7.3.8 Foreign aid: flows, conditions, and limits

For displaced families in the cities, the food arrived when they needed it most. For Haitian farmers, it may have undercut the recovery already under way. Did the aid that arrived serve the people it was meant to help?

Foreign aid takes a number of different forms, but it falls into two broad categories: humanitarian aid and development aid.

Humanitarian aid is short-term assistance delivered during and after crises such as earthquakes, floods, or armed conflict. It includes emergency food, shelter, clean water, and medical care. Its aim is to save lives and reduce immediate suffering. Most people agree that responding to urgent human suffering is a legitimate goal, though even humanitarian aid can be shaped by donor interests, as the Haiti story shows.

Development aid, also called Official Development Assistance (ODA), is a separate category. It is longer-term funding from donor states, directed at improving economic and social conditions in lower-income countries. It can take the form of grants (money that does not need to be repaid), soft loans (loans at lower-than-market interest rates), technical support, or direct payments to receiving states. Debt cancellation, where a creditor agrees to cancel part or all of what a country owes, is also counted as a form of aid.

Development aid has funded long-term health programmes, such as HIV/AIDS treatment and childhood vaccination campaigns, which researchers say has prevented large numbers of deaths each year, though the exact numbers are debated. These programmes are one of the clearer examples of development aid's positive impact.

Aid can be delivered bilaterally, meaning from one state directly to another, or multilaterally, meaning through international organisations such as the World Bank, UNICEF, or the UN Development Programme (UNDP), which pool money from many donors.

The United Nations sets a target for donor countries to contribute 0.7 per cent of their gross national income (GNI) as ODA each year. In 2025, only four of the 33 Organization for Economic Cooperation and Development (OECD) donor countries met this target (Figure 3).

These figures come from the OECD, which only counts aid that meets its own definition of ODA. This excludes most financing from countries such as China, which has become a major lender to many Global South countries, but does not report to the OECD in the same way. This means the figures in this section do not capture the full scale of global development finance.

In 2025, total ODA fell by 23 per cent, the largest single-year decline on record. This brought aid volumes back down to their 2015 level, raising serious questions about what development aid can realistically achieve, and what structural changes to aid programmes are needed. Within this smaller total, humanitarian aid made up around 9 per cent of rich-country aid budgets, with development aid making up most of the rest. The rest of this section focuses on development aid, since this is where most of the debate about aid's effectiveness lies.

Aid is often described as an act of generosity from richer countries to poorer ones. Economists and researchers have found reasons to question this picture. Aid works within a global system that is producing the very problems that aid is meant to solve. Earlier sections of this Subtopic 7.3 have explained that global systems of unequal exchange through trade, labour, debt, and financial flows result in net outflows of material, financial, and labour resources from the Global South to the Global North. These flows are far larger than aid flows in the other direction.

Aid involves power relationships

Much development aid comes with conditions attached. This gives donors and lenders power over receiving states, since states often must adopt economic policies chosen by outside lenders to receive funds. This means receiving states lose some sovereignty, or control over their own economic decisions and future (Section 5.2.4).

The most common form of these conditions is structural adjustment policies (SAPs), including:

• trade liberalisation: reducing trade barriers (Section 7.2.1)

• fiscal austerity: cutting state spending (Section 5.2.1)

• privatisation: selling state-owned enterprises and utilities to private companies (Section 5.2.2)

The stated purpose of these conditions is to push receiving states towards economic relationships, such as open markets and limited state ownership, that are assumed to cause economic development. These assumptions are contested, and Section 7.3.10 explores the debate in more detail. Whatever the merits of this argument, structural adjustment policies can cause real harm.

For example, when IMF loan conditions required countries to reduce wages and cut public sector jobs, some states responded by reducing spending on health workers and closing clinics. Research tracking these effects across multiple countries found that such conditions were associated with reduced access to health services and higher rates of infant mortality.

The IMF has repeatedly promised to reduce the number of conditions attached to its loans. Despite this, the IMF's own reviews have found that structural conditions persist in lending agreements. Research covering pandemic-era loans from 2020 to 2023 found that most were still conditioned on cuts to state spending or increases in regressive taxes that take a larger share of income from lower income households than higher income ones.

