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With the knives out on development spending, have we reached ‘peak aid’? | Nilima Gulrajani and Jessica Pudussery

Foreign aid spending reached a record high of $223bn (£180bn) in 2023, new figures released this week from the Organisation for Economic Co-operation and Development (OECD) confirmed.

Yet, in 2024, eight wealthy countries announced $17.2bn in cuts to official development assistance (ODA), and three others hinted at reductions, all to take effect over the next five years.

And these figures have yet to include cuts from the executive orders signed by President Donald Trump to withdraw from the World Health Organization (WHO) and pause US spending on aid in the next 90 days.

There is reason to believe we have reached “peak aid”. The Netherlands is planning to cut its aid budget by €8bn (£6.75bn) over the next four years. The government also announced a €1bn slash in funding for civil society between 2025 and 2030 to encourage more funding from the private sector.

The EU is proposing cutting roughly €2bn over the next two years, with the poorest countries likely to see significant reductions as it pivots to a more streamlined “economic foreign policy” under the investment and trade packages offered through the Global Gateway infrastructure strategy.

Two of the large donors, Germany and France, have successively cut their budgets. While France pledged four years ago to achieve the internationally set target of 0.7% of gross national income on aid by 2025, cuts in 2024 shaved a further €1bn. Germany announced a cut of nearly €2bn to its aid budget.

Smaller donors are reducing their spending on aid, too. Finland is set to cut ODA by about a quarter between 2024 and 2027. Switzerland also announced cuts to its aid budget by $282m.

The famous generosity of the Nordic countries is also coming under scrutiny. In 2022, Sweden abruptly abandoned its 60-year spending commitment of 1% of GNI on ODA and by 2026 it will have a new baseline that is $4.7bn, or 5%, lower.

But at least Sweden had a fiscal deficit to tackle. Norway’s 2024 budget proposal to reduce development aid by $460m comes despite record-high oil and gas revenues after Russia’s invasion of Ukraine disrupted European supplies.

The ODA budget in the UK was at its lowest level in 17 years before a surprise increase of £540m was announced this month. And within hours of his inauguration, Trump announced a review of development assistance to ensure alignment with the “foreign policy of the president of the United States.”

Deep cuts in line with the Trump administration’s Project 2025 manifesto are expected, and will take effect immediately as flexible voluntary commitments to the WHO are withdrawn. Joe Biden’s record-breaking $4bn pledge of low-interest loans and grants to the World Bank is now in jeopardy.

These announcements might exaggerate the perception that aid budgets are in freefall, because real ODA spending has been struggling for some time. But the $223bn “peak” arguably overestimates donors’ true effort as it includes spending that meets the letter but not the spirit of the ODA definition. For example, active military conflict is consuming a growing proportion of overseas aid budgets on Europe’s doorstep, with Ukraine now the single largest recipient ever of international aid.

Not only is aid spending occurring closer to home, but a record amount is also increasingly spent at home. With climate change and conflicts displacing people and spurring migration, more ODA is spent accommodating refugees in rich countries after their arrival. With 28% of UK aid spent on hosting refugees, it is now the biggest recipient of its own aid.

And it is not alone: at least seven donors spent 25% of their aid domestically on transport, shelter and training for refugees. Meanwhile, the share of ODA reaching countries – known as country programmable aid – stood at a historic low.

A record aggregate aid outlay in 2024 may still be possible if other countries increase their spending by more than these forthcoming cuts. But is this likely?

The middling success of the recently concluded replenishment of the World Bank’s concessional financing window, the International Development Association (IDA), indicates it is not. The World Bank said $23.7bn in IDA pledges still met its $100bn fundraising target, but this claim relies on reflows from loans (rather than grants) and more aggressive leveraging of its balance sheet. Belt-tightening and the rising US dollar ultimately resulted in lower commitments.

Budget deficits and high living costs are generating uncertainty for all forms of public spending in rich countries. Only nine donor countries had budget surpluses last year. And two-thirds of EU countries are implementing some form of voluntary tightening of their public spend. Poor macroeconomic and fiscal health make wielding the axe on international public spending easier to the extent that aid is seen as non-essential and targeting non-citizens.

While there is limited evidence over time that leftwing governments spend more generously than conservative ones, right-leaning governments elected in the Netherlands, Sweden and Finland have all slashed ODA and directed what is left to deterring migration, with limited success. And even if countries avoid such cuts, as refugees continue to flee global hotspots for rich countries, the share of aid reaching countries directly will fall.

Geopolitical tensions are also leading to conventional grant aid being redirected towards winning allies and destabilising foes. This is development as “friend-shoring” – or moving production and trade to allied countries for strategic advantage and soft-power influence. If ODA cannot serve transactional diplomatic purposes, it is at risk of diversion, especially in countries such as Canada and Switzerland, which are under pressure to meet the 2% Nato defence spending target.

ODA levels may be breaking records, but it looks like it is doing so by stretching the idea of solidarity itself. Recent cuts suggest it is foreign aid’s legitimacy as a global policy expenditure that is at breaking point.