugees within their own borders. As humanitarian crises become increasingly frequent, and conflict and climate change displace even more people, those figures are almost certain to rise.
Yet the existing humanitarian system is chronically underfunded, overly complex and too reactive to meet the growing demands that are being made of it. Meaningful reforms are urgently needed to make the system more effective, efficient and focused on preventing humanitarian catastrophes rather than merely responding after they strike.
The second pillar, global public goods, includes climate mitigation and pandemic prevention. Addressing these challenges requires multilateral cooperation, and the benefits are widely shared so political leaders would be better positioned to justify such investments to their electorates. The Trump administration might remain skeptical of climate change and vaccines, but European and Asian donor countries would likely continue to support international efforts to address public health risks and global warming.
The third pillar of development is multilateral finance. Reduced aid is expected to constrain concessional lending by institutions such as the World Bank and regional development banks — which rely on grants to subsidize low interest loans — and their many donor-funded trust funds. However, multilateral development banks (MDBs) still have nearly US$2 trillion in total assets and the capacity to mobilize additional private sector resources. As donor countries cut their aid budgets, multilateral institutions must significantly boost lending and put their balance sheets to full use, as recommended by the G20’s independent review of MDBs’ capital-adequacy frameworks. Progress on debt relief would enable these institutions to lend even more to fill the financing gap left behind by aid donors.
The fourth pillar is what remains of bilateral aid, which would vary significantly across countries and focus on a narrower set of recipients. The deepest cuts are likely to affect efforts to fight poverty and to improve social outcomes, especially because donors might find it difficult to justify spending on public services abroad when their own systems are strained. Some donor countries would increasingly view aid as a way to stimulate economic growth, channeling resources to development-finance institutions that work with the private sector. Others might revive Cold War-era strategies, using aid to advance geopolitical and commercial interests, such as securing mining rights. These approaches proved largely ineffective in the past and are unlikely to succeed in advancing development in the future.
However, national interests and global development goals are not mutually exclusive — if done well. Bilateral aid can be used more strategically while supporting global stability, long-term growth and mutually beneficial outcomes.
FOREIGN AID’S CASE
The contours of this new development landscape, marked by declining aid flows, are still taking shape. However, I believe there remains a strong case for a progressive approach that emphasizes the mutual gains from development aid, even in the face of recent policy shifts.
One clear lesson from the dismantling of USAID — and before that, the 2020 merger of the UK’s Department for International Development and the Foreign and Commonwealth Office — is that abrupt, in-year budget cuts are highly disruptive. They erode credibility and damage long-standing development partnerships. Responsible donors must establish a more orderly transition process, giving partners enough time to adjust.
At a time of diminishing aid budgets, it is more important than ever that resources are managed by people with significant technical expertise. In the US, the UK, Australia and Canada, development agencies have been folded into foreign ministries, resulting in a massive loss of technical capacity. As international cooperation becomes more politicized, the problems we face — whether it is regulating artificial intelligence, advancing the clean energy transition or reforming global financial systems — are also growing increasingly complex. Against this backdrop, “nerd-to-nerd” diplomacy can be highly effective and serve as a bridge to broader political dialogue, provided that deep expertise is retained.
Looking ahead, international cooperation would depend as much on knowledge-sharing as on financial support, particularly in middle-income countries. Many developing economies already have highly skilled civil servants with access to the same information as their developed-world counterparts. What is needed now are genuine partnerships focused on finding solutions to common challenges.
While development can continue with reduced international aid — albeit more slowly — real progress is impossible without collective effort. Even in a world increasingly shaped by “might makes right” tactics and negative-sum mindsets, we must continue to uphold and champion the positive-sum logic of international cooperation on trade, financial flows, security and climate change.
Emphasizing the mutual benefits of cooperation could help political leaders make the case for development assistance and pave the way for new kinds of partnerships with developing countries in a multipolar world. In today’s interconnected global economy, no country can thrive in isolation. Despite the recent cuts to aid funding, working together to achieve development goals remains the only viable path to shared prosperity.
Minouche Shafik, a former president of Columbia University and the London School of Economics, is a member of the House of Lords and the author of What We Owe Each Other: A New Social Contract for a Better Society.
Copyright: Project Syndicate
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