Aid may weaken countries in some cases

Aid can weaken a country in three ways, by weakening the relationship between a state and its citizens, reducing a state's own capacity to deliver services, and adding to a country's debt.

Aid and state accountability

Citizens who pay taxes to their government tend to expect something in return. This expectation is one of the ways states have become more accountable to their citizens over time. When a state funds public services through aid instead of taxation, it may become more accountable to aid donors than to its own people. Research across 59 low-income countries found that higher levels of foreign aid were associated with lower tax enforcement by receiving states. This suggests that aid allowed states to invest less in building their own systems for collecting tax revenue.

Aid and state capacity

Aid can also reduce state capacity, meaning a state's own ability to deliver services to its citizens. When international organisations deliver services such as healthcare, education, or food distribution directly, local institutions have less chance to build the same capacity themselves. Over time, a country that relies on aid organisations to deliver services may become more dependent on them, not less.

A concrete example is Ukraine. According to the OECD, in 2025, donor countries gave Ukraine $10.3 billion in aid. In the same year, donor countries gave $29 billion to the whole of Africa, a continent of 1.4 billion people (Figure 5). This does not mean aid to Ukraine was not needed. It shows that geopolitical priorities can redirect aid away from one region and towards another.

Donor self-interest can also shape how aid is spent, not just where it goes. Tied aid is where donors require that aid money be spent on goods or services from the donor country itself. This is what happened with the US food aid sent to Haiti after the 2010 earthquake, which was required by law to be grown, packed, and shipped by American companies. Tied aid means that some of the value of aid returns to the donor country's own economy, rather than reaching the receiving state in full.

Donor self-interest can take other forms too. China has become one of the largest lenders to developing countries in recent years, mostly through infrastructure loans linked to its Belt and Road Initiative, a Chinese programme that funds roads, ports, and railways in other countries to expand trade routes and strengthen China's global influence. Unlike the IMF and World Bank, China rarely attaches conditions about economic policy to its loans.

Some critics call this debt-trap diplomacy. They argue that China lends more than countries can repay on purpose, so that it can seize valuable assets when they default. Other researchers have studied Chinese loan contracts in detail and dispute this claim. They argue that China gains influence through infrastructure projects, access to resources, and political relationships, rather than through seizing assets.

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Aid can save lives, as this section has shown. At the same time, the impact of development aid is a mixed picture because of the conditions attached to much of it, the interests that shape where it goes, and the ways it can weaken local institutions and tax systems. Development aid suffers from some of the same issues of power, inequality, and risk that run through the entire system of global exchange.

As earlier sections of Subtopic 7.3 have explained, the outflows of material, financial, and labour resources from the Global South to the Global North are far larger than aid flows moving in the other direction. Aid is unlikely to reduce global inequality on its own, because it cannot offset an imbalance of this size. It needs to be matched by reforms to the global exchange system itself. These reforms should give recipient countries greater sovereignty over their own economic decisions and end extractive relationships between the Global North and the Global South. Subtopic 7.4 explores these reforms.

Concept: Systems, power

Skills: Thinking skills (transfer, critical thinking)

Time: 30 minutes

Type: Individual, pairs, or small group

Case study on the end of USAID 

The United States Agency for International Development (USAID) was founded in 1961, during the Cold War, partly to compete with the Soviet Union for influence in countries that had newly gained independence from colonial rule (Section 7.1.2, Section 7.4.1). In 2023, the United States gave $62 billion in total foreign aid, more than any other country. This was just 0.24 per cent of its gross national income, a smaller share than most other major donors gave. USAID managed about 61 per cent of this total, with a budget of $43.8 billion. It funded HIV/AIDS treatment programmes, malaria and tuberculosis control, vaccination campaigns, disaster relief, and other programmes. USAID worked in more than 100 countries.

In January 2025, the US government signed an order to review and reduce US foreign aid. Within weeks, around 90 per cent of USAID's contracts were frozen, and most of its staff were dismissed or recalled back to the United States from abroad. By July 2025, USAID had stopped operating as an independent agency, and its remaining functions were moved to other parts of the US government.

