The future of foreign aid: A generational shift

(16 pages)

Author’s note: This article reflects publicly available information as of April 14, 2025. Future-state funding estimates are highly subject to change pending further donor country announcements and iteration on existing budget proposals.

Recent announcements by global donors signal a rapidly evolving global development landscape. These changes could add up to a generational shift in the way development-related programs are funded and organized. Announced reductions in official development assistance (ODA) up to mid-April 2025 are equivalent to a decrease of $41 billion to $60 billion (15 to 22 percent) relative to 2023—which understates the magnitude of the change for some sectors because the focus of aid has shifted toward Ukraine and refugees in recent years. In addition, forthcoming public-expenditure announcements and fiscal pressures may result in substantial further decreases.¹ This acute change occurs against the background of decreasing volumes of foreign aid in the years before the COVID-19 pandemic, and it will have the greatest impact on sectors and countries that are most reliant on ODA.

Global health programs in particular are highly exposed to reductions in foreign aid. When COVID-19 expenditures are excluded, McKinsey analysis suggests that ODA for health programs was reduced by 44 percent between 2022 and the forecasted future state (from $39 billion to $22 billion).² As a result, some health programs are already experiencing disruptions, including interruptions of care delivery and delays in the procurement of essential supplies. As organizations adapt to this new and evolving aid paradigm, there is a need both to respond to the acute shock and—when looking to the future—to potentially undertake more-systemic changes, including working to find efficiencies, mobilizing new funding, prioritizing investments, and redesigning the global development system to use available resources to greater effect.

Despite considerable ongoing uncertainty, the global development sector urgently needs to understand its potential options and make decisions about the best path forward. This article aims to provide a common analytical fact base as a possible input into those decisions. The analysis presented here is a snapshot in time, and organizations should maintain a clear understanding of announcements and their implications as the situation evolves. The article concludes with four strategies for preserving and sustaining programmatic impacts in a resource-constrained environment. Leaders and organizations may wish to consider these strategies as they grapple with the substantial challenges ahead.

The potential impact of recent ODA announcements

Our methodology

These materials reflect general insights based on available information as of April 14, 2025, that has not been independently verified and is inherently uncertain. Future results may differ materially from any statements of expectation, forecasts, or projections.

Data sources

All data used in this analysis is publicly available, primarily drawing on the OECD Creditor Reporting System, though other sources are used—and credited—in some analyses.

Data definition

We use the OECD’s definition of official development assistance (ODA),¹ which excludes other official flows, private sector instruments, and private development finance. ODA does not include foreign aid from countries and organizations that do not report to the OECD Creditor Reporting System (for example, the People’s Republic of China). For health program–level analysis, development assistance to health (DAH) data from the Institute for Health Metrics and Evaluation was used rather than ODA, because DAH more comprehensively captures funding from private sources (for example, large philanthropies).

