Global ODA Plunges 23%... "Aid" Fades as "Investment and Development Finance" Rise

USD 174.3 Billion in ODA for DAC Member Countries in 2025
Down 23.1% Year-on-Year
US Sees Sharp 56.9% Drop, Accounts for 75.1% of Global Decrease
Germany Becomes Top Donor for the First Time
Shift from "Aid" to "Investment and Finance"

Official Development Assistance (ODA) worldwide has recorded its largest decline since records began. While major donor countries, including the United States, have significantly reduced grants, private investment and development finance have actually expanded, leading analysts to observe a shift in the global development cooperation paradigm—from “aid” toward “investment and finance.” In response, experts suggest that Korea should also restructure its ODA system by expanding development finance and taking a proactive approach in identifying and proposing projects, to fill the gap left by shrinking aid from other major donor nations.

According to the Korea Institute for Industrial Economics and Trade’s report titled “Trends in ODA Reduction and Development Cooperation Reform Tasks,” released on the 13th, last year’s provisional ODA figures for member countries of the OECD Development Assistance Committee (DAC) stood at USD 174.3 billion, a decrease of 23.1% from the previous year. This marks the sharpest decline since such statistics have been recorded.

The drop was primarily driven by the United States, whose ODA plunged by 56.9% compared to the previous year. The cut amounted to approximately USD 38 billion, accounting for 75.1% of the total reduction. The top five countries—Germany (-17.4%), the United Kingdom (-10.8%), Japan (-5.6%), and France (-10.9%), when combined—were responsible for 95.7% of the overall decrease in ODA.

With the United States slashing its ODA, Germany took the number one spot among ODA donors for the first time in history, reporting USD 29.09 billion. However, the gap between the United States and Germany was only USD 135 million, making a change in the rankings possible with the final statistics set to be released this December. The OECD projects that net ODA this year will fall by an additional 6.9%, marking a third consecutive drop and bringing it to its lowest level since 2014.

2025 ODA Major Item-wise Growth Rate (Compared to 2024). Korea Institute for Industrial Economics and Trade.

The methods of ODA disbursement are also changing. Last year, bilateral ODA fell by 26.4%; within this category, grants decreased by 29.1% while private sector instruments (PSI) increased by 13.1%. Multilateral ODA also declined by 12.7%.

However, the trends varied by organization. Support for the United Nations (UN), which focuses on international norms and humanitarian work, fell by 27.0%. By contrast, support for the World Bank rose by 6.4% and for regional development banks by 11.9%. This signals a shift in development cooperation away from traditional government-funded aid toward private capital and development finance.

Programs implemented directly in developing countries also shrank significantly. Net ODA for development programs, projects, and technical cooperation dropped by 26.3% last year, marking the steepest decline since such statistics began. The reduction impacted vulnerable countries the most; support for sub-Saharan Africa and least developed countries fell by 26.3% and 25.8%, respectively.

Major countries are not only reducing ODA but are actively integrating their own industrial and security interests into development cooperation. Germany, for example, named “promotion of economic cooperation” reflecting the country’s industrial structure as one of the four key goals in its development policy reform plan released this February. It also shifted its cooperation model with emerging economies from grants toward loans.

The United States disbanded the United States Agency for International Development (USAID) last July, but extended the mandate of its development finance institution, the International Development Finance Corporation (DFC), through December 2031. DFC’s maximum contingent liability (MCL) limit was more than tripled, from USD 60 billion to USD 205 billion. In energy, critical minerals, and submarine cable sectors, the United States has also expanded the scope of eligible countries to include high-income nations.

Japan is increasing “offer-type” cooperation, proactively presenting projects in which it has strengths rather than waiting for requests from partner countries. It is also expanding Official Security Assistance (OSA), thereby increasingly aligning development cooperation with its industrial interests and security policy.

Korea’s ODA—compared to major donor countries—did not decline as steeply. Last year’s provisional figure was USD 3.88 billion, down 2.3% from the previous year. For 2027, the total ODA requested is 6.3084 trillion won, which is 16% higher than this year’s confirmed amount.

However, the number of projects fell by 30.4%, indicating a trend toward larger-scale projects. Only 2.8% of the total requested amount is allocated to new projects, meaning that most additional funding is being distributed to already agreed-upon undertakings. The proportion for transportation projects declined from 28.2% to 21.9%, while the share for healthcare and low-income country support increased—showing a different trend from other major DAC countries, which are reducing aid to the least developed countries.

Korea’s utilization of development finance lags far behind other major countries. Last year, Korea’s PSI performance was only USD 7 million, compared to Japan’s USD 1.019 billion, the UK’s USD 749 million, and Germany’s USD 674 million.

The Korea Institute for Industrial Economics and Trade advised that it is necessary to establish an institutional foundation for Korean-style development finance by updating statistics and reporting systems, and by providing a legal basis for risk-sharing structures. The report also suggested building a “proposal-type ODA” system—connecting industry and corporate data held by various institutions with the industrial policies and investment plans of partner countries, to proactively discover projects. Furthermore, it recommended linking various financial instruments so that projects proposed may actually lead to implementation.

This content was produced with the assistance of AI translation services.