There is less than a year until the next major international conference on development financing, to be hosted by Spain. It is no exaggeration to say that the gap between the world’s development and climate challenges and the global policy and financial landscape needed to address them has widened since the last summit on the subject took place in Ethiopia in 2015. Many of the 2030 Sustainable Development Goals remain unmet, and the consensus of scientists is that limiting global warming to 1.5 degrees will be extremely difficult, if not impossible. The number of people forcibly displaced by conflict, disasters and persecution has risen to more than 117 million in 2023. And continued outbreaks of zoonotic diseases such as avian influenza remind us that the next pandemic may not be as far away as we would like. Sadly, in the words of two prominent development economists, in 2024 “the world is still burning.”
Rather than driving a new development consensus, these challenges are creating divisions, denials and delays. The world currently faces a possible stalemate over new climate finance targets, as developed and developing countries continue to debate how much, what its composition should be and who should pay for it. A proposal to impose a modest carbon tax on global industries such as shipping to fund development and climate action has been blocked by an opposition coalition of developed and developing countries. A proposal from several member states to push for a global consensus on a minimum tax on billionaires at this year’s G20 summit in Brazil is likely to meet similar resistance. And recent assessments suggest that as of mid-year, less than one-fifth of the global funding needed to mitigate humanitarian suffering in 2024 has been provided.
The paradox is that while the collective impact of these challenges is felt globally, our partial and fragmented system of global governance means that the primary policy levers for addressing them remain at the national level. For developing countries, addressing poverty, inequality and climate change means making political deals at home and building institutions that can support economic growth, environmental and development goals. For developed countries, global challenges like trade, security, migration, technology and decarbonization require building political and national consensus that can advance long-term interests and manage big development policy trade-offs that go beyond the narrow calculations of transactional statecraft.
Nevertheless, international cooperation and external development finance (Official Development Assistance (ODA or “aid”), other public funds, philanthropic funds, and publicly mobilized private funds) still play an important role. Despite its shortcomings, aid, compared with other sources of finance, has been one of the most stable sources of financing for developing countries in times of crisis since the 1960s (see Figure 1).
Figure 1: Total net resource flows from OECD DAC countries to developing countries, 1960-2022 (constant 2022 US$ billion)
Source: OECD DAC (2020) Sixty Years of ODA: Insights and Perspectives during the COVID-19 Crisis. Figures and deflators from 2019 onwards provided by OECD DAC.
Aid has also continued to grow in real terms for the past few years, with ODA from OECD’s Development Assistance Committee (DAC) donors expected to reach a record high of $224 billion in 2023, against the backdrop of recent crises such as COVID-19 and Russia’s invasion of Ukraine. As a share of DAC donors’ combined wealth, aid has grown by more than 50% over the past two decades, from 0.24% of gross national income in 2003 to 0.37% in 2023.
But this is a far cry from the 0.7% ODA/GNI target first adopted by the UN more than 50 years ago, and only five of 31 DAC donors are expected to meet or exceed this target in 2023. In 2022, net transfers to developing countries will fall to the lowest level since the Global Financial Crisis, with 26 countries recording negative net transfers, as outflows such as private debt repayments exceed inflows such as new development loans and grants.
And there are natural questions about allocation: compare, for example, the disparity between the surge in ODA to Ukraine after Russia’s invasion of Ukraine in 2022 and aid to other long-term crises up until that point (see Figure 2).
Figure 2: DAC member states’ responses to selected crises and conflicts, 2000-2022
Source: OECD (2024), Trends in Official Development Assistance in Times of Crisis. Note: This data only goes back to 2022, so does not include humanitarian and other crisis aid provided to Gaza since the start of the conflict in October 2023.
The share of aid from G7 countries and EU institutions to Africa, which contains countries with the highest rates of extreme poverty, fell to its lowest level in almost 50 years in 2022 as these donors cut bilateral aid or shifted funds to priorities such as supporting Ukraine and internally displaced people (Figure 3).
Figure 3: Percentage of ODA from G7 and EU institutions to Africa, 1960-2022
Source: One Campaign (2024), G7 share of aid to Africa at lowest since 1970s
Some Western countries cutting aid to Africa are simultaneously complaining that China is playing too big a role in the continent’s development and beyond. But as China faces its own economic problems, it has scaled back lending, with its lending to Africa falling to a 20-year low in 2022, much of which is now being directed toward protecting an increasingly shaky sovereign bond portfolio.
The misguided promises of “billions to trillions of dollars” made by Western countries to mobilize private development finance have yet to be fulfilled, and according to some experts, will never be. Indeed, there are questions about the extent to which donor countries are artificially inflating their aid budgets by substituting “private sector instruments” for real financial efforts. Meanwhile, these budgets are being plundered and “rebranded” to meet what are supposed to be “new and additional” climate finance pledges, imposing further costs on climate-vulnerable countries.
Increasing geopolitical competition makes issues of global joint action, such as global health scares and climate change, even more difficult. Global development institutions are also increasingly fragmented, with developing countries increasingly prioritizing the role of the UN system in which they are the majority (establishing new UN agencies), while Western countries are emphasizing the primacy of institutions such as the G20 and international financial institutions. Major governance reforms of the latter, long overdue, remain difficult due to geopolitical impasses. This makes “grand bargains” on issues such as aid effectiveness, climate finance, and debt restructuring even more difficult.
The combined effect of all this is a breakdown in trust between the West and many countries in the Global South. But China has not automatically benefited from this: It too has come under increased scrutiny over its debt intransigence and the quality of its loans, and, as a large, high-emitting economy, its obligations to finance climate change are also being questioned.
If this all sounds gloomy, unfortunately, the future doesn’t look much brighter. The rise of far-right populists in Europe and a possible Trump victory in the US in November could bring new shocks. The EU and the US accounted for more than two-thirds of global ODA in 2023. A combined 16% cut in US and European ODA (equivalent to the one-year cuts made in Australia by the Abbott government in 2015) would shave about $27 billion from global aid. Multilateral aid and climate change aid would likely be key targets, along with aid for sexual and reproductive health and rights, and gender equality.
In the second part of this blog, I want to be less pessimistic and look at some concrete proposals to improve this situation and improve the prospects for effective development financing.
Disclosure
This research was supported by the Gates Foundation. Opinions expressed are the author’s own.
