In this episode of Devpolicy Talks, Dr Cameron Hill and Honorary Professor Robin Davies discuss Australia's 2025-26 aid budget. The conversation reveals two competing narratives within the budget: Australia's repositioning in an uncertain global environment alongside its role as a stable and reliable partner during turbulent times.
In this episode of Devpolicy Talks, Amita Monterola speaks with Dr Cameron Hill and Honorary Professor Robin Davies about Australia's 2025-26 aid budget. The conversation reveals two competing narratives within the budget: Australia's repositioning in an uncertain global environment alongside its role as a stable and reliable partner during turbulent times.
The analysis shows that despite rhetoric about reprioritisation, the budget largely maintains stability in allocations. The Pacific continues to receive the largest share at 42% of total aid, followed by Southeast Asia at 25%, with minimal changes from previous patterns. The governance sector remains the predominant focus, while health expenditure stays relatively low at 13% of the aid budget.
Robin Davies provides concerning projections for global aid volumes, suggesting a potential decline of at least 25% in international aid by 2027. This reduction is driven primarily by significant cuts from three major donors: the United States, the United Kingdom and Germany. The discussion details the chaotic implementation of US aid cuts, with approximately 25-50% of US aid dollars being cancelled across various sectors.
The conversation also examines the Australian Infrastructure Financing Facility for the Pacific (AIFFP), revealing that despite being conceived primarily as a loan facility, it has relied heavily on its grant component. With 84% of its grant funding already committed but only a third of its available loans utilised, the facility faces challenges due to Pacific nations' limited capacity to take on non-concessional debt post-COVID.
The timing of this budget is particularly significant as Australia heads into a federal election on 3 May. The discussion concludes with insights into how Devpolicy will cover the intersection of aid policy and election campaigning, noting that a change in government would render the current budget null and void and potentially signal shifts in Australia's approach to international aid.
2025 Australian aid update by Stephen Howes
Burden-shedding: the unravelling of the OECD aid consensus by Robin Davies
2025 aid budget breakfast recording
2025 aid budget breakfast slides
Further reading:
Cheques and (power) balances: aid in a post-liberal world by Cameron Hill
USAID Cuts: New Estimates at the Country Level by Justin Sandefur and Charles Kenny
How many lives does US foreign aid save? by Justin Sandefur and Charles Kenny
Cameron Hill: We did a comparison of the ratio between defence and aid spending for the 31 OECD Development Assistance Committee members. And Australia's ratio is already comparatively high even with the UK's aid cuts, its ratio will only move from four to one to eight to one, and we're already at 10 to one and growing.
Robin Davies: Aid reached its highest level ever, around 216 billion US dollars, in 2023. So, if you take that as the baseline, the question is where does aid go by 2027. On the most conservative assumptions that I could make, it seems likely that aid will fall by around one-quarter over that period from 2023 to 2027.
Amita Monterola: We wish to acknowledge the indigenous people of Australia, the wider Asia-Pacific region and other parts of the world, and express our respect for their traditional knowledge and practices, which stem from a deep connection to the lands and waters they have inhabited for millennia.
Amita Monterola: Welcome to Devpolicy Talks. I'm Amita Monterola, and we're coming to you from the Development Policy Centre cottage on the campus of the Australian National University, which is located on Ngunnawal and Ngambri land.
I'm joined today by Senior Researcher Dr Cameron Hill and Honorary Professor Robin Davies. Now Devpol started its budget coverage with a blog by Stephen Howes, and you can find that on the devpolicy.org website. Estelle Stambolie and Sharon Liu spent a very long time on budget night updating the Australian Aid Tracker website, so you can now find all the charts updated with the latest figures. And the three of us here and Estelle presented Devpolicy's aid budget breakfast last Wednesday. Now that was an hour-long seminar, which you can view now at Devpolicy YouTube. But today on this podcast, we're going to bring you some highlights, just in case you don't have time to have a look through with all the charts and the slides there. So now we know that the election has been called for 3 May. Cam, let's start with how the government has framed the narrative in this aid budget.
Cameron Hill: Thanks, Amita, good to be here. So, I think obviously there's a lot going on in the world, including in the world of foreign aid. And so, there were two kind of themes running throughout the government's budget, the aid budget this year, and there was somewhat of a tension between them. There was a theme around Australia reprioritising its aid budget to deal with some of the changes and the uncertainty that's going on in the world. But also, there was a narrative around Australia being a kind of a stable and reliable partner in in a tumultuous time.
Amita Monterola: And which one of these narratives is backed up by the figures in the budget?
Cameron Hill: Look, I think, when you look at the figures, I think stability, continuity, I guess, is the major outcome, so about 2.3% or around $120 million of the planned 25-26 spending was reprioritised to meet genuine gaps, particularly on health in the region, in PNG, Fiji and the wider region.
