Pivoting development for a new era

The landscape of development assistance has changed seemingly overnight but with implications that could last years with far-reaching impacts. In the last few weeks, the United States, the United Kingdom, France, the Netherlands, Switzerland and Belgium have all announced redirection of funds and major cuts of at least 25 per cent to their official development assistance (ODA). In the United States, the anchor of the country’s development architecture – USAID – has been completely dismantled. Suffice to say there is less money going around, to different places, and for different priorities.  

These shifts come as the world already faces a $4 trillion shortfall in financing to achieve the Sustainable Development Goals (SDGs). Debt-besieged countries across the Global South are also struggling to invest in economic growth, climate resilience and social progress – compounding threats to poverty alleviation, public health, education and other development objectives.

Evidence suggests that the US cuts alone could risk up to 18 million additional cases of malaria a year and one million cases of severe and potentially fatal childhood malnutrition. Despite years of progress, HIV infections could also rise over 600 per cent if US support isn’t replaced, and famine could spread, given that more than $489 million of life-saving and life-sustaining food assistance is at risk of spoilage, delay or diversion. The impact on education, economies and inequality will likely take longer to manifest, but few would doubt that devastating consequences await.

While the new reality may take some time to fully set in, and new players and platforms will step in and step up, it is already clear that development funding gaps will widen. A paradigm pivot in how countries and institutions in (and between) both the Global South and Global North respond is needed.    

In doing so, leaders and their partners should prioritize looking in three directions: look across themselves and each other, look within, and look to the multipliers.  

Look across themselves and each other  

Coordination failure – between and within agencies, governments and institutions (national, bilateral and multilateral) – has been a longstanding feature of the development system, causing delays, redundancies, inefficiencies and waste, alongside missed opportunities for leverage. Leaders should lean into whole of government efforts that would augment information sharing and draw upon a wider set of budget authorities and allocations as well as financing tools.  

At the same time, in light of ongoing cooperation failure – on stark display during the COVID-19 pandemic – leaders should recommit to, reinvest in and reimagine cooperation and partnership, including with the private sector, to harness and leverage resources and create economies of scale in implementation and delivery. Renewing trust and bolstering links between bilateral and multilateral platforms and processes, reforming the international financial architecture (especially to address debt and lower the cost of capital) and supporting South-South cooperation will also be critical.  

Look within  

Much is being said about domestic resource mobilization (DRM) to expand fiscal space and support development investments. Strengthening financial services, banking and payment systems could also help free up and facilitate the flow of money. In an era of diminished foreign budget support and rising inequality, these policies and initiatives will also be a vital means of redistribution and can help ensure the poorest aren’t left further behind. It is worth remembering that remittances, which rely on and have risen in part because of the availability of affordable and secure transaction platforms, have historically dwarfed official development assistance (by more than four times in 2023). Remittances valued at over $650 billion were sent back to families in lower- and middle-income countries (LMICs) in 2023, helping fund household spending needs and securing income in times of shock and emergency.

At the same time, there has arguably been less focus on increasing the supply side of DRM, i.e. growing the tax base and increasing productivity. In this regard, leaders should double down on increasing workforce participation and earnings through relevant agendas related to jobs, micro and small businesses, and inclusive growth. Formalization will be critical: the majority of the world’s enterprises (eight in ten) and workers (six in ten) remain in the informal economy where pay can be abysmal and basic labour rights are routinely ignored.

There must also be an emphasis on generating demographic dividends by increasing the participation of women and youth in the labour market, as well as older people who want to remain in work. The global gap between men and women in employment is 24 per cent and this tends to be even higher in parts of the Global South (in the Middle East and North Africa, for instance, female labour force participation is just 19 per cent, compared to 71 per cent for men). Among youth, some 20 per cent globally are not in education, employment or training (NEET) and struggle to find decent work or start a business due to inadequate job creation, skills mismatches or lack of credit, among other challenges. As regards older people, countries can see sizable economic gains from the “longevity economy”: the labour, experience and purchasing power of those over the age of 50 (which generated an estimated $45 trillion in value across the world in 2020). In the Global South, countries such as Ghana, Cambodia and Vietnam, where the over-50s already make up 40 per cent of the national population, exhibit this potential.  

Look to the multipliers

It is certain that leaders will need to do more with (much) less. In this sense they should invest and innovate in what we know works to multiply development effectiveness, equity and impact, including in the areas discussed above. Applied across multiple sectors – from health and education to agriculture, governance and public services delivery – technology, artificial intelligence and digital tools can increase productivity, reduce costs, spur innovation and product development, and expand reach and scale (although inequality, user protection and other risks will need to be managed).  

With a remarkable return on investment – 32$ for every 1$ spent – data and data ecosystems can also be game-changing: helping to understand needs, bring evidence into programmes and policies, reduce information asymmetries, enable early warning systems, increase accountability and measure progress.  

A third multiplier is localization by way of aligning support with national strategies, programme co-creation and ownership, funding local actors, in-country spending (including hiring host country nationals) and strengthening and increasing the use of local systems. These practices promote inclusion, improve effectiveness and lower costs. They can also reduce dependency on aid over time: one study found that in the absence of inflated overheads and salary costs local intermediaries delivered programming that was 32 per cent more cost efficient than similar programming delivered by international intermediaries.  

At the United Nations, these three directions are already reflected in the Pact for the Future and the Global Digital Compact. They must continue to be reinforced, advanced and implemented this year through the Fourth Financing for Development (FfD4) process which will conclude in Seville in June, as well as the High-level Committee on South-South Cooperation in May, the High Level Political Forum in July and the Second World Summit on Social Development in November.  

Adapting to the new reality of declining ODA will require a renewed sense of purpose, pace, priority and precision. While we should all remain clear-eyed about the lives and livelihoods at stake, it is time to recognize that in this era of extreme strategic competition and geopolitical fragmentation, development also needs an evidence-based narrative that meets the moment and responds to the defense and economic security imperatives (and rationale for funding cuts) that have come to the fore. This could in part mean recasting development through the lens of positive economic statecraft (PES) which uses the “carrots” of lending, grants, technical assistance and other incentive or rewards-based tools more intentionally alongside the “sticks” of sanctions, tariffs, export controls or other punitive or restrictive measures to advance national interests.  

We can look back to learn from the past, but we must also account for the present and look strategically to a new future – one where development is done differently.