Too Big to Fill?

In today’s tense geopolitical and macroeconomic environment, development assistance to support low- and middle-income countries (LMICs) is at a crossroads. For a long time, development assistance has been used to promote economic development and prosperity in LMICs. It has also been widely regarded as a means to promoting peace and security by addressing the root causes of conflict in these countries. At the same time, the US and Europe have long considered it a valuable source of soft power, enabling them to build relationships with partner countries and exercise leverage in international politics. Recently, however, there has been a growing tendency to view development assistance and investment in security and defense as competing poles — allocating resources to the former is seen as reducing the resources available for the latter.

Against this backdrop, the abrupt and disruptive cuts to US foreign aid recently implemented by the US administration under President Donald Trump have been unprecedented. Two key questions arise: Who will fill the void left by the US? How can LMICs continue to be supported in their sustainable development? These questions are vital to address, because the deep funding cuts have widened the already significant gap in global development finance. Leaving this gap unfilled — or even allowing it to grow — risks exacerbating regional and global instability by hindering economic development, increasing inequality, and heightening the likelihood of conflicts in some LMICs. The Covid-19 pandemic is the most obvious example of the security risks that come with insufficient investments in development, including in health systems and inadequate preparedness efforts.

The US administration is now questioning the value and benefits of its support for LMICs and international development organizations. Applying the criteria “Does it make America safer? Does it make America stronger? Does it make America more prosperous?,” put forward by US Secretary of State Marco Rubio at the end of January 2025, the Trump administration has aimed to align US development assistance much more closely with its America First foreign policy and its economic and national security interests.^[6] On this basis, the administration has moved to reduce or cease funding of US programs and domestic and international organizations that it does not see as serving US interests. Starting with an executive order on January 20, it suspended all US development assistance pending a 90-day review. During this review, the administration ended the independent status of the United States Agency for International Development (USAID). By March 10, 83 percent of USAID programs had been cancelled, with only 898 grants and contracts remaining out of an initial 5,200.^[7]

The draft budget published in early May suggests a continuation rather than a reversal of this course: It proposes a 47.7 percent cut in foreign aid and demands that 20 billion US dollars already approved by Congress be rescinded.^[8] As an alternative, it suggests the creation of a 2.9 billion US dollars “America First Opportunity Fund,” which would only fund activities deemed “critical to keeping American[s] safe” and funding for “critical partners.”^[9] Prior to the draft budget, the Trump administration had already announced its decision to withdraw from the World Health Organization (WHO) and stop funding Gavi, the Vaccine Alliance. The draft budget goes beyond this, proposing a reduction in funding for the United Nations (UN) by 87 percent and an 800 million US dollar cut in the previous US commitment to the International Development Association (IDA), the part of the World Bank that provides grants and low interest loans to the poorest countries.

This shift in US policy may jeopardize progress toward global sustainable development, especially in LMICs, but it also entails risks for the international community as a whole. The drop in US development assistance comes at a time when, according to the UN, the world risks falling further behind in fighting poverty, combating climate change, and building sustainable economies, as estimates suggest a four trillion US dollar annual financial gap to achieve the Sustainable Development Goals (SDGs).^[10] Multilateral and regional organizations working in this field face even greater funding shortages than before — for instance, the Africa Centres for Disease Control and Prevention (Africa CDC) lacks 224 million US dollars and the WHO has a shortfall of 600 million US dollars for 2025.^[11] UNICEF estimates that its 2026 budget to implement its humanitarian, development, and children’s rights programs will drop by at least 20 percent compared to 2024.^[12]

The cessation of funding has already adversely impacted many programs in LMICs. According to the Global Aid Freeze Tracker, the health sector has been worst affected, with particular disruptions in HIV and malaria prevention and maternal and child health programs, followed by projects on governance, gender equality, climate and environment, and human rights.^[13] In addition, the US retreat from its global climate finance commitments has deeply cut the already limited funds supporting LMICs in their efforts to adapt to climate change and transition to clean energy. These developments come at a difficult time, with many LMICs already burdened by higher spending, interest costs, and debt service payments due partly to the Covid-19 pandemic, rising interest rates, and fluctuating commodity prices. In more than fifty countries, governments spend over ten percent of their revenues on debt servicing, 17 of them over 20 percent, reducing their fiscal space for critical investment such as in the healthcare and the agricultural sector.^[14]

