When Australia’s Lowy Institute think tank released the 2025 edition of its Southeast Asia Aid Map in July last year, it projected that Western aid cuts would shift the region’s development finance toward Asian partners. Specifically, the report expected the center of gravity to “drift East, notably to Beijing but also Tokyo and Seoul.”
Lowy’s 2026 edition, released on October 11, now includes 2024 data and preliminary 2025 estimates. They do not show that shift. Aid and other official development finance to the region fell to US$26.1 billion in 2024, its lowest level since 2015. China and Japan both reduced their spending, and South Korea’s cuts begin in 2025.
Some of the 2024 fall was a matter of timing, as large pandemic-era Japanese loans to Indonesia and Vietnam were fully paid out. The bigger cuts are still to come.
Lowy estimates that concessional bilateral aid from established donor governments, including Japan and South Korea, would fall by at least another $1.76 billion, or about 20%, in 2025. That is a narrower measure than the $26.1 billion total, which also counts loans on near-commercial terms.
Significantly, China is not filling the gap. Its development finance to the region fell by almost a quarter in 2024, to $3.67 billion, and its share of bilateral finance has dropped from an average of about 20% to around 14.5% since 2022, a level Lowy expects would hold in 2025. New Chinese infrastructure commitments have stalled for 3 consecutive years.
Instead, the shift has been from donor governments to multilateral banks. In 2024, for the first time, multilateral development banks such as the Asian Development Bank (ADB) and the World Bank provided more development finance to Southeast Asia than all individual donor governments combined, at $12.7 billion against $12.5 billion.
No government planned this. Instead, donor countries have cut their own aid programs while continuing to fund the banks, which has softened the overall decline.
The ADB and World Bank both spent less in 2024. The banks’ total held steady because the Asian Infrastructure Investment Bank (AIIB), a Beijing-based multilateral lender in which China is the largest shareholder, nearly quadrupled its spending in the region to $2.75 billion.
At first glance, a fast-growing, Chinese-led bank looks like the eastward shift many predicted. However, Lowy attributes the increase mainly to joint lending with the ADB and World Bank.
The AIIB’s own list of jointly financed projects shows 31 in the region since 2016, all led by the ADB or the World Bank group, and in each project the lead bank’s environmental and social rules apply.
In the Philippines, one of its biggest regional borrowers, the AIIB’s first project of its own was not due to be signed until 2024, according to the Philippine Department of Finance, eight years after the bank began operating.
Much of the recent joint lending has been budget support, paid directly to governments in return for reforms agreed with the ADB or World Bank. Such loans pay out quickly, which helps explain the jump in AIIB spending in 2024.
Meanwhile, China’s own direct lending is shrinking. Taken together, this suggests the fastest growth in China-linked development finance is coming through multilateral banks, largely within ADB and World Bank projects and on their terms.
Donors have good reason to keep funding the banks. According to Lowy, every dollar they contribute can support $ 4 to $ 8 in lending. Early OECD figures suggest donors increased their contributions to the World Bank and regional development banks in 2025, even as support for the UN fell sharply.
The risk is that a small group provides this support. The 11 donor governments that have announced aid cuts for 2025 to 2027 provide 62% of the core funding for the ADB and World Bank. Meanwhile, the banks are being asked to do more.
The 2026 Iran war has added an estimated $3.36 billion a month to the region’s energy import bill, and the ADB has mobilized $4 billion in crisis support across Asia and the Pacific.
For donors, there is also a trade-off. Bank lending is efficient, but recipients do not link it to any particular donor country. Governments that describe aid as part of their strategic presence in Southeast Asia lose some of that visibility, a point largely missing from debate about aid cuts.
For recipients, the type of money matters as much as the amount. Banks mostly lend, while donor governments provide more grants for health, education and community programs. Lowy expects Vietnam, Timor-Leste and Thailand to be most affected by the next round of donor cuts.
Vietnam shows the limits of the banks as a safety net. According to Lowy’s country profile, development finance paid to Vietnam fell from $9.2 billion in 2015 to $1.9 billion in 2024.
The banks have not made up the difference: World Bank spending fell by about two-thirds over that period, ADB spending more than halved in 2024 alone, and the AIIB’s only jointly financed project in the country as at 2024 was a 2020 credit line to a private bank. Japan, Vietnam’s largest partner, is cutting further.
Some of this decline is a sign of progress. As Vietnam has grown richer, it has lost access to the cheapest loans, including the World Bank’s most concessional lending from 2017. But its needs remain large, especially in energy, where past finance went heavily to coal-fired power.
Nearly half went to renewables in 2024, but from a shrinking pool: renewable energy finance to the region has fallen by two-thirds since 2018. Hanoi has also turned to public-private partnerships (PPPs) to fund infrastructure. The open question for Vietnam is whether higher-cost bank loans, bond markets, PPPs or other private investment can replace that cheap finance at the scale its shift to cleaner energy requires.
A year ago, expectations were that Asian partners would fill the space left by Western cuts. The 2024 data point elsewhere. The development banks have softened the decline, though not reversed it, with the Chinese-led AIIB working mostly inside ADB and World Bank projects.
That cushion depends on donors continuing to fund the banks, without any firm commitment to do so. For middle-income countries such as Vietnam, where the banks are also pulling back, costlier borrowing and private capital will have to fill more of the gap. Next year’s data will show whether the banks’ support has held.
Lam Duc Vu is a Southeast Asia-based risk analyst writing on Indo-Pacific security and regional affairs.
