Analyzing Recent ODA Reductions and Their Impact on Global Development

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. 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.

The Potential Impact of Recent ODA Announcements

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). 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.

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. 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. However, this remains well below the United Nations’ target of 0.7 percent of GNI.

While funding has grown in absolute terms, ODA has consistently accounted for approximately 2 percent of recipient governments’ general expenditures since 2000 on average, 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.

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. 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. 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. 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 and domestic resourcing needs.

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. As high-level budget reductions are translated into line-item implications, state agencies will face difficult trade-offs across and within sectors.

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 a significant portion of contributions to the largest UN agencies in 2023. Some of these agencies have already started to pause programs and close offices in anticipation of income reductions. Anticipated second- and third-order effects 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.

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. The impact of these funding withdrawals could be exacerbated by the concentration of funding sources in particular program areas. Recent reports indicate significant cuts to sectors such as education and energy, and for administrative spending.

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. In 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. 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.

1. Capture Efficiencies in Program Design and Delivery

• Conducting cleansheet or “zero-based” 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

Engage funders—including ministries of finance and nontraditional donors, such as private sector actors—to secure additional resources.

3. Reprioritize Programs and Investments

Assess programmatic priorities to prioritize high-ROI initiatives and reallocate resources to areas of greatest need. Focus on additionality by prioritizing initiatives that few other sources of financing or organizations are able or willing to support.

4. Restructure the Global Development Ecosystem

Explore partnerships or mergers among programs, departments, and international organizations to reduce duplicative efforts and enhance operational efficiency. Consider a more comprehensive system redesign using a zero-based approach to align development infrastructure with a refreshed set of clear goals.

Conclusion

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.

FAQ

Q: How will ODA reductions impact global health programs?

A: ODA reductions are likely to result in disruptions to care delivery, delays in procurement of essential supplies, and closures of research and development projects in global health programs.

Q: What can stakeholders in global development do to mitigate the impact of ODA reductions?

A: Stakeholders can capture efficiencies in program design and delivery, mobilize additional resources, reprioritize programs and investments, and restructure the global development ecosystem to adapt to the changing ODA landscape.