Donor announcements

The data produced here includes the most recent (as of April 14, 2025) government announcements from Belgium, France, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.²Belgium: Ugo Realfonza, “Dark clouds over the future of Western foreign aid,” The Brussels Times, March 16, 2025. France: Julien Bouissou, “In the US, as in France, the whole philosophy of foreign development aid is under threat,” Le Monde, February 5, 2025. The Netherlands: “Letter of 20 February 2025 from the Minister for Foreign Trade and Development to the House of Representatives on International Development,” Government of the Netherlands, February 20, 2025. Sweden: “Country profiles: Sweden,” Countdown 2030 Europe, accessed April 4, 2025. Switzerland: “International Cooperation (IC) Strategy 2025–28,” Federal Department of Foreign Affairs, updated January 29, 2025; “International cooperation: jobs, climate, migration and the rule of law,” Federal Department of Foreign Affairs, July 14, 2021. United Kingdom: Philip Loft and Philip Brien, “UK to reduce aid to 0.3% of gross national income from 2027,” UK Parliament, February 28, 2025. United States: Joseph Gedeon, “Rubio says 83% of USAID programs terminated after six-week purge,” The Guardian, March 10, 2025; “Supreme Court’s Roberts pauses federal judge’s order on Trump administration foreign aid funding,” CNBC, February 26, 2025. The proportion of funding reductions is assumed to be the same across existing bilateral and multilateral funding by these donor countries except for the United States, as described below. The resulting projections may be conservative because they do not capture reductions that have been signaled but not officially confirmed by donor governments.
The European Union is treated as an independent donor for which no reductions have been projected, because no specific announcements on ODA had been made as of April 14, 2025.
For the United States, USAID-managed ODA reductions are estimated based on reporting from the Washington Post of a preliminary State Department budget proposal. Where sector-specific budgets were not reported, estimates were used from the Center for Global Development analysis of a list of terminated USAID contracts shared with Congress,³ scaled proportionally to match the newly reported reduction in USAID and State Department–managed foreign assistance (52 percent). April 14 State Department budget proposals were mapped to sectors based on corresponding ForeignAssistance.gov sectors—for example, US government obligations to the Global Fund are listed under “HIV/AIDS” in the ForeignAssistance.gov database, so the announced fiscal year 2026 allocation for the Global Fund was assumed to fall under HIV/AIDS. The full amount of the Global Fund commitment, assuming all other countries match the maximum contribution level, was used in this analysis. No reductions were applied to ODA managed by other agencies, because no relevant announcements had been made as of April 14, 2025. Agency-level reductions were applied to overall US ODA using a weighted average based on agency funding mix data.⁴

Sector impacts

ODA reductions are applied evenly across countries, sectors, and health program areas for all donor countries that have made recent announcements, except the United States. For example, the 37 percent overall reduction in ODA that France announced is translated, for the purposes of this analysis, into a 37 percent reduction in ODA going to all countries, sectors, and health program areas.⁵ US funding reductions are estimated using the methodology described above, with country- and sector-specific estimates for USAID and State Department–managed ODA sourced from April 14, 2025, reporting by the Washington Post and the Center for Global Development.⁶

Where health program–level estimates are not available, the overall reduction in USAID and State Department funding to health programs—49 percent—is used for those programs. For health program–level analysis, the proportion of overall US DAH managed by USAID and the State Department is assumed to be 75 percent, based on estimates from KFF.⁷ The future-state ODA projection for health, $22 billion, is estimated by applying donor-specific reductions based on recent announcements, as described in this article, to the 2023 baseline ODA for health ($27 billion, based on the OECD’s Creditor Reporting System [CRS], excluding private sector instruments, private development finance, and other official flows). The $39 billion in ODA for health in 2022 mentioned in this article uses the same definition of ODA and excludes spend for COVID-19 as tagged in the OECD CRS database.

To contribute to a common analytical fact base, we have undertaken in-depth research into the evolution of ODA in recent years and the possible effects of recent announcements on recipient countries and international organizations (see sidebar, “Our methodology”).

Global ODA has grown steadily in recent years

Since 2018, total ODA has increased by 6 percent year over year, reaching $275 billion in 2023 (Exhibit 1). As a share of gross national income (GNI) among major donors, ODA has grown by 5.42 percent annually over the same period, reaching 0.42 percent of GNI in 2023.³ However, this remains well below the United Nations’ target of 0.7 percent of GNI.⁴

