Opening

Chapters

International funding is not simply shrinking. Its architecture is being rewritten. This overview sets out the historic 2025 contraction, the four figures that measure it, and seven forces redrawing the aid map—from triage and leverage to transferred risk and a more transactional bargain. It then shows where scarcity is felt first in communities and local organisations, the three tensions defining the next phase, and what a smaller, more financialised sector means for who holds authority and who absorbs uncertainty.
Official development assistance from OECD Development Assistance Committee members fell to US$174.3 billion in 2025, a real-terms decline of 23.1%—the largest annual contraction on record. The composition of aid is changing with its volume. Grants fell faster than loans, humanitarian assistance fell by 35.8%, and core contributions to UN agencies declined while funding to development banks increased. International funding is moving towards selectivity, leverage and more transactional priorities. This changes not only what is financed, but which institutions hold authority and which absorb uncertainty.
Aid has always moved with politics and economic cycles. The present moment is different because contraction is coinciding with structural reallocation. In 2025, bilateral aid, humanitarian finance, grants and core multilateral contributions all fell sharply. Five providers accounted for 95.7% of the total decline. That concentration means a system containing many agencies and funds can remain highly exposed to a small number of domestic political decisions.
Four figures define the scale and shape of the contraction. Total official development assistance from DAC members reached US$174.3 billion in 2025, down 23.1% in real terms—the largest recorded annual decline and the second consecutive year of falling aid. Humanitarian ODA fell by 35.8%, to US$15.5 billion. And in the OECD’s 2025 review of EU development co-operation, only about 1–2% of ODA was reported as reaching local civil society directly.
The system is moving from distributing additional resources across priorities to deciding what will no longer be financed. Aid reductions do not behave like a uniform discount. Fixed costs for security, safeguarding, logistics and audit remain. A grant reduced by 20% can produce a programme that is not merely smaller, but shorter, narrower, more centralised and more fragile. In 2025, grants fell by 29.1%, nearly three times the decline in loans. Donors are increasingly attracted to institutions able to pool contributions, use balance sheets and mobilise larger volumes of finance. This can be effective for infrastructure and investment, but a dollar of concessional lending and a dollar of humanitarian grant finance do not serve the same people or purposes.
A portfolio reduced by 15% does not mean every service loses 15%. One country office closes; a thematic area disappears; a referral system has nowhere to send people. Aggregate stability can conceal institutional collapse several contractual layers below the original donor decision. Sub-Saharan Africa contained 72% of people living in extreme poverty, according to OECD analysis, yet its share of ODA fell from 38% in 2006 to 24% in 2023. The region then experienced a 26.3% fall in bilateral aid in 2025. The geography of allocation is increasingly shaped by strategic attention as well as need.
Triage can protect the most urgent work when resources fall. It also redraws the moral boundary of assistance. People do not cease to need water, protection or health care because they fall just outside a revised threshold. Development banks and blended finance can extend scarce public money. Yet many rights, humanitarian and social functions do not generate a revenue stream. A financing system can grow in nominal volume while grant-dependent needs experience severe scarcity. Direct local leadership can improve relevance, legitimacy and durability. But shifting delivery without shifting discretion, indirect costs and shock-absorbing capacity reproduces hierarchy under a different contractual form.
Philanthropy, private capital and domestic finance will all matter more as public aid contracts. None offers a direct substitute. Private philanthropy is smaller and more concentrated; private investment requires returns; domestic budgets in many developing countries are already constrained by debt. The new economy of aid is therefore not simply a story of less money. It is a change in what counts as finance, which institutions are protected and where risk is expected to settle.

Research report

The New Economy of Aid

International funding is not simply shrinking. Its architecture is being rewritten.

7-minute readJuly 2026OSKEEN RESEARCH OVERVIEW

In brief

Official development assistance from OECD Development Assistance Committee members fell to US$174.3 billion in 2025, a real-terms decline of 23.1%—the largest annual contraction on record.^[1]
The composition of aid is changing with its volume. Grants fell faster than loans, humanitarian assistance fell by 35.8%, and core contributions to UN agencies declined while funding to development banks increased.^[1]
International funding is moving towards selectivity, leverage and more transactional priorities. This changes not only what is financed, but which institutions hold authority and which absorb uncertainty.
Local organisations may receive more delivery responsibility without equivalent discretion, reserves or protection. Localisation can therefore advance in language while intermediation expands in practice.

This is not another difficult budget year

Aid has always moved with politics and economic cycles. The present moment is different because contraction is coinciding with structural reallocation.

In 2025, bilateral aid, humanitarian finance, grants and core multilateral contributions all fell sharply. Five providers accounted for 95.7% of the total decline.^[1] That concentration means a system containing many agencies and funds can remain highly exposed to a small number of domestic political decisions.

At the same time, donors face pressure from debt service, defence, ageing populations and cost-of-living politics. Developing countries face their own fiscal squeeze from a far weaker position. The United Nations estimates an annual financing gap of roughly US$4 trillion for the Sustainable Development Goals, while around three billion people live in countries where governments spend more on interest than on health and education combined.^[5]

The result is not an even reduction applied across the map. It is a redistribution of money, authority and risk.

The contraction, in four figures

US$174.3 billion

Total official development assistance from DAC members in 2025.^[1]

−23.1%

The real-terms annual decline—the largest recorded and the second consecutive year of falling aid.^[1]

−35.8%

The fall in humanitarian ODA, which reached US$15.5 billion in 2025.^[1]

1–2%

The approximate share of ODA reported by the OECD as reaching local civil society directly in its 2025 review of EU development co-operation.^[3]

Seven forces redrawing the aid map

Core contributions allow multilateral institutions to allocate resources across mandates and crises. Earmarked funding gives donors greater visibility and control. The present contraction is favouring some development-bank channels while sharply reducing UN core contributions.[1] The system becomes more responsive to donor priorities and less able to act collectively where political attention is weak.

The result is not an even reduction applied across the map. It is a redistribution of money, authority and risk.

Where scarcity is felt first

Three tensions defining the next phase

Selectivity versus universality

Triage can protect the most urgent work when resources fall. It also redraws the moral boundary of assistance. People do not cease to need water, protection or health care because they fall just outside a revised threshold.

Leverage versus suitability

Development banks and blended finance can extend scarce public money. Yet many rights, humanitarian and social functions do not generate a revenue stream. A financing system can grow in nominal volume while grant-dependent needs experience severe scarcity.

Localisation versus risk transfer

Direct local leadership can improve relevance, legitimacy and durability. But shifting delivery without shifting discretion, indirect costs and shock-absorbing capacity reproduces hierarchy under a different contractual form.

A smaller, more financialised sector

Philanthropy, private capital and domestic finance will all matter more as public aid contracts. None offers a direct substitute. Private philanthropy is smaller and more concentrated; private investment requires returns; domestic budgets in many developing countries are already constrained by debt.

The new economy of aid is therefore not simply a story of less money. It is a change in what counts as finance, which institutions are protected and where risk is expected to settle.

For NGOs, the donor relationship is being repriced. Compliance capacity, evidence systems and the ability to hold volatility become sources of institutional advantage. At the same time, organisations most capable of surviving the new conditions may not be those closest to unmet need.

The defining question is not whether aid will recover to a previous total. It is what kind of system is being built during the contraction—and whose priorities, institutions and risks that system will carry forward.