Experts, decision-makers, and representatives of nongovernmental and international organizations are now urging other actors to fill the void left by the US. In February 2025, the Commissioner for Human Rights of the Council of Europe, Michael O’Flaherty, called on the organization’s member states to “fill the void in resources and leadership to ensure that the future of our societies is not derailed.”^[15] In a letter to the European Heads of State and Government and the EU, 63 nongovernmental organizations called for an increase in funding for the areas likely to face the biggest cuts and for leadership in protecting civil society in LMICs and in development cooperation.^[16] Many observers also expect China to increase its engagement in areas where the US will be withdrawing, and Beijing has indeed announced an increase in its support for countries and organizations in need. The emptying of public coffers in many high- income countries has also revived calls for the private sector to assume a greater role in addressing LMICs’ development needs, driving economic growth, and achieving the SDG agenda. However, due to the current macroeconomic environment and differing priorities, it is doubtful whether any of these actors — the EU, China, or the private sector — has the ability and willingness to sufficiently fill the gaps.

Most of the recent cuts by European governments and the European Commission have been justified by growing economic constraints, including budget deficits and rising debt, which have prompted a shift toward prioritizing domestic issues. In addition, the need to increase support for Ukraine in defending itself against Russian aggression and to boost European defense capabilities are often highlighted. Citing budgetary constraints, the former German government under Chancellor Olaf Scholz introduced steep cuts to its development assistance in 2023 and announced a further reduction of the Development Ministry’s budget, from 11.2 billion euros in 2024 to 10.3 billion euros in 2025.^[21] The new government under Chancellor Friedrich Merz will likely continue on this path, as Germany has, for the first time in 30 years, not committed itself to achieving the ODA target of spending 0.7 percent of GNI on development. The coalition agreement of the new German government states: “Due to the need to consolidate the budget, the ODA target must be reduced appropriately.”^[22]

While French President Emmanuel Macron still advocated for meeting the ODA target at the 2023 Paris Summit for a New Global Financing Pact, one year later, his government proposed a 40 percent cut to its 2025 development budget, making France less likely to meet the ODA target in the near future.^[23] The UK has caused the greatest stir. In 2024, Prime Minister Keir Starmer still promised an increase in ODA spending, but in March 2025, he announced a reduction in the development budget, from 0.5 percent of GNI in the fiscal year 2024–25 to 0.3 percent by April 2027, to the benefit of defense spending.^[24] According to some reports, the UK is also reconsidering its commitment to the IDA, which was set to increase by 40 percent compared to its previous commitment.^[25] Ireland and Spain are the only countries in Europe where countertrends are evident. Indeed, Spain achieved a 12 percent increase in ODA in 2024 compared to 2023, in line with its declared ambition to become a leader in development assistance.^[26]

At the same time, there is growing evidence that development assistance is being repurposed to pursue foreign policy and geoeconomic objectives, often to the detriment of LMICs. Increasingly, development assistance is being diverted from its original purpose of fighting poverty and promoting economic prosperity, with countries classifying the costs of hosting refugees and support for Ukraine as ODA. At the same time, assistance to the least developed countries has been declining for years.^[27] The German coalition agreement is a case in point and suggests that this trend is set to continue: The agreement lists economic cooperation, securing access to resources, fighting the root causes of migration, and cooperation in the energy sector as the main priorities of German development cooperation, before mentioning the fight against poverty, hunger, and inequality.^[28] Similarly, in addition to cutting 2.4 billion euros from the annual development budget from 2027 onwards, the Dutch government has emphasized that all its development programs “must contribute directly to our own interests: promoting trade, enhancing security, and reducing migration.”^[29] Also, the European Commission amended its 2021–27 budget to increase support for Ukraine and efforts to combat irregular migration, including a two billion euro reallocation away from development spending.^[30] It has reduced all individual country allocations for the period from 2025 to 2027, replacing them with investment envelopes that focus on specific geographical regions. These allow greater flexibility in how the funds are used and are meant to spur investment in selected countries in regions where the EU sees a strategic interest. The EU’s Directorate-General for European Civil Protection and Humanitarian Aid Operations has strongly opposed the plan, saying that it violates the requirement to prioritize the countries most in need and warning that the cuts risk fueling conflict, radicalization, displacement, and migration in and from Central Sahel, Afghanistan, and Sudan.^[31]

Although China has become the world’s largest source of bilateral development finance in recent years, the country is unlikely to fill the gap left by the US. In general, China and the US differ in their approaches to providing development assistance. China’s development assistance combines foreign aid, trade, and investment and uses different forms of lending, including concessional and nonconcessional loans, export credits, and grants. Historically, 85 percent of Chinese development assistance has been supplied through loans and other debt instruments offering approximately market rates.^[32] Hence, China’s development assistance includes more instruments than the OECD Development Assistance Committee’s (DAC) definition of ODA, which the US implements and which encompasses grants and no- or low-interest loans. According to this measure, the proportion of Chinese development assistance comparable to ODA has consistently been a fraction of US assistance. From 2013 to 2018, China spent an average of seven billion US dollars annually on foreign aid, whereas the US spent 47.7 billion US dollars per year in the same period.^[33] And according to the most recent estimates available, China’s foreign aid fell to five billion US dollars between 2019 and 2020, potentially reflecting the country’s challenging economic situation. This makes significant increases less likely in the near future.^[34]