Image description: A column chart shows total global official development assistance (ODA) from 2002 to 2023, as well as the predicted future state. Each column is segmented into assistance coming from five entities: multilateral, EU institutions, other bilateral, non-US NATO bilateral, and US government bilateral. Assistance increased steadily from 2002 when it was $80 billion to 2017 when it was around $200 billion. There was, however, a 32% decline from 2006 to 2007. After a slight decrease between 2017 and 2019, ODA assistance grew quickly from 2019 to 2023 when it reached $275 billion. The future state is projected to be about $215 billion to $234 billion in ODA, representing a 15 to 22 percent decrease compared to 2023. The biggest declines by entity come from bilateral support from non-US NATO countries and US government bilateral support. Footnote 1: Total global official development assistance as defined by the OECD; this excludes 'other official flows,' private sector instruments, and private development finance. Footnote 2: For the future state, the 17% projection is based on estimates from public announcements as of April 14, 2025 (42% for US, 40% for UK, 38% for Netherlands, 35% for France, 25% for Belgium, 1% for Switzerland, 6% for Sweden) taken proportionally from bilateral and multilateral spend based on current channel mix; 20% projection is based on an assumed 30% reduction across all non-US NATO countries and a 42% reduction for US government contributions across both bilateral and multilateral spend. Source: Center for Global Development; ForeignAssistance.gov; International Monetary Fund; OECD. End of image description.

While funding has grown in absolute terms, ODA has consistently accounted for approximately 2 percent of recipient governments’ general expenditures since 2000 on average,⁵ underscoring its role as a stable, supplementary funding source in most recipient countries. However, the scale of ODA relative to domestic expenditure does vary by both country and sector.

Belgium, France, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States have all announced upcoming reductions to their respective foreign aid budgets.

Recently announced ODA reductions are equivalent to a 15 to 22 percent decrease relative to 2023

In recent months, Belgium, France, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States have all announced upcoming reductions to their respective foreign aid budgets.⁶Belgium: Ugo Realfonza, “Dark clouds over the future of Western foreign aid,” The Brussels Times, March 16, 2025. France: Julien Bouissou, “In the US, as in France, the whole philosophy of foreign development aid is under threat,” Le Monde, February 5, 2025. The Netherlands: “Letter of 20 February 2025 from the Minister for Foreign Trade and Development to the House of Representatives on International Development,” Government of the Netherlands, February 20, 2025. Sweden: “Country profiles: Sweden,” Countdown 2030 Europe, accessed April 4, 2025. Switzerland: “International Cooperation (IC) Strategy 2025–28,” Federal Department of Foreign Affairs, updated January 29, 2025; “International cooperation: jobs, climate, migration and the rule of law,” Federal Department of Foreign Affairs, July 14, 2021. United Kingdom: Philip Loft and Philip Brien, “UK to reduce aid to 0.3% of gross national income from 2027,” UK Parliament, February 28, 2025. United States: Adam Taylor and John Hudson, “Trump plan would slash State Dept. funding by nearly half, memo says,” Washington Post, April 14, 2025; “Supreme Court’s Roberts pauses federal judge’s order on Trump administration foreign aid funding,” CNBC, February 26, 2025. These announcements are equivalent to an estimated $41 billion to $60 billion reduction in ODA. This reduction may grow if further preliminary proposals for ODA drawdowns (from the European Union, for example) are realized.⁷ For comparison, our analysis shows that the largest year-over-year decline to date—$56 billion in 2007—was primarily driven by the conclusion of temporary cross-sector debt relief programs, with less impact on core, multiyear development programs.⁸ Although the projected ODA reduction is equivalent to a return to 2020–21 levels, it is likely that there will be disproportionately greater reductions in aid to many lower- and moderate-income countries (LMICs) because donor governments’ spending trends and recent announcements reflect a strategic reallocation of ODA toward geopolitical priorities (for example, support to Ukraine) and domestic resourcing needs (for example, support for refugees).⁹For example, the United Kingdom increased aid spending on refugees by 6.8 times between 2020 and 2023; aid to top recipient countries (for example, Ethiopia, Pakistan, and Afghanistan) was reduced between 2019 and 2023, while aid to Ukraine increased by 8.6 times in the same period. (See How UK aid is spent, Independent Commission for Aid Impact, February 2025.) The Netherlands’ minister for foreign trade and development announced in a letter to the House of Representatives, “We will also make policy more relevant to Dutch taxpayers by explicitly linking international development to the interests of the Netherlands. . . . We will do this in a limited number of countries, mainly in the vicinity of Europe.” (See “Policy letter on international development,” Government of the Netherlands, February 21, 2025.) The French minister of foreign affairs launched a review of ODA in the first quarter of 2025 to “assess projects on a case by case basis to ensure that what we are doing serves either the direct or indirect interests of French people.” (See “France launches commission to evaluate overseas aid, amid far-right criticism,” Radio France Internationale, updated March 2, 2025.)

