Key reasons to read this article:
- Discover why winning development funding may soon require a very different approach.
- Find out which financing models are becoming increasingly important as aid budgets continue to shrink.
- Discover why NGOs and contractors might need to rethink how they secure funding.
- Understand how the changing funding landscape could reshape project design, partnerships and procurement.
As governments worldwide continue to reaffirm their support for Sustainable Development Goals (SDGs), even as government-funded foreign aid has hit its sharpest decline on record, NGOs, contractors and investors face a fundamental question: Who will finance development now?
Two announcements made within a couple of months of each other reveal perhaps the greatest contradiction in international development today.
In New York, over 400 official delegates to the UN’s High-level Political Forum adopted a declaration reaffirming their governments’ commitment to SDGs. They recognized, however, that progress in achieving the 17 development goals is “severely off track,” with the 2030 deadline being less than four years away. Moreover, the annual SDG funding gap stands at about US$4 trillion, they noted.
Shortly before the declaration, the Organization for Economic Co-operation and Development (OECD) revealed that official development assistance (ODA) had fallen by more than 23% in real terms in 2025, the largest annual decline on record. Humanitarian assistance contracted even more sharply, falling by 35.8%.
Viewed separately, neither development is particularly surprising. On the one hand, there have been many similar UN declarations. On the other hand, experts have been warning about aid budget pressure for months.
But taken together, they raise a question that few delegates addressed directly in New York: If public aid is shrinking, who will actually finance sustainable development? The answer could reshape not only donor policies but also the business models of NGOs, development contractors, consulting firms and investors, at least for the remainder of the SDG decade.
The declaration is not the real story
Every July, the UN’s High-level Political Forum produces political commitments reaffirming the importance of SDGs. This year’s declaration was no exception.
The delegates reiterated support for multilateral cooperation, poverty reduction, climate resilience, gender equality and international partnerships.
But they did not commit any additional financing, did not advocate for new global financing mechanisms, and did not impose any binding obligations on governments.
There is nothing surprising about this either. Political declarations are known to be designed to build consensus rather than allocate budgets. The 2026 declaration reaffirms the need to “mobilize” more financing, but leaves open the more difficult questions of where that financing will come from at a time when traditional aid is contracting.
The real story is happening outside the conference hall
For decades, development organizations assumed bilateral aid would remain the backbone of international development finance. Donor governments provided grants, NGOs implemented programs and development contractors competed for tenders financed by aid agencies. Now that the steeply contracting ODA figures have been unveiled, this assumption has less ground to stand on.
Moreover, the OECD expects a further ODA decrease of up to 6.9% in 2026 as well. Experts attribute this historic contraction to domestic fiscal consolidation, surging defense spending, and shifting geopolitical priorities among major donors, including the USA, Germany, France, the UK, and Japan.
Against this background, the old model is beginning to look increasingly fragile.
“The world where a small group of Western donors set the terms of the aid relationship with the rest is gone, and it is not coming back,” as Sara Pantuliano, ODI Global Chief Executive, put it.
The center of gravity in development finance is shifting
Yet, declining aid does not necessarily mean that development finance will contract to the same extent. But it does mean that the people controlling that money are changing. As the IMF says, “it reflects a broader reconfiguration of development finance”.
Experts argue that as traditional donor funding retreats, a growing range of financing instruments, including blended finance, impact investing, philanthropic capital, and private investment, is stepping in to help bridge the gap.
Multilateral development banks have expanded lending capacity following capital reforms. Blended finance mechanisms increasingly seek to attract institutional investors into infrastructure and climate projects. Development finance institutions are taking on greater roles in supporting private-sector investment in emerging markets. Philanthropic foundations are increasingly influencing priorities in global health, education and agricultural resilience.
In other words, development finance is becoming less about providing aid directly and more about how much additional capital it can unlock. Increasingly, development institutions are deploying blended finance, guarantees, insurance, structured funds and sustainability-linked instruments to reduce investment risks and attract commercial investors into sectors such as infrastructure, clean energy and climate resilience.
According to the OECD, this approach will be essential if development finance is to close the gap between growing investment needs and limited public resources.
Impact on the development sector
That transition is already reshaping strategies across the sector. Development projects are increasingly expected not only to deliver social outcomes but also to be financially viable, mobilize additional investment and build pipelines of bankable projects capable of attracting long-term private capital.
This shift may also reshape the role of development professionals. Analysts argue that organizations will need professionals able to work across disciplines and understand procurement, investment, risk-sharing and impact measurement just as well as they understand development policy.
At the same time, development organizations might face greater demands to demonstrate measurable impact, manage financial risks and work with multilateral lenders, development finance institutions and private investors. World Bank President Ajay Banga argues that development institutions must increasingly create the conditions for private investment and ensure “a clear probability of return”.
Not every project can attract investors
That shift, however, has its limits. This approach works well for projects capable of generating predictable income, such as renewable energy, transport infrastructure or digital connectivity. Yet it might not be an option for humanitarian response, healthcare, education and governance reforms, which rarely record financial returns.
This is why analysts caution against viewing private capital as a replacement for aid. While blended finance and impact investing are expected to play a growing role, grants and concessional finance are likely to remain indispensable in fragile states, conflict settings and social sectors where commercial returns are limited.
What organizations should prepare for
Whether this transition remains permanent is uncertain. Recently, the media have announced the UK’s alleged intentions to increase its ODA budget from 0.3% of GNI back to 0.7%. As the UK was the first to slash ODA and other donors followed suit, one cannot rule out that other governments might take a cue again.
Nevertheless, several trends appear difficult to ignore. Development organizations will likely need to:
- increasingly structure projects around blended finance opportunities
- partner earlier with private investors
- hire investment specialists
- design projects demonstrating measurable economic returns alongside development impact.
Beyond the declaration
The significance of the 2026 UN High-level Political Forum does not lie in the declaration it passed, but in the transition it reflects. As governments reaffirmed their commitment to the Sustainable Development Goals, the way those goals are financed is evolving.
Traditional aid remains indispensable, particularly in humanitarian settings, fragile states and sectors where commercial returns are limited. But growing fiscal pressures are increasing expectations that scarce public resources will mobilize much larger volumes of private investment. Whether that approach can attract the trillions needed to cover the gap in funding in the development sector remains an open question.
What is becoming increasingly clear, however, is that development finance is entering a more diversified era. Rather than relying predominantly on bilateral aid, organizations are likely to operate in a landscape where grants, concessional finance, multilateral lending, philanthropic funding and commercial investment increasingly complement one another. Navigating that landscape would require new partnerships, broader financial expertise and the ability to design projects that deliver both measurable development impact and, where appropriate, investment-ready opportunities.
