Since the start of this century, the number of people living in extreme poverty has declined from more than one in four people to fewer than one in ten. But in the 2020s, developing countries have faced a confluence of challenges. The headwinds of COVID-19, Russia’s invasion of Ukraine, inflation, debt challenges, and ongoing conflicts and civil unrest have disrupted the spread of prosperity and improved health outcomes. 

The year 2025 compounded these challenges. The closure of the U.S. Agency for International Development (USAID), the world’s largest bilateral aid donor, garnered the world’s attention for the impact and scale of the cuts. The agency’s dismantling is the most visible sign of a broader decline in global support for the institutions and financing underpinning the international development system. 

This financial disruption, combined with a U.S. retreat from the United Nations and numerous U.S. tariff policies upending multilateral trade, has prompted questions over which parts of the existing aid and development system should be prioritized, which should be replaced, and whether new models should be designed.

Some see this inflection point as a signal of a failed and outdated system. Others regard it as a simple resource challenge, calling for new donors to fill the gap left by traditional ones.

As we enter a new era of geopolitical fragmentation and technological acceleration, the obstacle to global development is not merely a lack of resources, but a lack of imagination to update the purposes, structures, and systems of outmoded institutions to make them fit for today’s world.

The End of a Golden Age of Progress?

The start of the twenty-first century witnessed remarkable human progress, enabled by a permissive political environment supporting international cooperation, trade, and development.

AIDS-related deaths have declined 70 percent since their peak in 2004. A child born in a country supported by the Global Alliance for Vaccines and Immunizations is 70 percent less likely to die from a vaccine-preventable disease before turning five than when the program was established in 2000; by 2023, the program had immunized more than 1 billion children, preventing more than 16.2 million early deaths. Since the Global Fund to Fight AIDS, Tuberculosis and Malaria was launched in 2002, it has helped save 70 million lives.

Much of this progress has been underpinned by official development assistance (ODA), which had steadily risen until recently. Between 2000 and its peak in 2023, ODA almost tripled from $83 billion to $228 billion, with a particularly sharp increase during the COVID-19 pandemic.

However, following donor cuts, the Organisation for Economic Co-operation and Development (OECD) estimated a decline of ODA between 9 and 17 percent in 2025, returning aid to 2015 levels. This is still a significant financial flow—higher than at any point between 2000 and 2015—valued at roughly $150 billion annually.

Global needs remain high, particularly in conflict-affected states. Some 239 million displaced people around the world will require emergency assistance in 2026, according to the UN’s Office for the Coordination of Humanitarian Affairs, yet in 2025 only 28.4 percent of needs were funded. For the poorest countries, ODA remains a lifeline, composing around 20 percent of gross national income (GNI) in Burundi, the Central African Republic, Somalia, and Yemen.

The loud debate regarding the “end of aid” is overstated and risks obscuring a more important conversation.

Still, the loud debate regarding the “end of aid” is overstated and risks obscuring a more important conversation. The current inflection point offers an opportunity to respond to today’s development challenges and update the international system for the future. That process should begin by returning to principles underpinning the purpose of development, then evaluating what is achievable given the difficult politics of the moment. 

The Nobel Prize laureate Amartya Sen famously described development as freedom: freedom to broaden the range of things that a person can be and do in the world; freedom for people to lead lives that they find fulfilling. This principle underpinned the vision for postwar economic and social development.

Financing for development was a central pillar of the 1944 Bretton Woods Agreement. The creation of the International Bank for Reconstruction and Development (now part of the World Bank), alongside the Marshall Plan for postwar European recovery, reflected a shared vision that macroeconomic stability, development, and trade were essential foundations for sustaining international peace. Put simply, it is better to trade than to fight.

Consistent with this vision for international cooperation, in 1970, the UN General Assembly endorsed a target that donors should give 0.7 percent of GNI in public finance (aid) to support countries’ development plans. In 2002, UN member states negotiated a declaration on financing for development, known as the Monterrey Consensus, which they updated at successive conferences in Doha (2007), in Addis Ababa (2015), and most recently in Sevilla (2025). The Monterrey declaration stressed the centrality of domestic resource mobilization, good governance, and prudent macroeconomic management. But it also emphasized the continued importance of international public finance in helping countries maximize the benefits of globalization and attract investment, accompanied by a fair-trading system allowing countries to forge trading relationships, generate income, and create jobs.

This vision of multilateral cooperation, of which international development finance has been an integral part, has been remarkably successful. The number of countries classified by the World Bank as low-income fell from fifty-one in 1990 to twenty-five for the 2026 fiscal year.