But when you look at kind of country and sector estimates, it's pretty stable, right? So, the Pacific gets around 42% of total aid in 2025-26, Southeast Asia gets about 25%, South and Central Asia get about 7%, Africa and the Middle East 3%, and then global programs get the remainder, about 22%, and that's pretty much identical to the previous year.
And also, when you look at sectors, it's basically the same. So, governance remains the biggest sector overall, and I guess towards the bottom you have agriculture, education ... health expenditure as a share of the aid budget remains pretty low, 13% certainly down from COVID, but even down from pre-COVID averages. So yeah, as I said, I think when you look into the figures, you see very much a stable pattern of allocation, despite some of the framing around reprioritisation and change.
Amita Monterola: And what was some of the big news on the multilateral aid front?
Cameron Hill: Some of the ... much of the reprioritisation, the 2.3% or $120 million did come out of reprioritisation of multilateral aid next year, cutting funding for some UN agencies and then reprofiling payments to global health and education facilities. But also, I guess, on the more positive side, there was a $660 million contribution to the World Bank's International Development Association, which gives concessional finance to the world's poorest countries, and that's up about 20% in real terms from our last contribution to IDA, which, that's over three years. So I think that is a positive move. Interestingly, that was framed as a Pacific initiative, even though the bulk of that funding obviously goes to the world's poorest countries, most of which are in Africa.
Amita Monterola: So civil society are calling for 1% of the budget to be spent on aid, and now we've got Peter Dutton talking big on defence. So how does Australia compare to other countries when we look at amounts spent on aid and defence?
Cameron Hill: So, in the latest year available, which is 2023, we did a comparison of the ratio between defence and aid spending for the 31 OECD Development Assistance Committee members. And Australia's ratio is already very comparatively high, and we spend in that year, we spent more than 10 times on defence than we spent on aid. There's a few other countries that are higher than that, but one of them's a global superpower, the United States. Several of them have a share of border or are near Russia, and the other two both have still quite small aid programs, although Korea is growing, and have active disputes with their neighbours. So that's Greece and South Korea.
So yeah, we already have quite a large share comparatively. And obviously we know that other countries share of defence to aid will move. But for example, even with the UK's aid cuts, its ratio will only move from four to one to eight to one, and we're already at 10 to one and growing.
Amita Monterola: So, we've heard about that uncertainty in the international environment, and in particular in global aid volumes. Robin, could you tell us a little bit more about what you're looking at and what you're seeing in your research?
Robin Davies: Yeah, thanks Amita. So, I was moved to do some research on the trend in global aid taken as a whole, because there had been so much reporting on the US aid cuts and a lesser amount of reporting on the UK cuts. And the obvious question was, what happens when you put all of that together with what we know about cuts from other donors, and about eight other donors have also announced an intention to cut aid over the past year or so.
Yeah, I went hunting through budget documents, public announcements and so on, from those 10 donors in total, who have all announced their intention to reduce aid and put all of that together and developed some projections out to 2027. It's hard to go a lot further than that.
And basically, as Cam said the most recent year for which we have data is 2023. In that year, aid reached its highest level ever, around 216 billion US dollars in 2022 dollars and so if you take that as the baseline, the question is, where does aid go by 2027. On the most conservative assumptions that I could make, it seems likely that aid will fall by around one-quarter over that period from 2023 to 2027.
Some donors have made quite specific commitments to reduce aid by specific amounts, the UK, for example, will go from around 17 billion to about 11 billion over that period, if they follow through their announced intention to go down to 0.3% of GNI and, similarly, many other donors have made specific commitments to reduce.
Then there's the group of 21 OECD Development Assistance Committee donors who are either committed to maintaining aid, in some cases, they're committed to increasing it. And a particularly prominent example is, in fact, South Korea. And in a few cases, we just don't know, so I've just assumed those donors will continue at current levels, and the big ones there are Italy and Japan, and I underline that as a very conservative assumption. In practice, I would not be surprised if Italy, under the Meloni administration, reduced its aid, and I've even heard some rumblings about Japan potentially doing so since I did these estimates.
The huge unknown is the US. We might come back to that in a moment. But for the purposes of this exercise, rather than adopt the doomsday scenario of zero US aid, I've assumed roughly an aggregate two-thirds cut by 2027 so around 50% in 2025 and then a bit more in each of the two following years. And that's based on the commonsense view, that no matter how negative the Trump administration is about overseas aid, there are always certain things that any government is going to continue to do -- disaster relief assistance, some politically based aid, budget support to friends and allies, and some things that particularly strongly benefit US producers, such as food aid. That's how I got to 25%.
When you look inside the various groupings within the OECD, the vast bulk of the reduction is down to the United States, the United Kingdom and Germany. And just a word on Germany, they had already, under their previous government, announced that they would reduce aid. They have subsequently elected a far more conservative government. We don't know what they're going to do, but I would bet that their increases will be steeper than currently announced. So, if you just take those three countries together, they collectively reduce their aid on current settings by about 50% by 2027.