Many of the recent announcements have cited NATO’s defense spending guideline,¹⁰ which specifies that NATO member states should spend at least 2 percent of GDP on defense, as a rationale for reallocating funding away from ODA.¹¹ Evolving policy positions in other G7 countries may result in further ODA reductions. It remains to be seen whether other NATO member states will follow suit, though provisional proposals in other major donor countries (for example, Germany¹²) have indicated that ODA reductions are on the table.

The effect of funding cuts will likely vary by sector

Today, ODA facilitates development across a wide range of program areas. For example, it helps fund acute emergency response and humanitarian assistance, long-term government institutional support, and forward-looking adaptation and innovation in response to emerging trends (such as the energy transition). As high-level budget reductions are translated into line-item implications, state agencies will face difficult trade-offs across and within sectors.

Granular foreign aid budget announcements are just starting to be released, and long-term implications at the sector level remain generally unclear, but our projections indicate that the difference between future-state ODA funding and 2023 funding levels could vary substantially by sector—from 2 to 37 percent of the baseline (Exhibit 2, parts 1 and 2). Preliminary reports from the US government, based on USAID contract terminations, show a higher level of funding reductions in sectors such as education and energy, and for administrative spend.

Sectors and subsectors with a high concentration of funding in few donor sources may be particularly vulnerable; for instance, just two donors make up more than 50 percent of ODA to relief coordination and emergency food assistance (subsectors within “emergency response”). Sectors with a high share of multilateral funding may also face substantial funding reductions depending on how ODA reductions are allocated across channels. For example, water, sanitation, and hygiene services; agriculture and food; and health all receive at least 30 percent of their allotted ODA multilaterally. Climate-related initiatives are likely to be significantly affected as well: The top 20 recipients of ODA tagged with climate-related objectives received on average 72 percent of ODA from NATO bilateral donors in 2023.¹³

ODA reductions will also heavily affect multilateral organizations

Multilateral organizations serve as a critical channel for funding from donor countries and may face financial challenges if ODA is broadly reduced. For example, NATO member states accounted for 52 percent of contributions to the nine largest UN agencies in 2023 (Exhibit 3). Some of these agencies have already started to pause programs and close offices in anticipation of income reductions.¹⁴Examples include the World Food Programme’s closure of its Southern Africa office, and the Office of the High Commissioner for Refugees reducing $300 million in spend on planned activities. Nellie Peyton, “UN food agency shuts Southern Africa bureau during drought, citing low funding,” Reuters, March 3, 2025; Jamey Keaten, “From staff cuts to aid reductions, UN humanitarian agencies scramble in wake of US funding freeze,” Associated Press, March 8, 2025. Anticipated second- and third-order effects—including responses by other donor countries, private funders, civil society partners, and recipient governments—add to the ongoing uncertainty. Multilateral recapitalization rounds in 2025–26 may provide early signals on the longer-term direction of travel for multilateral ODA.¹⁵

Image description: A bar chart shows NATO member state contributions to UN agencies with more than $1 billion in revenue in 2023. These agencies comprise UNICEF, the UN World Food Programme, the UN Development Programme, the United Nations High Commissioner for Refugees, the International Organization for Migration, the World Health Organization, the Food and Agriculture Organization, the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), and the UN Population Fund. Contributions from NATO member states account for 27% to 70% of revenues for these agencies, with the UN World Food Programme and UNRWA receiving the highest percentage at 70% each. Source: McKinsey analysis of agency annual reports and public information End of image description.

