Bilateral aid in retreat

Southeast Asia’s largely successful development model is under intensifying pressure. The region is grappling with overlapping external shocks — from aid cuts and tariffs to the repercussions of the Iran war — alongside acute internal challenges, including fiscal constraints, backsliding governance, and social unrest linked to inadequate formal job creation and a shrinking middle class.

This confluence of challenges is a reminder that the region’s resilience and continued development cannot be taken for granted. Despite much economic progress over previous decades, official development finance (ODF) still plays a major role in key development sectors such as infrastructure, health, education, and social assistance, as well as supporting domestic policy reform. This is particularly true in Southeast Asia’s lower income countries, but also in larger emerging economies such as Indonesia and the Philippines.

This year’s Southeast Asia Aid Map finds that, despite remaining vital, ODF to the region is in decline, with bilateral donors pulling back while multilateral development banks (MDBs) — including the Asian Development Bank (ADB), the World Bank, and Asian Infrastructure Investment Bank (AIIB) — step up. Total ODF fell by 9.8% to $26.1 billion in 2024 (our latest year of comprehensive data), compared to $28.9 billion in the previous year. Our estimates suggest a further decline in ODF in 2025 of at least $800 million, however this headline projection masks increasing divergence between bilateral and multilateral sources of ODF.

In 2024, Japan oversaw the largest single reduction in ODF to the region, with its funding dropping by $1.5 billion. Decreases by other traditional bilateral donors, such as the United States, were offset by increases from others, such as Germany. However, ODF from traditional bilateral partners is projected to fall by at least another $1.76 billion in 2025 as cuts by these donors continue to take effect.

Notably, it is not only traditional bilateral donors reducing their ODF. China, for its part, was the second-largest individual source of reduced ODF, with a drop of $1.1 billion. New commitments by China also point to a continuation of subdued financing going forward, likely reflecting a more selective approach by both Beijing and Southeast Asian governments. Overall, China is not filling the gap left behind as traditional bilateral donors cut their aid budgets.

As both traditional and non-traditional bilateral donors pull back, multilateral sources of ODF have become increasingly important. This is primarily a story of the MDBs taking the lead, with other sources already shrinking and set to decline further amid sharp funding cuts at United Nations organisations. In 2024, the MDBs for the first time overtook all bilateral donors combined, providing $12.7 billion, or almost half of total ODF to the region. The ADB and the World Bank were already the largest and second-largest individual sources, providing $5 billion and $4.7 billion respectively, while the AIIB substantially increased its financing to $2.75 billion and appears set to sustain that level.

With expanding balance sheets, and with bilateral donors in retreat, the MDBs are positioned to offset some of the decline in total development support to the region — especially as they deliver the substantial countercyclical support expected in response to the economic impacts of the 2026 Iran war.

A continued decline in total ODF, however, will only increase Southeast Asia’s financing gaps. China remains the region’s largest infrastructure financier by ODF spending, but its new infrastructure commitments have collapsed in recent years, leaving the MDBs as the main players. Meanwhile, ODF for energy security and renewable energy continues to decline, despite numerous pledges — particularly from traditional development partners — to support Southeast Asia’s clean energy transition.

Finally, the Iran war and other recent shocks have highlighted the importance of both energy security and social protection systems. Yet the impact of these shocks on development finance will not be visible in the data for some years. Of note, a higher proportion of ODF to Southeast Asia goes towards social protection than the global average, but that focus has stagnated outside crisis periods. A sustained shock would test systems that underpin economic, social, and political resilience in the region, at a time when total ODF is already declining.