Southeast Asia Aid Map, explained.
Removing copper from industrial wiring inside a recycling shop in Manila, Philippines (Ted Aljibed/AFP via Getty Images)
Multilateral banks are stepping into a regional aid gap but their loans don’t suit all.
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Bilateral aid in retreat in Southeast Asia, and the poorest will payBilateral aid in retreat in Southeast Asia, and the poorest will pay
Southeast Asia’s largely successful economic 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 worsening fiscal pressures, backsliding governance, and social unrest linked to inadequate formal job creation and a shrinking middle class.
This confluence 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 year’s Southeast Asia Aid Map (Opens in new window) finds that ODF to the region is in decline, hitting a decade low as bilateral donors are pulling back. Total ODF fell by 9.8% to $26.1 billion in 2024 (our latest year of comprehensive data), compared to $28.9 billion in 2023. Lowy Institute estimates suggest a further drop in 2025 of at least $800 million.
However, this headline projection masks increasing divergence between bilateral and multilateral sources.
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 in 2024, such as the United States, were offset by increases from others, such as Germany, so that overall spend by traditional bilateral donors fell a total of $1.1 billion. Yet ODF 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.
Yet, it is not only traditional bilateral donors that have been cutting. China, the region’s largest bilateral development partner, also cut ODF in 2024, with a drop of $1.1 billion. New project 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. China is not filling the gap left behind as traditional bilateral donors cut their aid budgets.
As bilateral donors pull back, multilateral sources of ODF now carry more of the load. This is primarily a story of the multilateral development banks taking the lead, as other multilateral sources are shrinking and set to decline further amid sharp funding cuts (Opens in new window).
In 2024, the multilateral development banks for the first time overtook all bilateral donors combined, providing $12.7 billion, or almost half of total ODF to the region. The Asian Development Bank (ADB) and the World Bank were already the largest and second-largest development finance partners, providing $5 billion and $4.7 billion respectively, while the Asian Infrastructure Investment Bank (AIIB) substantially increased its financing to $2.75 billion (the largest increase by any donor) and appears set to sustain that level.
China is not filling the gap left behind as traditional bilateral donors cut their aid budgets.
Multilateral development banks have historically provided the bulk of their support to the region through so-called “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 continue to grapple with large development financing gaps.
Yet non-concessional loans from multilateral development banks are of less benefit to poorer countries. They 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 suggests donors should consider reprioritising 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 – the same grant resources fund both. The multilateral development bank model allows limited aid dollars to go further (Opens in new window), but provide less control and direct benefit for shareholder countries. Direct bilateral support, by contrast, is generally smaller but can be more targeted towards bilateral interests, providing more direct geostrategic dividends.
It is 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 they potentially get squeezed out altogether.
About the authors
Rahul Nath
Dr Rahul Nath is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre and is responsible for the Institute’s Southeast Asia Aid Map. His research areas include aid and development policy, development finance, sovereign debt, macroeconomic dynamics, multilateral development banks, and climate finance.
Roland Rajah
Roland Rajah is Lead Economist and Director of the Indo-Pacific Development Centre at the Lowy Institute, focusing on economic development challenges across Southeast Asia, the Pacific Islands, and South Asia. His research spans macroeconomics, aid and development finance, geoeconomics, and regional integration.
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