The Fourth International Conference on Financing for Development (FfD4) convening next week in Sevilla, Spain, aims to define the framework for global development financing for the remainder of the decade. This is a tall order, requiring ambition and realism in a year where development spending is being slashed by major donors.
Following a traffic jam of replenishments in 2024, this year, Gavi, the Global Fund, and the African Development Fund (AfDF) are seeking up to $30 billion in fresh funding. It will be an uphill battle for these funds to sustain existing funding levels, let alone set new records.
The major health, climate, and multilateral development bank (MDB) funds—and the countries that rely on them for resources—are reckoning with a hard truth: it’s politically Pollyannish to expect that donors will contribute at previous levels.
At Sevilla, delegates should use the negotiations to plan for how to keep the most high-impact institutions sustainably funded. However, the FfD4 outcome document falls short of the ambition needed to meet the current moment and ensure the multilateral system remains fit-for-purpose.
We propose three priorities stakeholders should pursue as a starting point for broad multilateral reform:
- Commit to a moratorium on the creation of new funds and focus on resourcing high-impact existing ones;
- Launch a review of the funds’ financial models to assess their merits and potential benefits of adopting more financially efficient alternatives; and
- Call for a fund-by-fund rethink of grant allocation models to ensure that scarce grant resources are channeled where they are most needed and deliver the greatest impact.
A Reality Check is Long Overdue
There are many cracks in the concessional financing system
Consider these facts: The largest concessional funds rely on the same 10 government donors to contribute the lion’s share, between 60 and 97 percent, of their funding. Yet, for many concessional funds, donor contributions have remained flat (in nominal terms) for over a decade. Against this backdrop, the creation of new funds to tackle emerging challenges has led to a proliferation of institutions, spreading donor funding more thinly.
The donor retreat is exacerbating trends long in the making
The US has made sweeping changes in its approach to foreign aid, the UK has drastically cut its aid budget, and other major bilateral donors (including France, Netherlands, and Belgium) are following suit. These cuts will reverberate across the multilateral system.
Specifically, the Trump administration’s latest budget request would zero out funding for several major funds, most notably Gavi, the AfDF, the Global Environment Facility, and the International Fund for Agricultural Development (see details here). It does not include a specific funding amount for the Global Fund, but caps US contributions at the upcoming replenishment at 20 percent of total contributions. Despite this, IDA emerged comparatively unscathed (more below).
Across the pond, the Starmer government has announced its plan to reduce UK official development assistance (ODA) from 0.5 to 0.3 percent of GNI by 2027, as well as its intention to refocus UK multilateral funding.
The two biggest European donors are doing the same. France cut its IDA pledge by 20 percent, following the recently announced 40 percent cut to its foreign assistance budget. Meanwhile, Germany is likely to continue its downward trajectory; 2024 was the first year Germany failed to reach its 0.7 percent ODA/GNI target since 2019.
As a result, funds are falling short of replenishment targets
Depending on the final outcome, IDA could end up with the smallest pot of donor resources since IDA 14 (2005-2007). Despite its successful replenishment in December 2024, there is new uncertainty around whether it can reach its $100 billion target. The Trump administration cut Biden’s $4 billion pledge to $3.2 billion – a good outcome relative to other concessional funds but not insignificant. Additionally, the UK’s initial pledge is now “under review.”
For the AfDF, which is fundraising for its 17th replenishment, the funding crunch is more acute. France, Germany, the US, and the UK, which account for 45 percent of AfDF pledges, are all pulling back. Moreover, the Trump administration has decided not to pay the final installment of the last AfDF replenishment, which bodes poorly for current negotiations. As a result, even meeting the ADF 16 target of $8.9 billion may not be feasible. Unlike IDA, the ADF cannot borrow from the market to help stretch lending volumes.
The global health initiatives are also under strain, with Gavi and the Global Fund seeking to raise $9 billion over three years and $18 billion over five years, respectively. Most notable from Gavi’s pledging summit that concluded yesterday was the Trump administration’s decision not to honor the US pledge of $1.58 billion, made by the Biden administration last June, combined with lower pledges from top donors like the UK and Norway (stay tuned for a blog recapping Gavi's pledging summit). The outlook for the Global Fund’s replenishment looks increasingly grim amid the backdrop of a global health funding crisis.
