Without development finance, the United States can’t deliver on strategic investment – Atlantic Council

Report on the State of Global Development Finance and its Alignment with Sustainable Development Goals

Executive Summary

A significant decline in Official Development Assistance (ODA), coupled with a pivot towards transactional, geopolitically motivated investment by key donor nations, poses a substantial threat to the achievement of the 2030 Agenda for Sustainable Development. This report analyzes the recent trends in development finance discussed at the 2025 Annual Meetings of the World Bank Group and the International Monetary Fund. It highlights the direct impact of funding cuts on the Sustainable Development Goals (SDGs) and proposes that leveraging blended finance through reformed Development Finance Institutions (DFIs) is essential for aligning strategic national interests with long-term global sustainability objectives.

I. The Decline in Official Development Assistance (ODA) and its Impact on the SDGs

A. Current Trends in Development Funding

Recent years have been marked by a concerning contraction in financing for development, undermining the global partnership for sustainable development as outlined in SDG 17 (Partnerships for the Goals). Key observations include:

• Eleven member countries of the Development Assistance Committee have announced budget cuts to development aid programs since 2023.
• Major G7 nations, including the United States, United Kingdom, France, and Germany, simultaneously reduced aid spending in 2024 for the first time in nearly three decades.
• The Organization for Economic Co-operation and Development (OECD) projects that ODA could fall by as much as 17 percent in 2025 from the 2023 baseline.
• The dismantling of the United States Agency for International Development (USAID) in 2025 represents a critical loss of development capacity and funding.

B. Direct Consequences for the Sustainable Development Agenda

The reduction in ODA directly jeopardizes progress across the entire spectrum of the SDGs. The shift away from foundational development principles has severe implications for:

• SDG 1 (No Poverty): Reduced funding for poverty alleviation programs reverses decades of progress in lifting communities out of poverty.
• SDG 5 (Gender Equality): Programs aimed at furthering gender equality are often deprioritized in fiscally constrained environments.
• SDG 13 (Climate Action): A reduced focus on climate transition by major donors weakens the global response to climate change and the ability of developing nations to adapt.
• SDG 17 (Partnerships for the Goals): The decline in ODA represents a failure to meet international commitments (Target 17.2) and weakens the multilateral framework essential for achieving all other goals.

II. Geopolitical Repositioning of Development Finance

A. The Shift from Aid to Transactional Investment

A notable trend is the reframing of foreign assistance as a tool for strategic competition rather than a mechanism for global development. The current US administration’s “America First” policy exemplifies this shift, prioritizing bilateral trade and investment deals over multilateral development efforts. This approach contrasts with the stated goals of initiatives like the Partnership for Global Infrastructure and Investment (PGII), which aim to provide an alternative to China’s Belt and Road Initiative.

B. Risks to Sustainable and Equitable Development

This transactional approach threatens core principles of effective development and good governance, creating risks for several SDGs:

1. Undermining Good Governance (SDG 16): Unilateral support, such as the $40 billion provided to Argentina, lacks the stability-oriented stipulations of IMF programs and may be contingent on political alignment rather than sound economic policy.
2. Risk of Extractive Models (SDG 12): Deals like the US-Ukraine Reconstruction Investment Fund, focused on critical minerals, resemble resource-for-infrastructure models that have been criticized for their lack of sustainability and benefit to local populations, conflicting with principles of responsible consumption and production.
3. Neglecting Holistic Development: A narrow focus on strategic interests sidelines crucial, interconnected issues such as climate resilience, gender equality, and poverty reduction, which are fundamental to achieving long-term, stable economic growth as envisioned in SDG 8 (Decent Work and Economic Growth).

III. A Proposed Framework: Aligning Strategic Investment with the SDGs through Blended Finance

A. Leveraging Blended Finance for SDG 9 (Industry, Innovation, and Infrastructure)

Addressing the estimated $1.5 trillion annual infrastructure funding gap is critical for achieving SDG 9. Blended finance, which combines public or philanthropic capital with private sector investment, offers a viable solution. This model is crucial for:

• De-risking investments in emerging markets and technologies to attract private capital.
• Crowding private funding into development projects that support sustainable infrastructure.
• Optimizing the use of scarce public funds to achieve maximum development impact.

B. Empowering Development Finance Institutions (DFIs) for Sustainable Implementation

To ensure that strategic investments also deliver on development goals, the United States should empower its existing DFIs, such as the US International Development Finance Corporation (DFC) and the Millennium Challenge Corporation. A reformed and properly supported DFI framework can bridge the gap between geopolitical objectives and the SDG agenda.

1. Reform and Reauthorize DFIs: The reauthorization of the DFC should be used as an opportunity to equip the agency with the tools and mandate to implement large-scale strategic investments in a manner consistent with SDG principles.
2. Utilize Existing Expertise: DFIs possess the necessary expertise in project evaluation, private sector engagement, and adherence to development best practices to ensure projects are sustainable, avoid debt traps, and align with host countries’ national development agendas.
3. Coordinate Public-Private Partnerships: Empowered DFIs can effectively coordinate complex investment mechanisms—such as risk guarantees, syndicated loans, and equity instruments—to channel private capital towards sustainable projects like the Lobito Corridor, which advances both strategic and development objectives.