China is also unlikely to increase its assistance in sectors traditionally supported by the US in a way that could remedy the shortages. Although China has officially increased its support for programs in the areas of health, human resource development, and education, the financial resources committed to these sectors between 2002 and 2021 were dwarfed by those dedicated to China’s “hard” infrastructure projects. Given that Beijing regards infrastructure expansion as the first step toward economic development, the sectors that saw the most investments by China in Africa between 2000 and 2019 were transport, power and energy, and mining.^[35] China is said to prioritize projects linked to its Belt and Road Initiative as well as those that benefit China’s own industries by allowing it to secure access to strategic resources and expand foreign markets for Chinese goods.

Moreover, China has recently launched projects in various countries in response to the US withdrawal, but the US’s previous financial commitments remain unparalleled. The Commander of the US Africa Command, General Michael Langley, observed: “They’re trying to match what we do. So that’s what we’re seeing as we start to fold in the capabilities of USAID under [the] State Department.”^[36] In mid-March, China announced an early childhood development project in Rwanda. In Nepal, it offered to provide humanitarian assistance and support in health and education if the country experienced challenges due to US aid reduction. And in Cambodia, Beijing announced new funding for programs promoting child healthcare, nutrition, sanitation, and literacy, as well as a de-mining initiative, all of which were previously funded by the US.

However, Beijing’s commitments remain small compared to the previous US funding. For example, in an attempt to soften US funding cuts, Beijing sent four million US dollars to the Africa CDC together with South Korea; however, the US has reduced its pledge by 115 million US dollars, down from the initial 500 million US dollars.^[37]

One area where China could potentially play a significantly larger role is in the financing of international organizations, which ultimately promises greater influence on the work of these organizations. Although China’s foreign aid is predominantly bilateral, the country has expanded its engagement in international organizations and has become the fifth-largest overall donor to UN agencies involved in development. At the Munich Security Conference in February, the President of Ghana, John Dramani Mahama, thus raised the possibility that China “might fill up at the multilateral level […] if [the] US decided to cut assistance to some of the UN organizations that are doing critical work in Africa.”^[38] In the realm of health, there seems to be evidence of that. Prior to the World Health Assembly (WHA) in May, China indicated it would oppose the 20 percent increase in WHO membership fees agreed upon by member states in 2022.^[39] But at the WHA, news broke that Beijing would cease its opposition and pledge an additional 500 million US dollars to the WHO over the next five years, making China the largest state donor to the WHO.^[40] Some, however, worry that growing Chinese influence in the organization could undermine global health progress. They are concerned that it could weaken transparency and accountability within the WHO by hampering the sharing of data and information, an area in which China has repeatedly been criticized. To this day, Beijing is accused of failing to share all the necessary data to investigate the origins of the Covid-19 pandemic, impeding adequate preparation for and prevention of future health emergencies of this sort.

As it becomes increasingly clear that public funds will be insufficient to meet the development needs of LMICs and the 2030 Agenda, there have been renewed calls for the private sector to play a greater role. For example, there is the hope that the private sector can help close the global nutrition financing gap of 128 billion US dollars by providing capital and innovation. However, expectations regarding the financial resources that can be mobilized from companies, investors, and financial institutions have to be treated with caution. Because the private sector is able to leverage investments in areas including infrastructure, job creation, service provision, and climate resilience “from millions to trillions,” as a well-known slogan has it, it has long been recognized as a critical partner in development. With the help of multilateral development banks (MDBs), which play a crucial role in mobilizing private funding for development projects, the amount of private capital invested in LMICs increased by 12 percent from 2021 to 2022, reaching 71.1 billion US dollars.^[41] Private actors have invested heavily in sectors including banking and business services, industry, mining and construction, energy, transport and storage, and agriculture. Nevertheless, in recent years, they have not invested as much as expected. For example, only 14.4 billion US dollars of the 89.6 billion US dollars provided and mobilized in 2021 to meet the collective goal of 100 billion US dollars for climate action came from the private sector.^[42] Public investment still accounted for 83 percent of infrastructure project commitments in emerging markets and developing economies in 2017, whereas the private sector accounted for only 17 percent.^[43]

