Development finance to Southeast Asia hits decade low

Official development finance to Southeast Asia declined in 2024, falling to its lowest level since 2015. Cuts to bilateral aid have been the predominant driver of the fall

In 2024, total official development finance (ODF) to Southeast Asia fell to $26.1 billion, down 9.8% from $28.9 billion the previous year and well below pre-pandemic levels. Bilateral development partners, both traditional and non-traditional, drove most of the decline, reflecting budget cuts announced by many major Western donors.

Traditional bilateral partner ODF fell to $8.7 billion, cumulatively down $1.1 billion (11.6%) on the previous year. The fall in Japan’s ODF drove this overall decline despite significant increases from France, Germany, South Korea, and the United Kingdom. Non-traditional bilateral partner ODF fell to $3.8 billion, down $1.14 billion (23.2%), driven largely by a $1.08 billion reduction in Chinese ODF. By contrast, funding from multilateral development banks (MDBs) was relatively steady, recording a small drop of $190 million (1.5%) from $12.8 billion the previous year.

Japan recorded the largest absolute decline of any bilateral development partner. Its ODF fell by $1.5 billion (35.3%) in 2024 as Covid-related loans announced in 2023 to Indonesia and Vietnam were fully disbursed. Japan’s spending fell further as major infrastructure projects moved towards completion in 2024, including the National Road No. 5 project (Cambodia), the Bago River Bridge and National Power Transmission Network Development projects (Myanmar), the Bangkok Red Line Mass Transit project (Thailand), and the North–South Commuter Railway project (the Philippines).

ODF declined across all financing modalities: concessional loans fell by $1.2 billion, non-concessional loans by $870 million, and grants by $690 million. Even so, non-concessional loans remained the dominant ODF source for the region, reflecting Southeast Asia’s overall income and low risk of debt distress — as assessed by the International Monetary Fund (IMF) and the World Bank — except in Laos and Myanmar. Loans remained the preferred financing modality for infrastructure projects and, since 2022, for human development projects via budget support loans to government ministries.

Aside from large but roughly offsetting movements in the banking and financial services sector ($2 billion decline) and the government and civil society sector ($1.7 billion increase), the sectoral composition of ODF was otherwise broadly unchanged in 2024. Average project value fell by 5%, with a smaller pool of funding spread more thinly across sectors.

While the current fall reflects large financing arrangements coming to an end, ODF to the region (pandemic aside) has been in slow decline since 2015, falling 3.8% per year. Three questions now dominate the outlook: where the cuts will ultimately land, how donors will respond to the ongoing impacts of the Iran war, and whether the MDBs can sustain their support for the region while their own shareholders cut aid budgets.