OECD warns of shrinking dev finance as Bangladesh urges stronger multilateral support

The global multilateral development finance system is entering a critical phase of contraction after decades of sustained expansion, the Organisation for Economic Cooperation and Development (OECD) has warned, raising concerns over its ability to support developing countries, including Bangladesh, as donor funding declines and geopolitical tensions reshape aid priorities.

The warning came during a virtual discussion titled "OECD Multilateral Development Finance 2026 Report (MDFR): Perspectives from South Asia," organised yesterday by the Centre for Policy Dialogue in collaboration with the OECD. The report was authored by Leonardo Altieri and Marius Guérin.

The session brought together experts from South Asia and the OECD to discuss how declining aid, geopolitical fragmentation, and changing donor priorities are reshaping development finance.

According to the report, the global development finance landscape is undergoing a structural shift as declining aid budgets, rising fiscal pressures in donor countries, and geopolitical tensions reduce the availability, affordability, and predictability of development finance.

For South Asian countries, including Bangladesh, the transition raises growing concerns over access to climate finance, concessional funding, debt sustainability, and the financing needs associated with graduation from the least developed country (LDC) category.

Presenting the report, co-author Altieri said 2024 marked a turning point, with contributions from donor countries falling by around 15% as both core and earmarked funding declined.

"This reflects tighter fiscal conditions, geopolitical fragmentation, and shifting national priorities among donors," Altieri said. He added that contributions from Development Assistance Committee (DAC) members are projected to fall by 23% to 30% between 2023 and 2027, signaling a prolonged period of financial contraction.

The report says the decline will force difficult choices between maintaining overall financing volumes and protecting concessional resources such as grants, which are vital for low-income and fragile countries. 

It also warns that heavy reliance on a small group of donor countries leaves the multilateral system vulnerable to coordinated aid cuts.

While emerging donors such as China, India, and Pakistan are increasing their engagement, traditional donors continue to dominate. As a result, institutions—particularly United Nations agencies—remain highly vulnerable. More than three-quarters of UN development system funding comes from DAC members, making these agencies especially sensitive to funding cuts.

Co-author Guérin said multilateral outflows reached a record high of nearly $300 billion in 2024, largely driven by multilateral development banks. However, many organisations are already scaling back programmes and reducing their geographic reach because of funding pressures.

The report warns that cuts to concessional finance could have an outsized impact on developing countries, as these resources account for more than 90% of multilateral financing for low-income countries and over 80% of humanitarian funding. 

It calls for stronger burden-sharing, new funding sources, protection of flexible funding, and reforms to improve the efficiency of the multilateral system.

Speaking as chief guest, Rashed Al Mahmud Titumir, the prime minister's adviser on finance and planning, said the global development financing landscape is undergoing a profound structural transformation.

He identified three major trends: fiscal pressures in advanced economies that are reducing aid budgets, growing geopolitical fragmentation that is reshaping development finance, and expanding global priorities that now include climate change, pandemics, food security, and digital transformation.

Reflecting on Bangladesh's position, Titumir said the government has adopted a three-phase strategy of recovery, restoration, and reconstruction, centered on domestic resource mobilisation, reforms, and capital market development. 

He added that rising energy costs have imposed an additional $3.46 billion burden on Bangladesh, highlighting the need for stronger international support. He also urged multilateral organisations to regain their "moral authority" by responding to the ground realities faced by countries vulnerable to climate, food, and energy shocks.

Fahmida Khatun, executive director of CPD, said the report was particularly timely for Bangladesh and South Asia as the global financing system reached "a historic turning point." 

She observed that Bangladesh has benefited significantly from development finance in infrastructure, health, education, and social sectors, but the reversal in global financing trends could create new challenges as the country approaches LDC graduation.

Regional experts echoed similar concerns. 

Abid Qaiyum Suleri, executive director of the Sustainable Development Policy Institute (SDPI), Pakistan, called for stronger multilateral institutions and greater transitional support for graduating least developed countries. 

Roshan Ann Perera, team leader – Growth and Economic Transformation at the Centre for Poverty Analysis (CEPA), Sri Lanka, said concessional finance had been critical in stabilising her country after its 2022 debt default, while Dr Paras Kharel, executive director of South Asia Watch on Trade, Economics and Environment (SAWTEE), Nepal, stressed the need to improve aid effectiveness and better leverage climate finance.