There are still various barriers to private sector investment in LMICs. Insufficient infrastructure, perceived political and financial risks, inadequate data, weak governance, and policy barriers all undermine investors’ confidence in LMICs. In recent years, MDBs have increasingly used guarantees to mitigate high investment risks and support private capital mobilization for these countries. For this reason, many are calling for a strengthening of MDBs. This includes reform proposals that would broaden the World Bank and International Monetary Fund mandates to address global challenges such as climate change, which have not traditionally been within their remit. Furthermore, discussions are underway on how the MDBs’ lending capacities could be increased to help close the development financing gap and how they could better leverage private funding for sustainable development. At the Munich Security Conference in February, Rebeca Grynspan, the Secretary-General of UN Trade and Development, underlined the importance of MDBs in mobilizing private sector investment in development, arguing that the “private sector will go to Africa if the multilateral development banks do what they have to do.^[44] However, the uncertainty surrounding the US’s future role in development and in derisking investments may make private actors even more hesitant to invest in LMICs.

Ultimately, no single actor can fill the void left by the US. The financial resources that European countries and the EU institutions, China, and the private sector dedicate to sustainable development will likely remain insufficient in the near future. In Europe, there is a similar trend of declining development budgets and repurposing development assistance to the detriment of LMICs, albeit not as sudden or extensive as in the US. China could potentially increase its financial support for international development organizations; however, given that its development assistance overwhelmingly targets infrastructure projects, it does not seem set to fill the funding gaps in sectors like health, good governance, and education. Meanwhile, greater private sector investment is key to mobilizing funding for development in LMICs, but various barriers still need to be overcome.

For Europe, the current geopolitical climate, particularly Russia’s war in Ukraine, makes increased defense spending necessary. However, it is important to avoid a zero-sum game between ODA and defense budgets. Both hard and soft power are essential for Europe. There is a broad consensus in the EU that its relations with countries of the Global South are crucial for addressing global challenges, such as combating climate change, facilitating the energy transition, and for competing with geopolitical rivals like China and Russia. Moreover, due to various factors, including economic growth and demographic shifts, countries of the Global South are set to play a larger role in international affairs in the future. But as some of these countries still depend on development assistance, this support remains important and an integral part of their partnerships with European donor countries for the time being. Evidence also suggests that ODA can result in political and diplomatic benefits for donor countries, such as more favorable voting patterns from partner countries within international organizations like the UN, provided that it is well aligned with the latter’s local priorities.^[45]

In general, achieving progress toward sustainable development necessitates cooperation between various international actors, including between Europe and China. Beijing provides billions of dollars in foreign aid to LMICs, and there is already considerable cooperation between Europe and China in areas like the fight against climate change and the promotion of biodiversity. However, Europe should approach cooperation with China cautiously, given that the country’s foreign aid programs have been heavily criticized for failing to comply with human rights protections and for undermining good governance in partner countries.^[46]

These concerns might also apply to other actors that could soon play an increasing role in development assistance, including the Gulf states, other BRICS countries, and Turkey. Europe should seek dialogue with these countries and ensure that all efforts are closely and effectively coordinated – regarding the standards and values applied in development cooperation as much as anything else.

As far as greater private sector engagement is concerned, various reforms could enhance the ability of MDBs to leverage private funding for sustainable development. In this context, it is important to ensure that private sector investments align with LMICs’ development goals, as a disconnect may arise between prioritizing profit and concerns such as environmental sustainability and equitable access to essential services like healthcare.

Several coordinated interventions will be required, involving close cooperation among development actors. The upcoming 4th International Conference on Financing for Development in Seville will provide an opportunity to make necessary adjustments. The Trump administration has announced it will not participate for reasons of opposition to parts of the draft declaration, which, for example, calls for the UN to play a greater role in debt negotiations. Yet other countries can and should use the conference to discuss how to best close the widening gap in development finance and debate which reforms to the international financial architecture are necessary for it to meet today’s challenges. This includes discussions on how to increase the lending capacities of MDBs. It will also be vital to address the unsustainable debt of some LMICs and debate how to further improve the effectiveness of the G20 Common Framework, a G20 initiative to provide debt rescheduling and relief through coordinated international efforts. This could help countries increase their fiscal space for their own health and development spending. While international actors must do more, LMICs need to do things differently, too. In this vein, the President of Zambia, Hakainde Hichilema, has called for greater efficiency, less wasteful spending, and an increased allocation of government resources to health, education, and agriculture. Similarly, this year in Munich, the President of Ghana emphasized the need for LMICs to work towards greater self-sufficiency amid the cessation of US development funding: “I believe that it is adversity and opportunity. It must teach Africa to become more self-reliant.”^[47]