The other countries that are cutting aid are not as significant, so the overall cut is around 37% from that group of 10 who are cutting aid, and then there's a slightly countervailing effect from the smaller group of donors who are increasing aid. So basically, the small aid cutters more or less cancel out the small aid increases, and those big three cutters have a big influence on the overall outcome.
Amita Monterola: So, it does seem that sometimes the story is getting lost. We're concentrating on those big aid giants and not looking at the rest of the world. But this is a story that's taking place in every single country, the debate over aid volumes, of course, the US is making a much more dramatic statement by shuttering US aid offices, sending people home from projects, cancelling partnerships, effective immediately. What effect is this having as a flow on to other decisions?
Robin Davies: So, the first thing to say is we're finding out more every day about the decisions that have been taken by the US administration. Not everything that we hear is internally consistent, so it's still a situation of complete chaos and great confusion. What seems clear is that a large number of aid sectors and a large number of bilateral aid allocations have been cut by 90 to 100% based on information that's come out, most of it really just over the last week, and it's been very well analysed by the Washington based Center for Global Development -- Charles Kenny and his colleagues.
But some of the initial media reporting on US aid cuts was based on a misconception. The initial reports were that something like 80 or 90% of US awards, in other words, agreements and contracts, had been cancelled, and some reporters assumed that meant that about 80 or 90% of US aid dollars had disappeared. But a lot of those awards were very small, and the reports related to the entire portfolio of awards. So, it's very hard to tell what was going to happen in annual spending terms as a result of those early decisions.
The information that we have now is more fine-grained, and the analysis done just a few days ago by the Center for Global Development suggests that somewhere between 25 and 50% of US aid dollars, not awards, has been cancelled, and their preferred estimate as of a few days ago, was that maybe 34% of US aid dollars had been cancelled. You can think of that in portfolio terms or annual spending terms. It's just hard to know.
Even more information has come out, literally today, and I would say the situation is looking a bit worse than that, but the CGD work is broadly consistent with the assumptions that I made about US aid. I assumed a 50% dollar cut in 2025. That's their worst-case assumption as of a few days ago. So, I think it's wise not to assume a total zeroing of US aid, but it's also wise to be quite pessimistic about how much of the money survives now.
Just a few words on the impacts of all of this, just moving beyond the raw dollars, particularly for our region. And so globally, the US has, in recent years, accounted for about a quarter of global ODA. In 2023, US assistance was around $62 billion. And in our own region, it's a bit of a similar picture. The US aid accounts for about a quarter of all aid to the Asia-Pacific region.
In the countries of most concern to Australia from an aid perspective, the Pacific and Southeast Asia, the US is less significant as a bilateral donor, and I think the impact of the US aid reductions on those countries is much more likely to be felt through the multilateral organisations.
Amita Monterola: I think I saw that the figure for PNG was a cut of about 23 million.
Robin Davies: Which is a 100% cut. That's the most recent. Yes.
So again, information is coming out slowly, but we know that grants have been cancelled to a large number of UN organisations already. Of course, WHO is well known, but also the Food and Agriculture Organization, UNAIDS, the UN Office of Drugs and Crime - a whole series, and we will hear about more of them as we go along. There have been some conflicting reports about Gavi, the Vaccine Alliance. They've certainly cancelled the head agreement with USAID which covers GAVI funding, and we have yet to learn whether that will entail a zeroing of GAVI support from the US.
So, these organisations are significant in the region, and their ability to maintain a physical presence in these countries and to maintain programs is partly dependent on US support at the global level. So, I think that's where we'll see a lot of the impacts on countries in our region.
In terms of aid sectors, again, the very good CGD analysis shows that really most assistance in most traditional aid sectors is being cut by at least 90% and in some cases 100%. Paradoxically, infrastructure support seems to have been entirely eliminated. A lot of support for what we would call governance assistance, education, a great deal of health assistance. And what remains looks to be mostly disaster relief, food aid, some other humanitarian assistance, support for macroeconomic policy and growth and some elements of global health, but it's unclear at this stage what those will be. So, it's a comprehensive impact at the sectoral level.
Amita Monterola: And we'll put the links to the CGD research in our show notes, as well as the links to your global aid blog, which you published around two weeks ago now, just prior to the budget coming out.
18:14
Amita Monterola: Cam, during the aid budget breakfast on Wednesday, you talked a little bit about the Australian Infrastructure Financing Facility for the Pacific. So, this is an Australian government vehicle that encourages infrastructure investment across the region. Why did you include it in this year's update?
