The old aid model is dead. Now comes the fight over what replaces it

With so much high drama in global development last year, it was hard to catch a breath and see the big picture. So let’s try. Two events that neatly bookended the year best make the point: At the start of the year, the world’s largest development agency, the U.S. Agency for International Development, was unceremoniously obliterated six decades after its founding. And just as 2025 came to a close, its sister organization, a relatively new development finance institution created as the U.S. International Development Finance Corporation during the first Trump administration, was given the tools to one day rival China’s muscular Belt and Road Initiative. Either of these could have been the global development story of the decade. They both happened in the same year, as did so much else. In last year’s edition of my annual predictions piece, I described the old aid system as a melting iceberg. I have written for years that global development is slowly moving from an aid model to an investment model — a shift exemplified by the diverging fates of USAID and DFC. Clearly, the old aid iceberg melted even faster than anyone predicted. All that rapid change exposes core questions. As official development assistance, or ODA, continues to fall, this will be a year of reckoning with profound implications for leaders and institutions, and even for the very idea of global development. For bilateral aid, look out below Last year, I predicted the world had reached peak ODA. That call was not based just on immediate election results in the United States or elsewhere. Those structural forces in donor countries include growing public debt, aging populations, discontent over income inequality and affordability, and political polarization. Altogether, these forces have shifted politics to be more “my country first” and less oriented toward global solidarity and long-term peace and stability. With U.S. President Donald Trump’s NATO and Ukraine policies, another powerful force has emerged for European donor countries: the need to rapidly and significantly increase defense spending. When U.K. Prime Minister Keir Starmer, the leader of a political party that has historically been pro-international aid, announced last year a whopping further 40% cut to ODA, he explained it was a pound-for-pound transfer from the aid bucket to the defense bucket. That sentiment is being repeated across European NATO members. How much further does ODA have to fall? For now, the U.S. may have roughly landed at the nadir of its international aid commitments — in fact, just this week, the U.S. Congress reached preliminary agreement for $50 billion in foreign assistance for the 2026 fiscal year, which is a staggering $20 billion more than the Trump administration requested. That spending bill still needs to pass and, more importantly, the federal government would need to be willing and able to actually spend the money, something that would normally be a given but is entirely up-in-the-air in this administration. Even if the U.S. is stabilizing, the United Kingdom, Germany, and France all have nationalist political parties polling ahead of their respective governments. Across Organisation for Economic Co-operation and Development countries, with few exceptions, ODA has been cut, sometimes modestly (as in Ireland and the Netherlands) and sometimes more significantly (as in Canada and South Korea). Even after significant cuts, more are likely over the next few years. That leaves ODA facing a stark reality this year: It may well drop to levels not seen since before the U.N. SDGs were ratified. ODA was cut approximately 6% in 2024 and is likely to have fallen by an additional 10% to 18% in 2025, according to OECD. Based on previously announced cuts still flowing through the system, I expect 2026 could end with spending reductions of approximately 10% to 15%. This would bring total ODA flows from OECD countries back to pre-2015 levels, before the SDGs came into being — a decade of growth undone in just a couple of years. Much of the budgetary pain will be concentrated on the humanitarian system — particularly U.N. agencies — and on critical but less politically popular elements of global health and development, namely prevention, sexual and reproductive health services, gender equality, and human rights, democracy, and governance. These are areas least likely to find support from the sources of funding that are actually growing this year. For those still reeling from the destruction of USAID and the budget cuts across many other donor nations, the uncomfortable reality is that bilateral aid is still declining and political incentives point toward further retrenchment, not recovery. This isn’t just about one administration, one election, or one budget cycle. That’s why “bring back USAID” — or any simple restoration of the old architecture — is not a serious political or strategic answer. Even before recent shocks, the traditional aid model was too disconnected from results, too slow, too fragmented, and too reliant on a narrow set of partners that often circumvented governments and papered over the need for tough reforms. The problem isn’t that aid didn’t do any good. It