This progress is the culmination of political leadership, increased trade, technological innovation, medical advances, the use of development finance as a lever to catalyze broader economic and political shifts, and, in the case of health programs, the use of funding to drive down costs and increase access to life-saving drugs among low-income populations.

The expansion of global prosperity has resulted in aid becoming a smaller proportion of international financial flows. In 2024, for example, remittance flows reached $685 billion, dwarfing both ODA and foreign direct investment (FDI), in terms of scale.¹

So why, in the face of increasing prosperity and such dramatic impact metrics, has support for international development finance waned among both donors and recipients of aid?

Critiques of the International Development System

This increased skepticism of development finance stems from three broad critiques of the international development system, which can be classified into the following categories:

1. Economic and Geopolitical Repositioning
2. Power, Dignity, and Accountability
3. Efficiency and Impact

Economic and Geopolitical Repositioning

In 1970, when UN member states established the 0.7 percent of GNI target for donor aid, many countries had recently gained independence from colonial powers. The nations that would soon form the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) collectively comprised 57.9 percent of global GDP (the United States made up 31.4 percent on its own). China’s economy, by contrast, was just 2.7 percent. Today the landscape has changed dramatically, thanks to globalization, particularly China’s accession to the World Trade Organization and the growth of international trade.

The G7’s share of global GDP has halved to 28.4 percent, extreme poverty has declined from 44.6 percent (1970) to 9 percent (2022), and the growth of China and so-called middle powers has redistributed and fragmented global economic and political power. Former aid recipients, such as Brazil, India, and South Korea, are now significant aid donors.

As G7 countries wane in their economic might and traditional donors struggle with their own internal challenges, the rationale and constituency for providing ODA has weakened.

But as G7 countries wane in their economic might and traditional donors struggle with their own internal challenges, the rationale and constituency for providing ODA has weakened.

Emerging economies with low labor costs were significant beneficiaries of globalization. Between 2000 and 2023, the share of worldwide income captured by the poorest 50 percent of the world’s population—most of whom live in developing countries—increased by 28 percent. Meanwhile, the middle classes of advanced economies, which suffered from deindustrialization, were net losers. In 1980, the bottom 50 percent of the population earned more than 20 percent of income in Canada, France, Germany, Japan, the United Kingdom, and the United States. By 2023, this proportion had fallen in all G7 countries, not least the United States, where the share dropped to just 13 percent. In many Western economies, the long-standing assumption that the next generation would be wealthier than the last no longer holds true. In the UK, for example, younger millennials earn on average about 8 percent less at age thirty than Gen X who were born a decade earlier. 

Aging populations in advanced economies, and their associated health and welfare costs, are putting pressure on public finances. At the same time, wealth and income inequality have increased in these societies. The internet, as well as social and traditional media, make these inequalities highly visible, contributing to a wave of populist politics that seeks to prioritize problems at home rather than abroad—and frames the two concerns in a zero-sum fashion. News headlines, for instance, question the provision of aid to countries with space programs.

While many public opinion surveys suggest continued, if general, support for international cooperation, the messages of critics increasingly fall on fertile ground, and politicians have limited political incentives to protect this funding, or to support policies that will bolster development.

Meanwhile, many developing countries have increased their economic and political bargaining power and are engaging an increasingly multipolar world with expanded opportunities for investment, military support, and other forms of partnership, including with emerging economies, businesses, and philanthropies. Governments with access to capital markets have turned to Eurobond markets and domestic debt markets to mobilize finance, rather than depend on aid donors, in part due to the speed and flexibility offered by these forms of financing (see figure 1).

Power, Dignity, and Accountability

A striking element of the debate over declining levels of ODA has been the absence of outcry from its recipients. In October 2025, Zambian President Hakainde Hichilema said cuts to international aid were “long overdue” and offered his country the opportunity to “take care of our own affairs.” As he told the Financial Times, “It forces us to grow our economies and to do the things we should have been doing.”Ghana’s President John Mahama, likewise, has long pushed to prove that Africa can stand on its own.

In her 2009 book Dead Aid, Dambisa Moyo famously argued that aid enables dysfunctional and corrupt governments to stay in power while discouraging free enterprise. Years later, those claims still resonate in some developing countries. Indeed, some activists in African countries have welcomed recent aid cuts, arguing that governments can now finally be held to account for delivery on their promises.

