Aid & development, explained.
Phnom Penh, Cambodia (Tang Chhin Sothy/AFP via Getty Images)
Cambodia’s “missing middle” means economic growth hasn’t yet produced the managers and technicians the country needs.
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What happens when Cambodia graduates from aid but isn’t self-sustaining?What happens when Cambodia graduates from aid but isn’t self-sustaining?
For many countries, graduating from Least Developed Country (LDC) status is a signficant milestone – the culmination of decades of progress in growth, health and human development. Yet Cambodia’s forthcoming graduation in 2029 is viewed not as an endpoint but as the beginning of a new and potentially quite challenging chapter.
That chapter was a central focus of The Asia Foundation’s recent “Future of Development Cooperation” dialogue in Phnom Penh. The dialogue – which brought together key stakeholders from government, civil society and the private sector – explored a situation in which economic transformation and aid transitions are occurring simultaneously, testing the assumptions of linear development trajectories on which the global aid architecture was built.
Cambodia’s story captures this turning point vividly: a country that has moved swiftly from post-conflict recovery to lower middle-income status, yet still grapples with structural gaps in financing, state capacity and human capital. As the dialogue revealed, navigating this next phase will depend as much on who drives the country’s growth as on how it redefines partnership and cooperation in a changing aid landscape.
For many development partners graduation triggers a reclassification and a shift in global identity – from aid recipient to emerging market, from concessional finance to commercial borrowing. But this shift often comes before countries have developed the governance systems and fiscal resilience needed to sustain inclusive growth. Cambodia’s economic trajectory illustrates this paradox. The country’s macroeconomic fundamentals are generally strong, with steady growth, low inflation and a stable exchange rate. Yet beneath the surface key vulnerabilities persist: a heavily dollarised economy, constrained domestic revenue generation and ongoing reliance on external financing.
The question is not whether countries are “ready” to graduate, but whether the global system is ready to support them after they do.
Cambodia’s Integrated National Financing Framework is designed to bring greater national ownership to development financing by aligning public and private resources with national development priorities. Achieving this vision, however, depends on more than just strategy – it calls for institutional strengthening, inter-ministerial coordination and better integration between the informal and formal sectors of the economy.
This tension between recognition and readiness – or being reclassified before being resilient – is not unique to Cambodia. Across Asia, countries approaching graduation face similar challenges: declining access to grants, a shift toward loan-based financing and growing pressure to attract private capital. The “future of aid” conversation, therefore, in these contexts needs to be about how to sustain progress in systems that are no longer aid-dependent, but not yet fully self-sustaining.
If graduation represents a structural challenge, dialogue participants pointed out that Cambodia’s “missing middle” lies in its human capital. Cambodia’s economy is bifurcated. On one end are low-wage workers in garments, construction and agriculture; on the other, young and emerging professionals in government, finance and technology. Between them is a gap: a shortage of mid-level professionals and technical experts who are essential to driving the country’s transition from a labor-intensive to a knowledge-based economy.
This missing piece is not only an economic gap but an institutional one. Ministries, municipalities, and enterprises all reportedly struggle to recruit and retain mid-tier staff who can manage systems, translate strategy into operations and adapt policy to local realities. The absence of these skills weakens implementation, perpetuates reliance on external consultants, and limits innovation and growth.
Participants in the Phnom Penh dialogue described this as a less visible but critical constraint on Cambodia’s development. They noted that while signficant investments have been made in leadership and entry-level skills, much less attention has gone to the mid-level professionals who keep systems functioning. Considering how to fill that gap requires more than just projects on vocational training. It means investing in the connective tissue of institutions – managers, technicians, analysts and implementers who keep programs running long after donors exit.
The relationship between these two challenges – graduation and the missing middle – points toward a broader reframing of development cooperation. Traditional aid models assumed a linear trajectory: donor support leads to national capacity, which leads to self-reliance. But as Cambodia’s experience shows, the end of aid does not automatically yield institutional maturity or equitable growth. Instead, countries enter a liminal phase where the tools of aid (grants, concessional loans, technical assistance) are still needed, but the terms of engagement must evolve.
The “future of aid” in this context is less about how much money flows and more about how relationships evolve. Instead of donors funding projects, they may become capability partners – helping governments co-design incentive systems, manage fiscal risks and cultivate the professional strata that underpin resilient institutions.
According to participants in the dialogue, the question is not whether countries are “ready” to graduate, but whether the global system is ready to support them after they do. That means ensuring that development partnerships don’t disappear when the grant cycle ends but evolve into more reciprocal arrangements, combining concessional finance, technical expertise and enhanced south–south collaboration. In a post-2029 world, with the right support, Cambodia will be co-creating the development solutions that the world needs next.
This article draws on insights from The Asia Foundation’s country dialogue in Phnom Penh, held on 10 October 2025, as part of the regional initiative “The Future of Development Cooperation: Perspectives from Asia,” supported by the Australian government.
About the authors
Meloney C. Lindberg
Meloney C.
Diya Nag
Diya Nag is The Asia Foundation’s director for Strategy and Development in Cambodia.
Pechet Men
Pechet Men is a program manager with The Asia Foundation’s Australian-funded Ponlok Chomnes: Data and Dialogue for Development in Cambodia program, which strengthens Cambodian knowledge sector institutions to generate high-quality research to inform public policy.
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