Which countries are the most at risk for aid cuts?

Change is coming to development, and it’s looking bleak. It started with the United States pulling the plug on the U.S. Agency for International Development, and now other donors are considering reducing their official development assistance, or ODA, as well. The United Kingdom, the world’s fifth-biggest donor, announced that it will be cutting its ODA budget even more by 2027. Now, with the recent German elections done, there are signs that Germany — falling just behind the U.S. when it comes to aid contributions — will be making cuts to its development budget as well. Devex has already looked into which countries will be most affected by the U.S. cuts. With the impending shifts globally, it’s time to zoom out and look at which countries depend most on aid altogether. But how could we actually tell which countries are at risk? By comparing recorded ODA data from the creditor reporting system in grant equivalent terms from the Organisation for Economic Co-operation and Development, the gross national income data, and the general government final consumption expenditure from the World Bank. All values were converted into 2022 constant prices. To see which countries are most dependent on ODA from OECD-recognized donors, we looked at ODA received as a percentage of GNI in 2023. Meanwhile, we also looked at government spending in relation to its GNI. This gives us a rough estimate of how flexible a country can be to cover the losses from the decrease in ODA. If the data shows that a country has a high dependency on ODA and low government spending, this implies that the country in focus would not have enough fiscal freedom to cover the loss of ODA. If the country shows high government spending and low dependency on ODA, it would be more likely to be self-sufficient, which means that the ODA cuts wouldn’t affect its budget that much. When a country is found to have both high ODA and high government spending, it is also classified as low risk. This analysis excluded small island developing states, which typically receive much higher levels of ODA per capita than other nations. Which countries are most dependent on aid? As mentioned above, dependency is calculated based on the country’s received ODA and its GNI for the same year. This is represented in ODA as a percentage of GNI. Based on the data, here are the countries most dependent on ODA. Devex will be highlighting the top five countries that are most dependent on aid. Our calculations and conclusions are based on the data available from the countries reporting their data to the World Bank. Inevitably, there will be countries that will not be included in the list such as the small island developing states, Niger, and Jordan. 1. Somalia Somalia is the most dependent on aid based on its ODA as a percentage of GNI. In 2023, Somalia received $1.8 billion in ODA, with a GNI of $10.4 billion, which gives it a 17.6% ODA percentage to GNI. 2. Afghanistan Afghanistan comes in close second to Somalia. It received $2.5 billion in ODA with a GNI of almost $15 billion, giving it a 17% ODA percentage of GNI. 3. Central African Republic The Central African Republic received only $406.5 million in ODA, but had a GNI of $2.6 billion. This makes its ODA as a percentage of GNI 15.6%. 4. Ukraine Ukraine is undoubtedly one of the biggest recipients of ODA. This is because of the ongoing Ukraine-Russia conflict. In 2023, it received $25.4 billion in ODA and had a GNI of $167.6 billion. It has a 15.1% dependency on ODA, which is not surprising considering what the country is going through. 5. Palestinian Authority The Palestinian Authority received $2.5 billion in ODA in 2023 and had a GNI of $20.7 billion. With ODA accounting for nearly 12% of its GNI, it is highly dependent on foreign aid, which directly reflects the impact of the ongoing conflict in the area. How did we calculate the risk? While there is no universal standard for assessing a country's risk in terms of development funding, we have created a framework that uses ODA as a percentage of GNI to measure aid dependence, alongside government spending as a percentage of GNI, providing a rough estimate of a country's fiscal capacity. Countries whose ODA exceeds 10% of GNI with government spending below 18% of GNI are classified as high-risk countries, which implies that they would not have enough domestic resources to cover the loss in ODA. Those with 5%-9.99% of ODA to GNI and government spending below 28% of GNI will fall into the medium-risk category, indicating a slight dependence on aid and that their budgets will be strained. While this approach provides an estimate, other factors such as political, economic, and institutional factors should also be taken into consideration for a country’s resiliency to aid shocks. Who is at risk? There are countries that were highlighted above that are also included in this breakdown. However, there are also countries that initially seem like they do not heavily rely on aid in relation to their income, but have imposing risks because of how they spend their money internally. 1. Somalia Somalia is the most dependent on aid, and it is one of the countries that we categorized as high-risk. This is because it has an ODA of 17.6% of its GNI. According to the data, the government of Somalia spent only $770.3 million, which gives them a 7.4% government spending as a percentage of GNI. Should ODA decline, the country would have immense difficulties in countering the loss with its own available resources. 2. Central African Republic The Central African Republic is another country highlighted based on its ODA dependency. We categorized it as high-risk as well because it has an ODA of 15.6% of its GNI and 7.9% government spending of its GNI. The government has a relatively low spending of $204.6 million. 3. Palestinian Authority The Palestinian Authority is categorized as high-risk. The government spent $3.4 billion in 2023, but in relation to its GNI, it’s at 16.3% with an ODA of 11.9% of its GNI. Without crunching the numbers, but considering all other factors, the Palestinian Authority is a high-risk country as well. A drop in ODA funding will prove difficult for the government to cover any losses more than they are now. 4. Afghanistan Afghanistan is categorized as medium-risk. The government spent $3.5 billion in 2023, giving it 23.4% of government spending as a percentage of GNI. However, because its dependency on ODA is relatively high — 17% — the government might experience severe budget strains to cover the losses. 5. Moldova Moldova is not that dependent on ODA, based on its ODA as a percentage of GNI of 5.7%. However, based on the framework developed, it will still fall under the medium-risk category. Moldova received $829.2 million in ODA, while the government spent $2.9 billion internally. With a GNI of $14.6 billion, this puts its government spending as a percentage of GNI at 19.6%. Though medium-risk, the country would be able to adjust to the decrease in ODA, but not without any budget constraints from the government. Try out Devex Pro Funding today with a free five-day trial, and explore funding opportunities from over 850 sources in addition to our analysis and news content.