Another element of this critique calls out a fragmented and technocratic approach that donors have often brought to development—a process that can distort domestic governance, politics, and power. A 2014 World Bank study mapping aid donors’ engagement in Malawi identified 800 aid projects and 2,900 activities from thirty-one ODA donors—in a country with a population over 16 million people at the time. Managing such fragmentation is not only onerous for government ministries; it can undermine the democratic accountability of governments to citizens and make it challenging to prioritize domestic reforms, as recipients must manage priorities of externally driven funding programs.

AidData’s 2024 Listening to Leaders study, which analyzed nearly 10,000 survey responses from public, private, and civil society leaders representing 148 countries and territories, identified significant areas of misalignment between donors, government leaders, and citizens of countries receiving funds. Consider aid for the Sustainable Development Goals (SDGs). The top two priorities for donor funding, peace and justice (SDG16) and health (SDG3), were also ranked highly by Global South leaders. By contrast, education (SDG4) and jobs (SDG8) were underfunded by donors relative to how developing country leaders prioritized them, while industry (SDG9) and sustainable cities (SDG11) were overfunded compared to host country priorities.

This divergence raises a critical question. Should accountability for ODA spending lie with the taxpayers of donor countries who provide the resources, the citizens of countries that are impacted by programs, or the intermediaries who manage them? And where priorities do not align, whose agenda should be prioritized? These fundamental dilemmas remain built into the international development system, not least because the sort of development programming that produces long-term, transformational impact is more challenging to sell to the citizens of donor countries.  

Efficiency and Impact

International development funding is regularly and robustly evaluated—arguably much more so than much larger streams of domestic public finance. Such evaluations tend to be conducted at a project level in a technocratic manner, yet they fail to resonate in the public debates of both aid donors and aid recipients.

In 2024, Unlock Aid, a campaign to modernize the U.S. aid architecture, highlighted that only 10 percent of USAID funding went directly to local actors. The remaining 90 percent was channeled through U.S. organizations and contractors, and multilateral organizations. This finding was widely misinterpreted—and amplified—as claiming that 90 percent of the funding was skimmed off the top. Still, the reality remains that too much funding for development assistance is donor-driven, channeled through agencies that serve the interests of donor nations. Prioritizing aid ownership by developing country leaders remains an aspiration rather than a reality.

This kind of narrative feeds a public perception that the institutions established to deliver development programs are not fit for purpose.

Polling published by the Rockefeller Foundation in September 2025 surveying ​​36,405 adults across thirty-four countries showed significant support for international cooperation, including climate action. On average, 55 percent of respondents “agree their country should cooperate on global challenges even if it means compromising on national interests”; in India, Kenya, Nigeria, South Africa, and South Korea, public support was 70 percent or higher. Similarly, a much larger study from 2024 covering 125 countries and 130,000 people found that 89 percent support intensified political action on climate and development, as well as an 86 percent endorsement of pro-climate social norms. Even more strikingly, 69 percent expressed a willingness to contribute 1 percent of their personal income to climate action.

However, these same populations appear to have lost faith that multilateral cooperation is capable of delivering. Globally, trust in the international institutions such as the World Bank, International Monetary Fund (IMF), and International Criminal Court is below 50 percent. ODA, similarly, suffers from perceptions that it is inefficient and wasteful and supports a bloated system. 

International organizations and the obligations placed on them by their member states have been part of the problem. As part of the UN80 process, the UN Secretariat undertook a survey of directives and requests that have been issued by the General Assembly, Security Council, and UN Economic and Social Council since 1945. It found an astounding 40,000 active mandates, serviced by some 400 intergovernmental bodies, requiring 27,000 meetings a year, and generating roughly 2,300 pages of documentation every day, at an estimated annual cost of $360 million. Moreover, 85 percent of these mandates contain no provisions for review or termination; doing so would require agreement of UN member states. The fulfillment of these mandates, while a legal requirement for the UN, has undoubtedly resulted in mission creep and a lack of focus on the core areas where it can add value.

Embedding support for country systems and local actors has been advanced as a core objective of the development agenda since the agreement of the 2005 Paris Declaration on Aid Effectiveness, which elevated “ownership” and “alignment” with country priorities as a core part of a reform agenda for development. Likewise, the 2016 World Humanitarian Summit explicitly embedded the idea of “localization” into the commitments of donor agencies. Yet actual implementation of these aspirations has been mixed, in part because of systemic inertia and a lack of incentives for actors to change how they work.

Responding to the Critiques of the Current Development System

A moment of disruption offers a rare opportunity to address these challenges of centralization and fragmentation and to create a new international development system based on modern realities.