Three Priority Actions
Action 1: Commit to a moratorium on the creation of new funds
The international community reflexively creates new institutions in response to emerging global challenges (e.g., the Pandemic Fund). The result is an increasingly fragmented constellation of perennially under-resourced funds rather than a well-resourced system that strategically operates in pursuit of common goals.
The era of aid austerity means donors must be smart about putting their eggs in the right (and the same) baskets. As a first step, donors should collectively bid to preserve and strengthen a core set of effective institutions that can operate at scale. In close consultation with partner countries, donors should strive to agree on a set of guiding principles to identify the most effective funds and aim to sunset institutions that have fulfilled their mandate, outlived their relevance, or consistently underperformed.
It will take considerable political will to hash out and execute this plan. But as a starting point, a moratorium on new funds should be a topline commitment at FfD4.
Action 2: Launch a review of the funds’ financial models
In the face of stagnating and highly volatile donor contributions, stakeholders should call for a review of the financial efficiency of major multilateral funds.
Many health and climate funds continue to rely on a “cash-in, cash-out” grant model—an approach that is proving increasingly unsustainable. Where appropriate, donors should propose that funds shift to a blended financing model that combines grants and highly concessional loans, calibrated to a country’s income level and debt profile. While this is a departure from the current grant-centric approach of many funds, it could provide countries with a tangible transition pathway in an era of declining aid (stay tuned for forthcoming CGD analysis).
While not without trade-offs, this approach could enable some funds to become more sustainable over the medium and long term through loan reflows and even market borrowing. IDA offers a useful example of a blended financial model, drawing its funding from four different sources: reflows from loans, income transfers from more profitable arms of the World Bank (i.e., IFC and IBRD), market borrowing, and donor grants.
More than three-quarters of IDA’s funding comes from non-donor sources, which has allowed IDA to almost double in size over the past decade, without a concomitant increase in donor funding. It also means that IDA is more insulated from the vagaries of donor sentiment than other concessional funds. But the trade-off is that most IDA financing goes out as highly concessional loans, rather than grants.
Another option—particularly relevant for health funds— is for funds to “pool” a greater share of grant financing with MDB operations. Incentivizing greater use of MDB resources—both grants and concessional loans—for health priorities (e.g., immunization, tuberculosis, or broader health system improvements) could bring in additional on-budget financing, promoting integration into national budget systems and better alignment with country priorities.
Action 3: Call for a fund-by-fund rethink of grant allocation models
Grants are the scarcest resource in the concessional financing system, so it is imperative that they are directed where they are most needed and can deliver the greatest impact.
Currently, many funds lack robust allocation frameworks. For example, recent CGD research found that over 40 percent of mitigation and adaptation financing from the Green Climate Fund went to upper-middle-income (UMICs) and high-income countries (HICs), while less than 10 percent went to low-income countries—and more than 70 percent of financing for HICs was in the form of grants.
Additionally, some health funds provide grants to UMICs, diverting resources from low-income countries and forgoing the powerful effect of concessional lending. For example, the Global Fund utilizes an explicit allocation framework based on disease burden and countries’ economic capacity, but 10 percent of grants are still targeted to UMICs.
In reassessing how grants are allocated at the fund level, stakeholders should consider the extent to which grants should be allocated based on poverty and income levels versus the extent to which they should be determined by benefits derived from investments in global public goods, such as pandemic preparedness, health research and development, and emissions reduction. This should be institution specific, depending on mandate and objectives guided by a common, rigorous framework.
Conclusion
In the context of increased donor austerity and competing budgetary challenges, major multilateral funds cannot continue to operate based on assumptions of donor largesse. There is an urgent need to rethink the current concessional finance system to ensure that vital funds remain viable and effective. The vision should be one that points to fewer, yet better-resourced funds that deliver grants and affordable loans to the countries that need them most. FfD4 stakeholders must not waste today’s development finance crisis.