did — often extraordinarily so. But structurally, bilateral ODA was always vulnerable — dependent on discretionary budgets, weak domestic constituencies, and a development narrative that failed to evolve alongside geopolitics, technology, and the rise of new middle-income countries. The danger now is not just underinvestment, but abrupt, poorly managed withdrawal — a kind of Silicon Valley–style “creative destruction.” That approach carries a real human cost and squanders decades of trust and goodwill. A phased transition — preserving hard-won gains while lowering long-run costs — would have been smarter. Other countries cutting their aid programs can learn from these mistakes. And the U.S. can still take corrective action mid-flight, something the State Department seems to be doing with the rush to sign global health compacts around the world. Sink or swim Another danger: slow-rolling reforms. Agency leaders hoping for a return to the good old days might be tempted to make minimum cuts instead of using this crisis as an opportunity for tough choices. NGOs, U.N. agencies, and other institutions heavily funded by bilateral aid will sink or swim this year based on the willingness of their leaders — including their boards — to make painful but necessary changes to their business model, organizational structure, and culture. All of which is why the question for 2026 isn’t whether bilateral aid rebounds. It’s how the new model of global development ultimately operates. As aid levels drop, it’s clear the future of global development will not primarily be based on bilateral aid. As we move from an aid model to an investment model, this new era will be shaped more by development finance institutions, multilateral development banks, private capital, and philanthropy. For what remains of more traditional bilateral aid, we can expect a much stronger focus on new operating models that concentrate on cost-effectiveness and creating benefits for donor countries. That means a system less focused on contracts and grants and more on private sector engagement, investing in the government systems of allied nations, and supporting public-private coalitions and social enterprises. Those new areas of emphasis will apply in non-OECD donor countries too, particularly Gulf States that are rapidly growing their development assistance in a manner tightly tied with their increasingly robust foreign policy ambitions. But while non-OECD donor countries will slightly mitigate the aid cuts coming from traditional donors, their growth will not be sufficient to offset the sharp cuts coming from the West this year — or, perhaps, ever. Time to update your operating system What does it mean to swap “aid” for “investment”? In a way, it’s like changing out your car’s gas engine for an electric motor: It sounds simple. It isn’t. You don’t just change the engine — you need an entirely new ecosystem: charging stations instead of petrol pumps, software updates instead of tuneups, electrical engineers instead of mechanics, upgraded grid infrastructure instead of oil exploration. The same is true for global development. This is not a semantic shift from “aid” to “investment.” It’s a wholesale change in operating systems with major implications for the world. The old hub-and-spoke aid system might have been inefficient, but it was simple to understand and had colonial-era roots. The new system will be faster, more market-driven, more locally led — and much harder to control. The days of a few major powers using grants and loans to directly drive development are over and are being replaced by a “Star Wars” cantina of public and private institutions with a multiplicity of influencers and no single captain steering the ship. (Stay tuned later this month for our inaugural Devex Power 50 list to learn more about these influencers and where they are taking us.) That an investment model for global development is ascendant is, in some ways, unsurprising: With public money scarce, donor countries are turning to models that require less public funding and that can attract private funding too. So even as bilateral aid agencies face cuts, many development finance institutions are seeing their funding go up, and their balance sheets grow. The U.S. DFC is a stark example. Under new U.S. bipartisan authorizing legislation that allows it to more than triple the amount of money it can put at risk, it can now grow larger than the World Bank’s International Finance Corporation. Add in the private investment its deals attract, and it could one day rival China’s BRI. Even beyond DFC, 2026 will be another year in which DFIs and MDBs grow their power. The “my country first” era is jet fuel for DFIs as they can draw direct connections back to national security and economic objectives. As critical minerals, energy security, and technology competition become top-tier political questions in OECD countries, DFIs can say they have answers. (I would not be at all surprised if, for example, DFC one day invests in Venezuela’s oil infrastructure.) Multilateral development banks, too, have the advantage of paid-in capital and the tools to amplify their efforts with private money. So far, they have retained political support from shareholders at a fractious