A deeper look at the implications of ODA reductions on global health

It is worthwhile to examine the potential implications of ODA cuts on global health in more detail given the level of exposure of global health programs to ODA funding and the severity of worst-case scenarios related to the removal or breakdown of the public goods funded by ODA.

Global health programs are highly exposed to reductions in ODA

An estimated 18 percent of development assistance to health (DAH) is at risk of withdrawal based on current donor announcements (Exhibit 4, parts 1 and 2). The impact of these funding withdrawals could be exacerbated by the concentration of funding sources in particular program areas. For example, the US government provides more than 35 percent of DAH for HIV, malaria, and family planning programs in recipient countries.¹⁶ Recent US government reports indicate significant cuts to these sectors, with funding for USAID and State Department–managed programs for neglected tropical diseases, vaccines for children, and maternal and child health reported to reach zero.¹⁷ Private donor contributions, while significant, account for a much lower share of total DAH at 21 percent.

The potential consequences of rapid ODA reductions are already becoming apparent. Global health programs are experiencing immediate disruptions, including delays in the procurement of essential supplies, interruptions to care delivery, closures of research and development projects, and loss of program management capacity.¹⁸

There is significant variation in countries’ vulnerability to changes to ODA

Country-level exposure to ODA reductions varies significantly according to each nation’s reliance on ODA for overall health expenditures (Exhibit 5). Thirty-two countries receive an amount of health-related ODA that is equivalent to more than 25 percent of total domestic health expenditure. These countries face higher fiscal vulnerability because of the magnitude of health ODA relative to domestic government and private or out-of-pocket health spend.

Image description: A scatter plot depicts countries’ total health official development assistance (ODA) as a share of total health expenditure, as well as total domestic government health expenditure per capita in 2023. The chart differentiates between countries whose total US bilateral health ODA represents less than 25% of total ODA and countries whose total US bilateral health ODA represents more than 25% of total ODA. It reveals that 32 countries, including Rwanda, Haiti, Mozambique, and Malawi, are among those with the highest fiscal vulnerability. Eighty countries, including Sudan, Kenya, Nigeria, India, and Namibia, have moderate fiscal vulnerability. And 24 countries, including South Africa, Brazil, and Jamaica, have lower fiscal vulnerability. Source: OECD Creditor Reporting System; World Health Organization Global Health Expenditure Database End of image description.

In these highly exposed countries, closing the funding gaps created by current donor announcements would require backfill equivalent to as much as 118 percent of domestic government health expenditure (Exhibit 6). Mobilizing resources of this magnitude would be especially challenging for countries in debt distress or at high risk of debt distress—which represent the majority of those shown in Exhibit 6.¹⁹ The countries that are the most dependent on ODA thus are also the worst positioned to respond to acute ODA reductions, exacerbating the likelihood of severe health impacts.

Image description: A multipart chart shows countries with the highest fiscal vulnerability to changes in ODA and breaks down their share of sources of health expenditure, the gap in total health ODA if recently announced ODA reductions are implemented, the increase in government spending needed to fill the gap, and their risk of debt distress. While five countries will see no gap in total health ODA (Eritrea, São Tomé and Príncipe, Solomon Islands, Micronesia, and Kiribati), some will experience a significant gap. These countries include Uganda (24%), Zambia (24%), Lesotho (27%), and Eswatini (48%). Some countries would have to significantly increase government spending to fill the gap—including Malawi by 118%, Haiti by 67%, and Sierra Leone by 52%. Most countries are either at high risk of debt distress or are already in distress, while Malawi, Zambia, Zimbabwe, São Tomé and Príncipe, Ethiopia, and Lao PDR are already in distress. Footnote 1: Based on most recent ODA funding announcements by Belgium, France, Netherlands, Sweden, Switzerland, UK, and US; US estimates based on March 26 Center for Global Development analysis and April 14 reporting on a State Department proposed budget. Applies reduction of funding to donors’ bilateral ODA—impacts on multilateral ODA are not reflected. Footnote 2: Risk of debt distress reflects published ratings as of July 2024; composite indicator of overall public debt burden and debt service. Source: Center of Global Development; KFF; OECD Creditor Reporting System; World Health Organization Global Health Expenditure Database; World Bank Debt Sustainability Analysis

The ultimate effects of ODA reductions will vary depending on factors such as disease burden, the current funding mix, and the ability of domestic and international resources to respond.

