For nearly eight decades, the architecture of global development finance and governance was shaped in Washington and Brussels. When poorer countries needed to stabilize their economies or build public services, they turned to the United States, Europe and the institutions they oversaw, mainly the World Bank and the International Monetary Fund, accepting aid and loans that were tied to governance reforms, fiscal discipline and political alignment.
That system is now being challenged by a steady expansion of alternative sources of finance. The IMF and the World Bank note that many low- and middle-income countries now borrow from a far wider mix of creditors than a decade ago, reflecting infrastructure needs, climate pressures and tighter Western budgets.
China, India, the United Arab Emirates and other emerging powers are expanding development finance that often prioritizes speed and scale over policy conditions.
At the same time, they are building parallel institutions that reduce Western dominance. The OECD has argued that this is changing not only where development money comes from, but also how it is allocated and on what terms.
Why the Western model is losing ground
Western donors remain the largest providers of traditional aid. In 2024, official development assistance (ODA) from Organisation for Economic Co‑operation and Development Assistance Committee members totaled US$214.5 billion, down from US$223.3 billion in 2023. Estimates suggest there will have been a further decline of up to 18% in 2025 as donor governments face domestic spending pressure and rising military budgets.
But economists at the World Bank and the African Development Bank (AfDB) explain that the bigger issue is a widening gap between donor priorities and borrower needs.
For decades, the dominant model focused on governance reform, poverty alleviation, health, education, and institutional capacity as being the prerequisites for growth. Although these investments remain essential, time has revealed that they are slow to translate to development.
Meanwhile, infrastructure needs have become more acute. The World Bank estimates that low- and middle-income countries face an annual infrastructure financing shortfall of US$1.5 trillion. The AfDB puts Africa’s needs at US$130–US$170 billion a year, but there is a gap of up to US$100 billion annually. Meanwhile, Western donors allocate only about 16% of ODA to economic infrastructure.
Conditionality further complicates access. IMF and World Bank programs are designed to prevent waste and debt distress. However, officials in borrowing countries often complain that fiscal ceilings, procurement rules and reform requirements delay the construction of ports, power grids, and railways. No country can trade efficiently without these no matter how good their governance scores are, analysts and officials of the African Continental Free Trade area noted.
The infrastructure-first alternative
One of the clearest divides between Western and emerging funders lies in what they actually finance. Western aid still leans towards social sectors. In contrast, China and several other emerging creditors prioritize non-concessional loans and large-scale hard infrastructure projects that recipient countries often deem to deliver more immediate economic benefits.
In 2023, OECD DAC members provided US$223.3 billion in ODA, compared with roughly US$14 billion from BRICS countries (Brazil, China, Egypt, Ethiopia, India, Indonesia, Iran, the Russian Federation, South Africa, and the United Arab Emirates).
China has fundamentally rewritten what development finance can look like. Between 2000 and 2023, Chinese institutions deployed approximately US$2.2 trillion across more than 30,000 projects in 217 countries, with 94% being loans and 6% being grants, according to AidData. In 2023 alone, China lent US$140 billion globally, more than double the US’s lending and US$50 billion above World Bank financing.
The sectoral contrast is stark. While Western donors allocate approximately 16% of their budgets to infrastructure, China directs approximately 33% of its financial development toward transport, energy, water, and communications. Between 2013 and 2021, Chinese infrastructure finance totaled US$679 billion, nearly nine times US spending in this sector.
With the US now outside the United Nations Framework Convention on Climate Change and the Paris Agreement, China is ramping up energy and climate investments, with Belt and Road Initiative projects reaching US$11.8 billion in 2024 and total energy commitments hitting US$42 billion in the first half of 2025.
Development economists describe this as an “infrastructure-first” strategy – build the economic backbone first, and social development will follow from the growth this enables.
India’s development finance follows a similar philosophy. Rather than grants, New Delhi relies on Lines of Credit (LoCs). As of 2023, India had extended 308 LoCs worth US$32.02 billion to 68 countries, supporting more than 600 projects across Asia, Africa, and other regions. Africa received US$12 bn, Asia US$17 bn, and other regions US$2.8 bn, largely for infrastructure, connectivity, power, agriculture, and industrial capacity.
The United Arab Emirates has adopted a hybrid model by combining humanitarian aid with digital infrastructure and climate investment. In 2025, it ranked the third-largest humanitarian donor at US$1.46 billion, while in 2024, official development assistance totaled US$1.7 billion, largely to fragile states. Beyond traditional aid, the Abu Dhabi Fund for Development had deployed US$59 billion across 107 countries, 27% as grants and the remainder as long-term low-cost loans, as of 2024.
Parallel institutions, parallel governance
The most consequential shift is institutional. Since 2016, BRICS powers have channeled growing volumes through alternatives to the post-WWII Bretton Woods system.
Between 2016 and 2024, the New Development Bank (NDB) approved approximately US$39 billion in projects, while the Asian Infrastructure Investment Bank (AIIB) approved more than US$60 billion. The sums are modest compared with the World Bank’s balance sheet, but officials at both banks argue that governance and speed rather than volume are the main advantages.
The NDB offers equal voting rights to its members and avoids policy conditionality. The AIIB focuses on faster approvals and project-based lending, increasingly using local currencies to reduce dollar dependence. This contrasts sharply with the IMF and the World Bank, where the US and Europe retain veto power despite BRICS economies accounting for roughly 40% of global GDP on a purchasing power parity basis.
Meanwhile, they have increased their share in traditional development banks and now account for 33% of Inter-American Development Bank contributions, 24% of the World Bank’s IBRD, and 15% of the Asian Development Bank. The strategy is viewed as dual-track: reform the old system while constructing alternatives.
What this means on the ground
For borrowing countries, greater choice brings both opportunity and risk.
The issue is no longer about access to finance, but debt sustainability and transparency. The IMF reports that almost 60% of low-income countries face a high risk of, or are already experiencing, debt distress, up from 30% in 2015.
Kenya’s Chinese-financed transport and energy projects have significantly improved connectivity but have also contributed to elevated debt levels. The country’s total public debt had risen to about 70% of GDP by mid-2025, forcing the government into restructuring talks with creditors.
Ghana’s external debt of roughly US$30 billion has forced successive debt restructurings, balancing IMF conditional finance with negotiations involving China and other creditors.
A more competitive future
This new era does not mark the end of conditionality; it marks its diversification. Western lenders still impose governance requirements, Chinese lenders increasingly require resource-backed repayments or strategic asset access, and Gulf lenders tie finance to diplomatic alignment.
Developing countries must now navigate a fragmented financial landscape where speed, sovereignty, and sustainability are in constant tension.
The decisive question is whether the competition between these models will close infrastructure and climate gaps, or simply accelerate borrowing while delaying the hardest trade-offs.