geopolitical moment, something U.N. agencies, by contrast, have by and large failed to do. MDBs and DFIs are already being pushed — by necessity — toward larger-scale, more ambitious interventions: infrastructure, energy systems, modern agricultural value chains, water, and internet connectivity. Increasingly, these will be thought of not as projects but as platforms cocreated with private investors. Ultimately, these will be bets on economic transformation, not small-scale projects delivered at the margins. There are many examples. The World Bank has launched major platforms to attract private capital for agricultural productivity and water, adding to its household electrification initiative announced in 2024. The European Bank for Reconstruction and Development just attracted $4.7 billion in new capital, including from the U.S., so that it can double its investment in Ukraine to €3 billion annually, expand into Africa with projects such as a €30 million electric grid modernization in Benin, and launch a $100 million trade facility in Iraq. And the African Development Bank, under new leadership with close ties to Gulf states, has raised billions in new capital from those very states and is, for the first time, issuing bonds for its concessional lending programs — leveraging private investors to dramatically expand its scale. Expect more of this: massive public-private global coalitions built around specific themes married to domestic development strategies and designed to attract private sector investment in areas such as critical minerals, energy, transportation, and digital public infrastructure. Will this approach finally attract private sector investment at scale, something long discussed but never achieved? Will “billions to trillions” become a reality, not just something development insiders smirk and smile about? Getting there won’t be easy, but with the rapid pullback of ODA, there is real pressure now to find levers that will bring in private capital at scale — including changing esoteric banking rules that restrict Western banks from this kind of investment and a concerted effort to chase after domestic resources. One example: The African Finance Corporation has identified a few hundred billion dollars sitting in African funds that are invested in U.S. treasuries and could, with appropriate guarantee mechanisms and the like, be invested instead at home in African infrastructure projects. Look for real progress in these areas in 2026. AI rewires the development landscape Just as the investment model for global development takes over, the world is in the midst of one of the most important technological revolutions of our time. The modern history of global development has been profoundly shaped by technological revolutions, from the Green Revolution to mobile phones to vaccines. Incredible gains in prosperity and life expectancy would have been impossible without them. The latest technology revolution — artificial intelligence — at first might seem less relevant to the least advantaged places. After all, the advancement of AI seems to be a competition largely between the U.S. and China, and the investment adds up to trillions. But this year, we will begin to see how AI will rewire the development landscape — and the timing couldn’t be better. Just as aid funding is falling off a cliff and development finance is looking for places to invest in, AI could rapidly transform health, education, and agriculture systems — potentially stretching scarce aid dollars much further. It does that by solving the capacity-building conundrum. Germany has 10 times the number of doctors per capita compared to Nigeria. That’s not a gap that can be quickly bridged through training, a process that could take decades. The same case can be made for teachers, agricultural extension workers, and government officials and regulators of all kinds. AI can inexpensively expand the capabilities of professionals across industries, giving community health care workers the ability to do more diagnostics, overburdened teachers the ability to provide personalized learning, and farmers access to advice tailored to their needs. Much like the mobile phone revolution brought outsized gains to less developed countries, AI could be the great equalizer, allowing small business owners in far-flung places to get world-class consulting advice and entrepreneurs to build applications without coding skills. As development finance looks to rapidly increase investment in LMICs, AI may give companies and social entrepreneurs there the ability to quickly level up to global standards in accounting, engineering and design, and business processes. And just as mobile phones were a democratizing technology — it’s hard to go anywhere these days where they are not ubiquitous — AI has the potential to be something everyday people can use, not a technology that requires central planning and a top-down approach. That will only be possible if enabling technologies secure sufficient investment, a perspective gaining steam inside MDBs that are rapidly increasing investment in these areas. They include electrification, solar energy, internet connectivity, digital identification, and inclusive payment systems. These technologies will, in