Australia’s foreign aid (Official Development Assistance or ODA) for 2025-26 is budgeted at $5.097 billion, a 2.7% increase over the 2024-25 aid budget of $4.961 billion. With inflation projected at 3%, there is a tiny year-on-year decline in real aid.
Labor plans to continue to increase aid, if re-elected, by about 2.5% a year for the next decade. In a context in which many countries are cutting aid, holding the aid program steady may seem like a victory. However, even after other countries have cut their aid, Australia will remain one of the stingiest OECD donors. There are still very few in the “0.2 club”, those donors who give 0.2% or less of their Gross National Income (GNI) as foreign aid. Australia joined that club in 2022-23. In 2023-24, our aid/GNI ratio fell to 0.19%, and this year it will fall to 0.18%.
Among traditional OECD donors, only two were in the 0.2 club in 2023: Greece and Portugal. Now we will be joined by the US (a former member of the 0.2 club, which briefly exited as a result of the Ukraine war but now, thanks to Elon Musk, will be joining again). However, other aid cutters will remain out of the club even after they have slashed their aid. For example, the UK has said it is reducing its aid budget from 0.5% to 0.3% of GNI.
And not all countries are cutting. Korea is rapidly expanding its foreign aid. A decade ago, Australia’s ODA was twice Korea’s. In 2022, they were equal. In 2025, Korea’s aid program will be about 50% bigger than Australia’s.
Australia’s sectoral and country allocations are stable. The aid budget makes the bold claim that Australia is “reprioritising our development investments to bolster support to our region”. But this is more spin than substance. The increase is marginal. Aid to Asia and the Pacific as a share of total aid increases from 73.5% in 2024-25 to 74.4% in 2025-26.
While funding to some UN agencies has been cut, other global commitments have been increased. Australia’s latest three-year contribution to IDA, the World Bank’s concessional arm, which was decided on last year but was only made public with the budget, is $660 million, significantly up on the previous $488 million commitment made in 2021-22.
On the aid quality side, we rang the alarm bell a couple of years ago on the gap between project performance as recorded by project managers during the life of the project and project performance as recorded by independent checkers at the end of the project. That gap or disconnect, which was as big as 30 percentage points just a couple of years ago, has now fallen to only five percentage points. Has the aid portfolio quality really improved by as much as this suggests? Or have the final checks become easier to pass?
One of the biggest themes of Australia’s 2023 development policy is localisation, or what was called “country ownership” back in the glory days of the 2005 Paris Declaration. Although it is not one of DFAT’s localisation indicators, arguably transferring funds to partner governments, for example through budget support, is one of the best ways to support locally-led development. This boomed during COVID, and seemed to hold up in 2022-23, but fell last year. It is now back at 6.6% of the aid program, down from its pandemic high of 8-9%. There is talk in the aid budget of $75 million a year for the next four years for budget support to the Pacific, but that is not a lot of money.
Taking a longer-term view, what strikes one is the lack of change in how the aid program is delivered. The next and final graph looks at how aid was delivered in 2010 with how it is delivered today: three-year averages are used to avoid volatility. Then, as now, almost 40% of the aid program went to the multilateral aid system. The big winners have been commercial suppliers whose share of the aid program has increased from 15% to 25%. Those extra 10 percentage points has come at the expense of other government departments (six percentage points), NGOs (two percentage points), universities (also two points).
If DFAT is serious about localisation, I would suggest two targets: funds to partner governments and funds to partner-country NGOs. (One could also aim to increase funds to local contractors, but arguably they should compete with international companies in a competitive market.) Unfortunately the former, as showed, has declined, and the latter — funds to partner-country NGOs — is not being measured.
To end on a positive note, if you want to see a practical example of how localisation can work, read this brief just put out by BRAC, Bangladesh’s and the world’s largest NGO, on the core funding DFAT has been providing the organisation since 2011. Or listen to our latest Devpolicy Talks podcast with the BRAC CEO. According to the brief, “Australia broke new ground with the partnership, which equipped the people closest to the challenges with flexible, long-term core funding, and the trust that they knew best how to use it.” Now that’s effective aid.
Devpol’s Australian Aid Tracker has been updated with the new budget numbers.
Download the slides and view the event recording for the 2025 Devpol aid budget breakfast held on 26 March.
Thanks, Steven. Informative.
Thanks, Stephen for cutting through the mud. I appreciate your analysis! The 0.18 club is a grim one to be in indeed.
Thanks for publishing. I noticed that the BRAC report made no explicit comment on its work on microfinance, otherwise its oldest project:
“Microfinance, introduced in 1974, is BRAC’s oldest programme. It spans all districts of Bangladesh.[ It provides collateral-free loans to mostly poor, landless, rural women, enabling them to generate income and improve their standards of living. BRAC’s microfinance program is estimated to give out around the equivalent of one billion dollars a year in loans.”
Are BRAC’s microfinance loans underpinging this part of the current Brief:
1 in every 4 households who lifted themselves out of extreme poverty in Bangladesh in the last 13 years did so with Australia’s support. Approximately four million households lifted themselves out of extreme poverty in 2012-2024,
It would be useful to remember that 20 years ago: 2005 was the International Year of Microfinance – Bangladesh’s interim head of Government, Mohammad Yunus, being a well-known pioneer of microfinance.
Thanks Stephen – always good to read your analysis.
I was rather disppointed to see – at the end – what should be the main outcome of all of Australia’s budget “spending” – what did it achieve. How effective was it in achieving program objectives ?
“now that’s effective aid” should be asserted by formal evaluation of outcomes, even if the Government of the day/DFAT clearly wasn’t so interested when it abolished the (former AusAID’s) Development Effectiveness Committee in 2020.
Having DFAT’s Development Effectiveness and Enabling Division as an “ordinary” Division in one of Seven departmental Groups displays “just another bureaucratic organisation” approach. The Division in its entirety should be separated and report direct to the Secretary.
And with respect, the amount of the Government Budget money allocated to Australia’s aid (either up or down) is really not the main game. What demonstrable outcomes among intended recipients did those expenditures achieve ?
Some alternative thoughts about the focus on results from our important aid expenditures.
Hi Peter,
Thanks for your comments and sorry for the belated reply. I think “formal evaluation of outcomes” will only get us so far. How much different projects achieve is often a matter of judgement. I also think following principles like localisation is important for effective aid, even if we often can’t tell exactly how effective that aid is. It’s a messy business, and there is no single or simple approach to assessing or improving aid effectiveness in my view. I do agree with you of course that aid effectiveness is important and the blog tried to cover both aid quantity and aid quality issues.
I do appreciate your advocacy for effective aid. Please keep the comments coming.
Regards, Stephen