Multilateral development banks stepped up as bilateral aid dropped

The world may be in the midst of escalating nationalism, but in development finance, multilateralism is ascendant. That’s according to ONE Data’s recently published Great Reversal report, which says that while net development finance flows to low- and middle-income countries decreased by 25% between 2010-2014 and 2020-2024, the decline would have been more severe without the increased lending of multilateral development banks. The report maps out the withdrawal of finance to LMICs from China, from private investors, and from members of the OECD’s Development Assistance Committee. While all those sources are slashing their levels of finance, ONE Data found a 124% increase in finance from MDBs since 2010. The result is that multilateral funding now exceeds bilateral as a source of cash for these countries — with the caveat that MDB money is more likely to come in the form of loans, not grants. The findings indicate that as bilateral assistance likely enters a period of decline, or at least stasis, MDBs are increasingly central to the development finance system. “A lot of the critique that we’ve heard about … development is its fragmentation, the mismatch of accountability,” said David McNair, ONE Campaign’s executive director of global policy. “A shift toward more multilateral coordination could be a very positive thing. … Their ability to leverage capital markets … is really valuable.” ONE Data finds that from 2020 to 2024, the net amount of multilateral money that went to lower-income countries outpaced bilateral flows, totaling $468 billion compared to $326 billion, respectively. In fact, MDBs now account for 56% of net flows, up from 28% a decade earlier. Still, critics say the shift in MDB financing so far has been incremental rather than systemic and is not enough to address lower-income countries’ economic, climate, and debt challenges. “[MDBs] are playing a bigger role, but it is not a sufficiently bigger role,” said Nancy Lee, director of sustainable development finance at the Center for Global Development. The report also identifies two key trends: Bilateral assistance decreased by $19 billion from 2020 to 2024, or 6%, and is set for steeper declines, especially because the report does not include the 2025 dismantling of USAID and other cuts that year. And while most attention last year was on Western aid cuts, the report spotlights how China has become a “net extractor” of finance from low- and lower-middle income countries as debt payments compound the impact of cuts by traditional official development assistance providers. China switched from being a net provider of financing to lower-income countries in the early 2010s to driving outflows of $24 billion from 2020 to 2024. This was particularly severe for Africa, which paid out $22 billion in debt to China. “There's the role of China … where there had been an infusion of money [but] now that those inflows have withdrawn … what we are left with is debt service that has to be paid back,” said ONE Data Senior Director of Data and Product Jorge Rivera. “So, the question is, how do we continue to inject resources into these contexts, whether that is domestic resource mobilization, whether that is international public finance, but so that we don’t get to a situation where … there’s negative outflows.” The report uses a net analysis of financing for lower-income countries, which includes low- and middle-income nations, by measuring bilateral and multilateral grants, loans, and other inflows, against debt payments. The focus on net financing provides a more systemic view of development finance, particularly the growing burden of debt servicing on low- and middle-income countries. The ONE Data analysis was prompted in part by the World Bank’s 2025 International Debt Report, which found that between 2022 and 2024, $741 billion more flowed out of low- and middle-income economies in debt repayments and interest than flowed into them in the form of new financing. According to the bank, in 2024, developing country debt reached almost $9 trillion and 54% of low-income countries faced high debt risk or were in debt distress. All this comes as financing from private sources cratered from 2010 to 2024, decreasing from 19% — $115 billion — of net flows to lower-income countries to 1%, equivalent to $7 billion. The shadow of the pandemic The enhanced role of MDBs has its roots — or at least its accelerant — in the COVID-19 pandemic, a quintessentially multilateral crisis that demanded global cooperation. “I think COVID played a role in … accelerating some of the processes in multilaterals,” Rivera said. “There [was] proof that the system could move faster in situations of crisis. It showed that the system was resilient enough, and that this was a smart way of providing the financing that was being underutilized.” In 2022, with the pandemic abating, the Indonesian G20 presidency took on MBD reform, publishing the MDB Capital Adequacy Frameworks report, which argued that to meet multiple global crises, MDBs “need to make the most efficient use of the scarce public resources under their stewardship and … attract additional capital from market sources.” G20 advocacy among both high-income and emerging economy members — particularly India, Brazil, and Indonesia — kept a steady spotlight on reform, with the 2023 Indian G20 presidency calling for “better, bigger, and more effective MDBs” and the 2024 Brazilian presidency endorsing a framework with 13 recommendations. In April 2024, a group of 10 MDBs committed to additional lending of $300 billion to $400 billion over the next decade. “I think that was the beauty of this,” McNair said, acknowledging that in spite of some institutional inertia, overall MDB reform “was in everyone’s interest.” “There was this intense need for concessional resources … especially in the wake of the pandemic and other shocks that have been pounding these countries,” Lee of CGD said. “[That influenced] their willingness to stretch their balance sheets.” The limits of MDB financing The key question is: Can MDBs alone expand lending enough to meet the estimated $4 trillion annually required to realize the U.N.’s Sustainable Development Goals? — Spoiler alert: highly doubtful. But the report says that multilateral finance can transform development into a more country-owned, cohesive approach that better blends and coordinates finance from disparate channels. “It’s going to change from being very concerned about what donors … individually provide … to much more about … the multilateral system [taking] … additional risk to be able to unlock additional funding,” Rivera said. “The role of leveraging money from the private sector, to the role of domestic resource mobilization that can help with offsetting some of the cost of servicing debt — those dynamics will quite drastically change.” Lee said that the 25% net financing drop highlighted in the report “is only part of a weak and disturbing picture.” “We’ve seen a steep drop in foreign direct investment in [lower-income country] economies,” she said. “We’re not seeing the long-term investment that these economies need to flow across borders,” she added, noting that domestic private investment in these countries is seeing a slump as well. “The picture is disturbing, really, across all sources of private finance, both foreign sources and domestic sources, and if you don’t have capital formation, that’s just a fundamental constraint on growth at a time when countries … really need to grow faster, both for poverty reduction needs, but also to grow out of their debt problems,” she said. The report says that ideally, growing MDB dynamism can be harnessed by lower-income country ambitions and leadership — providing an investment framework without the distraction and confusion of answering to a multitude of bilateral aid providers. This will require more profound transformation — and difficult political decisions — at both the country and multilateral levels, a tall order given global geopolitical fractures, even among traditional allies within the MDB system. “If … the World Bank was to see their role as a convener of knowledge, of capital, and of ideas and harness that to economic transformation, that could be a really great thing,” said McNair. “I think the risk is that with all of these geopolitics … that these institutions hunker down and try to stay quiet and therefore don’t make the reforms that they need to.”