Public opinion may have played a role in cutting USAID. A survey found that Americans, on average, believed the government spent around a quarter of its budget on foreign aid. The true figure was about 1 per cent. When people were told the real number, support for cutting foreign aid dropped sharply.

What do we know about the consequences of USAID cuts?

Estimates vary widely, and researchers disagree about how large the impact has been. Before the cuts, one analysis estimated that US-funded aid programmes saved around 3 million lives every year. Most of these lives were saved through treatment for HIV/AIDS, tuberculosis, and malaria, and through vaccination and humanitarian aid. The US government's HIV/AIDS treatment programme alone is credited with saving between 7.5 and 30 million lives since it launched in 2003.

A separate study in The Lancet found that USAID funding had saved around 91 million lives between 2001 and 2021. The same study projected that the 2025 cuts could cause up to 14 million additional deaths by 2030, if they continued at the scale first announced. This projection has been questioned. In practice, the funding cuts turned out to be smaller than the study assumed, and health and humanitarian programmes were cut by less than other areas.

 Critics also point out two problems with the study. First, it cannot fully separate the effect of aid from other factors, since aid has often gone to countries that were already improving in other ways. Second, the biggest, easiest gains in global health, such as basic vaccines, were mostly already achieved before 2025. This means the same amount of aid may now save fewer lives than it did two decades ago.

At the same time, real harm has been documented. In Malawi, the loss of a US-funded ambulance service left some mothers unable to reach clinics during childbirth. In Somalia, a quarter of UNICEF clinics closed, partly due to the USAID cuts. The number of severely malnourished children needing hospital treatment doubled in 2025. Researchers who have studied the evidence disagree with each other about exactly how many lives have been lost from cutting USAID, but they agree that the cuts have caused significant harm.

Questions to consider:

1. USAID was created partly to compete with the Soviet Union, and it was closed for reasons connected to US domestic politics and public opinion. What does this suggest about the role of donor self-interest in foreign aid, both when aid is given and when it is withdrawn?

2. This section explains that development aid can reduce a state's own capacity to deliver services, because international organisations often provide services directly instead of building local systems. Using the case study, explain why USAID's sudden closure caused more harm than a gradual reduction in funding might have.

3. This case study presents several different estimates of USAID's impact, from one analysis' estimate of 3 million lives saved per year to a separate study's estimate of 91 million lives saved over 20 years, and disagreement over the 14 million projected future deaths. Using specific evidence from the case, explain why researchers might reach such different figures for the same question.

4. Some critics argue that cases like USAID show that development aid creates a harmful dependency, and that countries would be better off without it. Do you agree? Use ideas from this section to support your answer, and consider whether the problem is aid itself or how aid is delivered.

Ideas for longer activities and projects are listed in Subtopic 7.5

• Foreign Aid - A data hub from Our World in Data with charts and short articles on who gives and receives aid, and how it's spent. It presents both sides: successes like vaccine and HIV/AIDS programmes, and failures like aid disrupting local economies and governments. More positive on aid overall than this section, so useful as a counterweight. Difficulty level: medium.

• AidFlows - An interactive tool where students can pick a donor or recipient country and see where its aid money comes from or goes. Built by the OECD, World Bank, and regional development banks to make aid data easy to explore. Difficulty level: easy.

• Angus Deaton: «Development aid is cynical» – Swiss Television SRF - In this 10-minute interview, Nobel prize winning economist Angus Deaton argues that large amounts of aid can break the relationship between a government and its own citizens, since the government answers to donors instead of to its people. He also explains what he thinks aid does well, such as funding vaccines and education. Difficulty level: medium.

• Here’s Why Foreign Aid Is a Scam | Doha Debates - In this 7 minute video, economic anthropologist Jason Hickel explains how the global economy moves value from the Global South to the Global North through trade rules, financial flows, and power imbalances in international institutions. Difficulty level: easy

• International Aid: What’s the best way forward - A lesson plan from The Economist for teachers built around the 2025–26 aid cuts: the UK's reduction from 0.5% to 0.3% of national income, and the closure of USAID. It asks students to evaluate different perspectives on where aid goes from here. Difficulty level: medium.

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Coming soon!