Bilateral aid declines in Southeast Asia as poorest bear the cost

SOUTHEAST ASIA, 12 OCTOBER 2026 —

Official development finance to Southeast Asia has fallen to a decade low as bilateral donors pull back from the region.

Total official development finance dropped by 9.8% to $26.1 billion in 2024, the latest year of comprehensive data available, compared with $28.9 billion in 2023, according to findings from the Southeast Asia Aid Map.

Lowy Institute estimates suggest a further drop of at least $800 million in 2025. The decline comes as Southeast Asia's economic development model faces intensifying pressure from overlapping external shocks, including aid cuts, tariffs, and the repercussions of the Iran war, alongside acute internal challenges such as worsening fiscal pressures, backsliding governance, and social unrest linked to inadequate formal job creation and a shrinking middle class.

Official development finance continues to play a major role in key development sectors across the region, including infrastructure, health, education, and social assistance, as well as supporting domestic policy reform. The headline projection of declining aid, however, masks an increasing divergence between bilateral and multilateral sources.

In 2024, Japan oversaw the largest single reduction in official development finance to the region, with its funding dropping by $1.5 billion. Decreases by other traditional bilateral donors in 2024, such as the United States, were offset by increases from others, such as Germany, bringing the total reduction in overall spending by traditional bilateral donors to $1.1 billion.

Official development finance from traditional bilateral donors is projected to fall by at least another $1.8 billion in 2025 as multi-year aid budget cuts take effect.

Traditional bilateral donors are not the only ones implementing cuts. China, the region's largest bilateral development partner, also reduced its official development finance in 2024 with a drop of $1.1 billion. New project commitments by China point to a continuation of subdued financing going forward, likely reflecting a more selective approach by both Beijing and Southeast Asian governments. China is not filling the gap left behind as traditional bilateral donors cut their aid budgets.

As bilateral donors pull back, multilateral sources of official development finance now carry more of the load. This is primarily a story of multilateral development banks taking the lead, as other multilateral sources are shrinking and set to decline further amid sharp funding cuts.

In 2024, multilateral development banks for the first time overtook all bilateral donors combined, providing $12.7 billion, or almost half of total official development finance to the region. The Asian Development Bank and the World Bank were already the largest and second-largest development finance partners, providing $5 billion and $4.7 billion respectively.

Meanwhile, the Asian Infrastructure Investment Bank substantially increased its financing to $2.75 billion, marking the largest increase by any donor, and appears set to sustain that level.

Multilateral development banks have historically provided the bulk of their support to the region through non-concessional loans. Despite the name, these loans come with much lower costs than other external debt options open to these countries. Using non-concessional loans rather than concessional loans, or grants, allows the banks to operate at scale and will be critical in supporting Southeast Asia's economies as they continue to grapple with large development financing gaps.

However, non-concessional loans from multilateral development banks are of less benefit to poorer countries. Poorer nations must rely mostly on scarcer concessional loans and grants, or those projects, mostly in the social sector, where loans are not the right form of finance. It is traditional bilateral donors that have generally provided the bulk of this kind of support.

This dynamic suggests donors should consider reprioritizing their remaining aid allocations to ensure the region's poorest countries and key social priorities do not get left behind. Bilateral donors will also have to manage the balance between their bilateral and multilateral financing, because the same grant resources fund both.

The multilateral development bank model allows limited aid dollars to go further, but provides less control and direct benefit for shareholder countries. Direct bilateral support, by contrast, is generally smaller but can be more targeted toward bilateral interests, providing more direct geostrategic dividends. It remains unclear how this calculus will evolve from a bilateral donor perspective as cuts to aid budgets continue and geopolitical pressures intensify.

Bilateral donors, who are also shareholders in the multilateral development banks, have so far largely preserved funding for the multilateral development banks. How long they keep doing so, particularly as their own bilateral programs shrink, will decide how much additional pressure Southeast Asia's poorest countries and social sectors face, increasing the risks that they potentially get squeezed out altogether.

Related: Southeast Asia