Potential paths forward for the global development ecosystem

Against the backdrop of funding changes and the related uncertainty, leaders of countries and organizations may need to chart new paths to fulfill their missions and achieve their desired impact.

The first step for stakeholders in global development will be to gain a fuller understanding of the likely impact of ODA reductions in their respective contexts. Scenario modeling can help stakeholders project the programmatic and geographic impacts of these changes, informing strategic decision-making. One approach would be to analyze potential funding scenarios at the program area level, translating funding reductions into intervention volume reductions (such as medical treatments administered and health commodities delivered) based on the historical budgets and outputs of global health programs. Impacts on health (for example, disability-adjusted life years) could then be modeled by applying intervention-level efficacy estimates from scientific studies.

While there is a need for near-term rapid responses, longer-term strategic planning will also be vital as the ODA landscape continues to evolve. Stakeholders in global development may consider the following four strategic levers as they look to both build resilience in the face of uncertainty and plan for the new ODA paradigm that will take shape over the coming years.

1. Capture efficiencies in program design and delivery

Stakeholders can consider the following actions:

conducting cleansheet or “zero-based”²⁰ Unlocking enterprise efficiencies through zero-based design,” McKinsey, June 25, 2020. budgeting analyses to identify the minimum costs required to deliver the current program outcome
optimizing procurement and supply chains to negotiate lower commodity prices and reduce waste
integrating systems and leveraging common delivery platforms to minimize duplicate spending
investing in digital transformation to reduce long-term costs and improve the quality and timeliness of data

2. Mobilize resources

Stakeholders can consider engaging funders—including ministries of finance and nontraditional donors, such as private sector actors—to secure additional resources. In a few cases, this could be a moment to consider models in which those local consumers who are able to do so pay for products and services as a way to spread donor resources further.

3. Reprioritize programs and investments

Stakeholders can consider assessing programmatic priorities to prioritize high-ROI initiatives and reallocate resources to areas of greatest need. They may also wish to focus on additionality by prioritizing initiatives that few other sources of financing or organizations are able or willing to support.

When determining which programs and investments to prioritize, countries and organizations may consider whether each item meets the following criteria:

Major programmatic impact: initiatives that deliver large-scale, highly effective interventions with significant positive impact
High urgency: programs with immediate impact on lifesaving services
Support for vulnerable groups: efforts that protect or uniquely reach vulnerable populations, such as those described in the 2030 Agenda for Sustainable Development (for example, refugees or persons with disabilities)
Enabling of core functionality: programs that enable the efficient delivery of multiple initiatives across disease areas and geographies
Highly specialized: initiatives requiring specific expertise, infrastructure, or assets that are difficult to replicate
Catalytic potential: programs that can mobilize additional resources or unlock broader systemic change

4. Restructure the global development ecosystem

Stakeholders can consider exploring partnerships or mergers among programs, departments, and international organizations to reduce any duplicative efforts and enhance operational efficiency. Stakeholders may also consider a more comprehensive system redesign using a zero-based approach to align development infrastructure with a refreshed set of clear goals. As part of this system redesign, stakeholders could consider sourcing solutions from across sectors, including from the private sector.

The anticipated reductions in ODA represent a pivotal moment for the global development ecosystem. Notwithstanding current uncertainty, there may be an opportunity for stakeholders to reinvent approaches to program delivery and build more-resilient systems. With strategic planning and partnership, countries and organizations can navigate the shifting ODA landscape to continue driving positive impact for the communities they serve.

A generational shift: The future of foreign aid

About the authors