As donor governments move to cut ODA, officials of national governments and multilateral organizations are engaged in critical, real-time debates about what sort of spending should be protected. Middle income countries which have previously depended on ODA are taking steps to unlock fiscal space and reallocate domestic resources to address the vacuum left by ODA cuts.

The reality of the moment is that geopolitics is likely to shape donor government decisions on development policy, donor choices of where to allocate ODA, and the priorities of multilateral organizations in which donor governments are shareholders.

During the Cold War, aid allocations followed geopolitical alignments and colonial legacies more than objective needs or good governance criteria. After 2000, the international development system appeared to shift toward a more needs-focused approach, in part due to the prioritization enshrined in the Millenium Development Goals and their successor, the SDGs.

In a world shifting back from values to interests, the instrumentalization of aid may once again become more significant.

But in a world now shifting back from values to interests, the instrumentalization of aid may once again become more significant. Indeed, this appears to already be the approach taken by emerging and nontraditional donors, such as China, Türkiye, and the United Arab Emirates.

In some OECD countries, greater instrumentalization of ODA is also visible. This is clearest in the evolving but explicitly transactional policy of the United States, which has effectively erased the distinction between “development” and “strategic” assistance.

But there are pressures in other OECD countries, too, to devote a greater share of traditional development resources toward other goals, including countering migration and addressing climate change.

Shifting incentives will also shape how wealthy governments use other development-relevant policy levers, such as tariffs and nontariff barriers, incentives for private sector companies to invest overseas, and multilateral agreements on international tax and debt. In a world of fragmentation, development-friendly policies are likely to be more elusive.

Advancing development cooperation in this complex landscape will require mapping out space for a Goldilocks scenario. Any such scenario must manage tensions among the following factors:

1. The interests and ambitions of developing country governments and civil societies;
2. The fiscal and political capability of these countries to deliver on their ambitions;
3. The geopolitical interests and priorities of partner nations in offering cooperation; and
4. The areas where international cooperation (including but not exclusively ODA) can have an impact.

Recommendations

Target ODA Where it is Needed Most, Aligned With Donor Interests

As ODA becomes scarcer, donors should focus concessional finance on countries and regions with the greatest need—and where other forms of finance, including investment and capital markets, are not available. Here, ODA could concentrate on low-income countries and fragile and conflict-affected states, building resilience in regions and communities most affected by the intersecting challenges of climate change, health crises, and conflict. At the same time, these are frequently the countries with the least capability and political will to reform, meaning that external funding can entrench dependency, corruption, and misgovernance. Accordingly, identifying the tools, transparency systems, and institutional mechanisms that can operate in these high-risk environments will be critical to success. For donors, such investments have a strong security and stability rationale, since they promise to reduce the likelihood of regional conflicts, transnational health crises, and irregular migration.

Support Economic Transformation, With Policy Reform at the National and International Level Unlocking Low-Cost Finance

For developing countries with higher levels of state capability and political will to support economic transformation and access to other forms of finance, the case for concessional ODA has become weaker. Instead, approaches to development cooperation that unlock lower cost borrowing and free up fiscal space for domestic priorities are gaining traction. 

The multilateral development bank (MDB) system takes paid-in capital and guarantees from shareholders to borrow on capital markets and then provides low-cost finance to partner countries. The Capital Adequacy Framework—spearheaded by the Italian and Indonesian G20 presidencies—seeks to encourage MDBs to leverage their balance sheets more effectively. As a result of this effort, MDBs have unlocked another $400 billion in lending capability. In October 2025, the rating agency Standard & Poor (S&P) revised its approach and methodology when assessing the risk associated with MDB sovereign operations (that is, public lending). This could allow MDBs to hold less capital to cover their liabilities, potentially freeing up $600 billion to $800 billion over the next decade. Such lending offers a low-cost alternative to countries that may otherwise need to borrow from Eurobond markets at more expensive rates.

Another emerging trend is a focus on debt for development swaps, whereby existing, expensive debt is exchanged for a more affordable debt and the savings are earmarked for development programs. Since 2021, Barbados, Belize, Ecuador, Gabon, and El Salvador have implemented such schemes, focused on climate and nature, and Cote d’Ivoire has implemented a scheme focused on social sectors. By the end of 2024, the number of debt for development deals increased from five to nine, while debt refinancing reached $6.8 billion, generating $2.1 billion to advance development and climate goals. But in 2025, even as the rhetoric around debt for development deals increased—most notably in the outcome document of the Fourth International Conference on Financing for Development, the Compromiso de Sevilla—the actual market for them dried up. This partly reflects a shift in U.S. policy priorities, as the U.S. Development Finance Corporation had been the largest player in this space. Still, the model shows signs of life, thanks to the entrance of philanthropies and NGOs, including the Nature Conservancy, Pew Charitable Trusts, and Catholic Relief Services.