Cameron Hill: Yeah, there were a couple of reasons. It's been going for about five years or so now. It is a big initiative. It's $3 billion in non-concessional loans and $1 billion in ODA grants. And the other reason is we've got quite a bit more reporting about it than we had previously, the AIFFP website now, which is quite comprehensive, the reporting on the facility coming through the aid program's wider performance reporting now, and the AIFFP is putting out its own annual reports. So yeah, it seemed like a good time to have another look at it.
Amita Monterola: And what did you conclude from looking at the information that you've gathered so far from the facility?
Cameron Hill: Yeah, I think we'll keep working on it. But I guess the main thing we found from an initial look ahead of the budget breakfast was that despite the fact that AIFFP was mostly set up as a non-concessional financing facility, it has had to lean pretty heavily on its grant component. According to AIFFP's own reporting, as at 30 June 2024 it had committed 84% of the $1 billion in grant funding and just over a third of the $3 billion in non-concessional loans.
So, despite being set up as a largely non-concessional vehicle, the AIFFP is showing a strong bias towards grant funding. It's more concessional in practice than in conception, and when we dig a bit further, we see the reasons for that. Part of the reason is that the government promised to use AIFFP to deliver on a Pacific climate and infrastructure initiative, and much of that is small-scale renewable energy projects, and they're not really amenable to non-concessional lending. Most of them are delivered through NGOs and community organisations. So that has meant that they've had to allocate more of the grants.
There's also the fact that, post-COVID, Pacific governments are in a pretty tight fiscal position for the most part, and their ability to borrow on non-concessional terms is highly limited. In fact, only one country really has been borrowing from AIFFP in a significant way, and that's PNG. So over 80% of the lending that has occurred through the facility to date has been to PNG, and much of that has actually been for one project, the $520 million in non-concessional loans that have been lent to PNG for port redevelopments.
Again, a combination of wanting to do more in small scale energy and renewables, coupled with the fact that Pacific governments are not in a position to borrow non-concessional loans at the moment, and unlikely to be, I think so mean that, yeah, the facility is having to allocate more grants more quickly than loans.
Amita Monterola: So, what are the implications of the bias towards grants?
Cameron Hill: I think the fact that AIFFP has committed over 80% of its grant funds and only a third of its loans means that it's likely that probably the next or a new government would need to make a decision, probably pretty soon, about topping up the grant component of AIFFP, because our calculation at the current rate of loan and grant commitments is that AIFFP could need as much as $1.3 billion extra in grants in order to meet that $3 billion loan cap. So, you know that, and provision for that may have already occurred within DFAT, but it could also be a call that's having to be made on other aid programs, either in the Pacific or outside the Pacific, to reallocate some of that money to AIFFP grants.
Amita Monterola: It's great to see more reporting on the AIFFP funding. We also discussed aid transparency at the aid breakfast this week with the initial findings from the Devpol aid transparency audit that's currently taking place. Estelle Stambolie gave us a great overview of the preliminary findings. Cam, can you tell us a little bit more about the audit?
Cameron Hill: Estelle and our other colleague here, Terence Wood, have been working on the audit over the last month or so, and the full report and the full set of recommendations should be out within the next couple of months. And I think that report, as Estelle mentioned in her preview, I think will be a really important way to feed into DFAT thinking about what next to do on its aid transparency portal AusDevPortal, and I think it's timely as the Australian aid program thinks about where to next on aid transparency.
Amita Monterola: Thanks, Cam. This is not the end of Devpol's budget coverage. We did start last Wednesday with Stephen Howes' blog, the Australian aid update. And then we have put out a recording on YouTube of our aid breakfast, and we have various blogs already published, including by Robin Davies on global aid volume. We'll be continuing that coverage with more blogs on various topics, but right now we're going to be heading into five weeks of a federal election campaign.
Now Robin this period, with ourselves as the blog editors and podcast producers, it's going to get quite busy. What are some of the things that you're looking forward to that we're planning?
Robin Davies: So, this is an unusual year. Our aid budget coverage now blends with our election coverage. And in fact, if there were a change of government, of course, the existing aid budget is null and void. And there is a question over the future direction of aid volume and aid policy under the alternative government, and we have seen some indications that the alternative government shares some of the views of the aid cutters that I referred to earlier. So that's something that we need to watch.
So, through our podcast and through our blog, we'll be covering aspects of the views of the major parties, but also other elements in Parliament. We'll be looking at what they say about their stance on aid, and what they say about aid volume in general and specific commitments through the campaign. We'll try to speak directly with political representatives where we can. We can't promise that we'll capture their time, but we'll do our best to do that, and we will be producing commentary through the blog throughout the campaign.
Amita Monterola: Thanks, Robin. Thanks, Cam. I've been talking to Honorary Professor Robin Davies and senior researcher here at the Development Policy Centre, Dr Cameron Hill. Please make sure that you subscribe to our Devpolicy Talks channel this week, as we will be putting out bonus episodes during the election period.