turn, allow for rapid advancements in robots, drones, and AI-enhanced 3D printing — technologies that might sound more suited to high-income countries but which could create leapfrogging opportunities for poorer ones. In 2026, look for more investment in these enabling technologies and a flurry of AI-related announcements and initiatives as the latest models are used for new applications specific to global development. Philanthropy’s time has come Even with growing investment and the opportunities that AI affords, in many areas, there is no replacement for aid. A common refrain among philanthropists is that the scale of their funding is too small to plug the ODA gap. That’s why they say they either have to carefully choose small but highly impactful projects and organizations, or use their limited funding to catalyze donor and host countries to spend more on the most effective and scaled approaches to social impact. For any one billionaire philanthropist, it’s easy enough to make that case. But taken together, today’s billionaires hold $16 trillion in wealth, and some are starting to give at the level of governments. Last year alone: • MacKenzie Scott gave away more than Norway and Sweden • Michael Bloomberg gave away more than Australia and Denmark • Bill Gates gave away more than the Netherlands and Canada • George Soros gave away more than Finland and Austria • Chris Hohn gave away more than Portugal and Luxembourg • Cari Tuna and Dustin Moskovitz gave away more than New Zealand and Greece There are more than 3,000 billionaires in the world. Wealth at the top is growing rapidly, and, particularly with the AI revolution underway, there are a dozen individuals with enough wealth to match Bill Gates’ annual giving but who are currently only dabbling at the margins. That’s why, in 2026, it’s simply no longer true to say that billionaire philanthropy can’t compete with governments. It will compete at the scale of ODA, and it will continue growing. The challenge is accelerating billionaire giving at a pace that matches the world’s urgent needs and directing that giving to evidence-based approaches. Even with tremendous growth in philanthropy, only 10% of billionaires have signed the Giving Pledge, and of that group, only a handful have begun giving at their full potential. Getting more billionaires to give away more of their money has been slow and painstaking work for fundraisers, philanthropy consultants, and collaborative philanthropy initiatives. But they are starting to get help in the form of populism. As the affordability crisis roils politics, billionaires face an era where left-wing populists support wealth taxes and many right-wing populists call for reining in the power of elite billionaires. In the U.S., billionaires only narrowly survived major tax increases on philanthropic endowments as part of President Trump’s One Big Beautiful Bill Act last year. And last April, there was great anxiety among U.S. philanthropists that the administration would seek to limit overseas giving and revoke the tax-exempt status of certain foundations — none of which has so far come to pass. There have also been threats of legal action from the administration against the Open Society Foundations, and the U.K.’s Children’s Investment Fund Foundation recently stopped all grants to U.S.-based organizations, due to an unclear regulatory environment in the U.S., and after critiques were published in conservative media. The growing wealth of billionaires, along with the fraught politics they face, could contribute to sustained growth in their philanthropy. Look for more billionaires this year — particularly in the U.S. — to increase their giving, move larger amounts to donor-advised funds while those retain tax advantages, set up overseas foundations before any potential future changes to U.S. nonprofit rules, and generally adapt to a future in which a larger share of their wealth goes to philanthropy — before the tax man comes knocking. So even as ODA levels decline again this year, expect global philanthropy to continue its multiyear growth trajectory. What to do with this growing wave of billionaire giving? Philanthropy’s comparative advantage is risk tolerance, long-term horizons, and mission-first capital. In a time of more transactional aid, philanthropy could become the primary steward of purpose: funding public goods, preserving focus on the poorest and most marginalized, and backing innovations before markets or states are willing to. It can also play an important policy and advocacy role, including making the case that development investments can be more effective than simply buying more fighter jets and bombs. Of course, a leading role for philanthropy isn’t an unmitigated good. If reluctant billionaires finally ramp up their giving out of tax fears, what might they fund? Is it better if the masters of the universe even somewhat replace the role of governments? These are legitimate concerns, and accountability in philanthropy will need to play a bigger role. But in a time of such dramatic need and inequalities, we must contend with not just the downsides but also the potential positives of a much larger philanthropic sector. Surviving the art of the deal A transactional approach to