In the face of growing sovereign debt challenges, which remain one of the main impediments to global development, the South African G20 chair in 2025 mandated a G20 Africa Expert Panel. It offered significant recommendations for improving debt restructuring processes and addressing the high cost of sovereign borrowing, including through improving data disclosure, increasing capacity of governments to engage with credit rating agencies, and addressing regulatory and governance barriers. These steps could unlock tens of billions annually in fiscal headroom for developing country governments. The panel also highlighted the need to improve domestic resource mobilization through improved public financial management and addressing impact of illicit financial flows, which are estimated to cost the African continent $88.6 billion a year.

The African Finance Corporation (AFC) has highlighted the significant untapped potential of the estimated $4 trillion of domestic savings on the continent, held by banks, reserves, and nonbank assets such as pension funds. To tap into these domestic savings to support investment in infrastructure and private sector companies, the AFC recommends expanding eligible asset classes, revising statutory investment limits to reduce overconcentration in government securities, and passing domestic investment mandates.

Use Country Platforms to Align International Policy and Financial Support Behind National Strategies

Stefan Dercon of Oxford University argues that countries that have managed to achieve some form of economic transformation and reduce dependence on aid, such as Bangladesh, Ghana, India, and Vietnam, are those where an elite is committed to development. An approach which evaluates where these elite bargains exist and supports their transformation plans with packages of support—from infrastructure and trade incentives to tools that unlock private finance, civil society support to build political will—may have greater long-term impact than investing in sectoral programmatic deliverables. In a more transactional world, this kind of approach could also make more explicit the interests of each party and elevate development cooperation from technocratic assistance to state-to-state negotiations over development priorities, where mutual interests are clear.

Here, country platforms have garnered renewed interest. Such platforms, which aim to provide a central tool for aligning development finance with national priorities and focal points to channel technical assistance, public and private finance, and policy coordination, have a long and mixed record in international development cooperation. Poverty Reduction Strategy Papers, which were embedded by the World Bank and IMF in the 1990s, for example, were criticized for forcing harmful policy conditionalities on countries.

However, a new, clear-eyed perspective on where country platforms can and cannot add value could help build renewed support for aligning and filtering international cooperation around national strategies led by developing countries themselves.

These strategies are most likely to be successful where they can align and organize disparate efforts. That is, when they bring together national priorities, policy reforms, investable pipelines, and partner financing and technical support, helping to mobilize and coordinate finance around a country-led plan.

At the same time, some realism is in order. Country platforms by themselves cannot substitute for or fix fundamental issues related to poor governance, such as a weak policy environment and institutions. Nor can they compensate for unresolved macro-fiscal or political conditions. Finally, they cannot “buy” political ambition and leadership.

Conclusion: A Return to Purpose

Many of the challenges facing the current development system are rooted in the absence of a vision that can act as a North Star to drive policies and resources toward impact. Without such a focus, the result is fragmentation, competing priorities, and a bloated and poorly coordinated system. This undermines progress and political ownership and ultimately contributes to a lack of political support for development cooperation.

The prevailing political and economic environment is likely to create even greater headwinds, but it may also result in creative destruction, with the potential to create new efficiencies and national-level ownership.

Concessional public finance in the form of ODA will remain critical for countries and regions where state capacity and options for mobilizing other forms of finance are limited, and where poverty and disease burden are increasingly concentrated. But the way policymakers advocate for these investments will likely need to shift from a charitable frame to one focused on security, stability, and the interests of donor countries.  

For other regions where political will and state capacity is stronger, the focus should shift from inputs and instruments toward outcomes rooted in country-level priorities. Here, leveraging domestic resources and finance, as well as domestic and international policy reforms to unlock investments, will be critical.

A promising model worth considering is Mission 300. Spearheaded by the World Bank and African Development Bank, it seeks to halve the number of people without access to modern energy sources. Such an approach—outcome-oriented, measurable, and intended to mobilize public and private resources to support country-level plans—may be replicable in other sectors.

By centering development cooperation on areas where national-level plans and the interests of donor countries and private investors align, the international development system can begin to restore confidence that its institutions can deliver impacts that are measurable and tangible for the lives of ordinary people in partner countries.