IV. Conclusion

The current trajectory of declining ODA and the pivot to purely transactional foreign investment threatens to derail the global commitment to the Sustainable Development Goals. The United States and its G7 partners should not forsake their proven track record of effective development assistance. By reforming and empowering existing Development Finance Institutions to lead blended finance initiatives, it is possible to meld strategic investment objectives with the long-term, universal goals of the 2030 Agenda. This approach ensures that investments in infrastructure and critical supply chains also contribute to a more stable, equitable, and sustainable global economy, ultimately serving both national interests and global progress.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 1: No Poverty
   • The article connects development finance directly to poverty alleviation, stating that “effective development agendas have helped to lift billions of people out of poverty.” The decline in development aid, therefore, poses a direct threat to progress on this goal.
2. SDG 5: Gender Equality
   • This goal is mentioned as a key commitment of the European Investment Bank (EIB), which aims to use its financing for “furthering gender equality.” However, the article also notes with concern that gender equality was “barely mentioned” in recent major economic reports, suggesting it is being deprioritized amidst funding cuts.
3. SDG 8: Decent Work and Economic Growth
   • The article emphasizes that development assistance and finance contribute to global economic stability. It states that development agencies have “helped to deliver economic gains globally” and that “More stable economic environments globally facilitate sustainable investment deals,” which are crucial for sustainable economic growth.
4. SDG 9: Industry, Innovation and Infrastructure
   • Infrastructure is a central theme. The article highlights a massive “infrastructure funding gap is around $1.5 trillion annually” and discusses the importance of financing “critical public infrastructure.” It points to initiatives like the Lobito Corridor and the need for public-private partnerships to fund such projects.
5. SDG 13: Climate Action
   • Climate action is identified as a key area affected by shifting development priorities. The EIB lists “financing climate transition” as a core commitment. In contrast, the article notes that the current US administration is “taking a step back from issues such as climate transition,” indicating a challenge to this goal.
6. SDG 17: Partnerships for the Goals
   • This is the most prominent SDG in the article. The entire text revolves around the mechanisms of global partnership, including the decline in Official Development Assistance (ODA), the role of Development Finance Institutions (DFIs), the rise of “blended finance” (public-private partnerships), and strategic collaborations like the G7’s PGII and China’s Belt and Road Initiative.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 17.2: Developed countries to implement fully their official development assistance commitments, including the commitment by many developed countries to achieve the target of 0.7 per cent of ODA/GNI to developing countries.
   • The article is centered on the failure to meet this target. It details how major providers of Official Development Assistance (ODA), including the US, UK, France, and Germany, are making significant cuts to their aid budgets. It specifically mentions the UK’s plan to “decrease the foreign aid budget from the current rate of 0.5 percent of gross national income to 0.3 percent by 2027.”
2. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.
   • The article’s focus on the “$1.5 trillion annually” infrastructure funding gap, the need for “critical public infrastructure,” and the mention of the “Lobito Corridor” project directly relate to this target of developing essential infrastructure.
3. Target 9.a: Facilitate sustainable and resilient infrastructure development in developing countries through enhanced financial, technological and technical support to African countries, least developed countries, landlocked developing countries and small island developing States.
   • The discussion on leveraging Development Finance Institutions (DFIs) and blended finance to fund projects like the Lobito Corridor (connecting the DRC, Zambia, and Angola) is a direct example of facilitating financial support for infrastructure in developing countries.
4. Target 17.17: Encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships.
   • The article strongly advocates for “public-private partnerships—or blended finance” as a “critical tool for creating funding opportunities” to address the infrastructure gap and development needs. It highlights how these partnerships can “crowd private capital into development projects by mitigating investment risk.”

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Indicator 17.2.1: Net official development assistance, total and to least developed countries, as a proportion of the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee donors’ gross national income (GNI).
   • The article provides specific data points relevant to this indicator. It states the UK plans to “decrease the foreign aid budget from the current rate of 0.5 percent of gross national income to 0.3 percent by 2027.” It also reports that the OECD estimates “ODA decreased by 9 percent in 2024 and could fall by as much as 17 percent in 2025,” which are direct measures of ODA flows.
2. Financial Flows for Infrastructure:
   • While not a formal SDG indicator number, the article provides a key financial metric to measure the gap in infrastructure funding. It cites a World Bank estimate that “the infrastructure funding gap is around $1.5 trillion annually.” This figure serves as a direct indicator of the financial resources needed to achieve Target 9.1.
3. Qualitative Indicators of Shifting Priorities:
   • The article implies several qualitative indicators. The fact that “climate change or gender equality were barely mentioned” in major economic reports indicates a decline in their policy priority. Similarly, the dismantling of USAID and the US administration’s “America First” policy, which “reframes foreign assistance as more transactional,” are indicators of a shift away from traditional development principles towards geopolitical interests.

4. Table of SDGs, Targets, and Indicators

Source: atlanticcouncil.org