global development is ascendant. Certainly, this has been driven by President Trump, but it’s spread well beyond the U.S. It’s a more attractive proposition for domestic politics across donor countries and thus has staying power. Moving USAID’s functions into the State Department is not just about cutting costs or rearranging the organizational chart. It is about using development assistance as a direct tool of foreign policy, a negotiating point in competition for military base placement, U.N. votes, technology standards, and the like. Development decisions in Washington, D.C., and across donor capitals are increasingly shaped by spheres of influence, access to natural resources, leader-to-leader relationships, security partnerships, and perceived return to national interest. There is no grand strategy guiding this — just coalitions, deals, and positioning. That shift carries profound risk. A purely transactional world does not end poverty. It does not sustain human development gains. In a world of realpolitik alone, too many people are left behind — and too many lives are lost. This is where the West faces a paradox. Narrowing development to national interests may feel rational in the short term. But a world of spheres of influence, where might makes right, is not a world in which liberal democracies thrive. Which is why the mission of global development — human flourishing, dignity, opportunity — cannot collapse into transactionalism alone. In 2026, look for new coalitions to form as a bulwark for the multilateral system and the ideas that underpin it. Middle powers, NGOs and faith groups, engaged publics, corporates, and philanthropists who understand that long-term prosperity is not a zero-sum game will at least try to stem the tide of transactionalism this year. For some countries, ending the aid model will ultimately be a good thing. The so-called Accra Reset is a coalition of countries, development banks, and thought leaders that aims to reimagine the development paradigm such that host countries have more control over their own development. Even if the transition to domestic financing is painful (and we should not forget that lives may be lost in the process), ultimately, countries should be responsible for providing quality health care and education to their own people. But of course, not all countries are in a position to suddenly take on that level of responsibility without enormous consequences. There are roughly 50 countries in or near debt distress, and 39 that are classified by the World Bank as fragile and conflict-affected. Asking them to quickly pull themselves up by their bootstraps may end up with them toppled over. So with donor support faltering, look to a new kind of multilateralism to take a front seat this year: minilateralism. Countries, NGOs, and the private sector will increasingly come together in so-called coalitions of the willing that buck the trend of transactionalism and coalesce around specific themes. The fight for the future of global development Here’s my central prediction: 2026 will be the year the serious debate begins about a new model of global development. Not a nostalgic defense of the past, and not a cynical embrace of pure geopolitics — but something new. As Democrats compete to retake the U.S. House of Representatives this year, as America’s 2028 presidential hopefuls begin to define themselves, and as European leaders aim to stave off right-wing parties, global development will need a new vision and a new language. “Rebuild what we had” is a losing electoral message — and an insufficient policy one. A credible new model will have to reconcile several tensions: • Transactional realities and moral purpose • National interest and global public goods • Market-driven growth and protection of the poorest • Rapid innovation and accountability for results It will need to be tech-enabled, locally led, and market-driven — not because those are buzzwords, but because they are the only way to deliver impact at scale with constrained public resources. And it will need OECD countries to move closer together, not further apart. Aid and development policy — such as defense and industrial policy — now requires stronger coordination among like-minded powers, both to avoid disastrous effects from rapid cuts and to pool remaining resources and investments against shared objectives. This year, the consequences of aid cuts will become more apparent as clinics face stock shortages, nutrition programs collapse, and people take to the streets over a lack of services and slowing economies. Those realities will drive an urgent debate about how to design a new model of global development. What comes next The old development model was always a compromise between foreign policy and human development. We have now shifted sharply toward one end of that spectrum. The challenge of the next decade is whether a coalition of liberal democracies can find its way back toward the middle — preserving urgency, ambition, and moral force while adapting to a harder, more competitive world. The biggest risk is not that the old system is breaking. It had to. The biggest risk is that what replaces it lacks purpose at its core. The fight, in 2026, is to ensure that it doesn’t.