OTR: Western Aid to Southeast Asia Slashed by Over $2 Billion
23 July 2025
Southeast Asia is set to lose more than US$2 billion in foreign assistance next year, with traditional donors scaling back support and redirecting budgets toward geopolitical priorities and domestic needs.
The funding decline comes as climate-related disasters grow more frequent and severe across the region, putting increasing pressure on national and humanitarian response systems.
According to new analysis by the Lowy Institute, total official development finance to Southeast Asia is projected to fall to US$26.5 billion by 2026, down from a pre-pandemic average of US$33 billion. Bilateral aid is expected to decline by nearly 20 per cent, with major cuts coming from the United States, European Union, and the United Kingdom.
The United States, once a leading donor to the region, has dismantled USAID as part of a broader withdrawal from global development initiatives. The Lowy Institute estimates that 83 percent of US development programmes in Southeast Asia have been closed. Meanwhile, Europe and the UK are funnelling more resources into defence and NATO-aligned efforts, responding to heightened security concerns in Ukraine and the wider European theatre.
Australia, traditionally one of the region’s more stable partners, has slowed the pace of its aid increases, while New Zealand has not signalled a major shift in response to the region’s growing vulnerabilities.
The reduction in foreign aid comes as Southeast Asia experiences worsening impacts of climate change. A string of recent typhoons, floods, droughts and landslides has stretched national budgets and redirected aid flows from long-term development projects to short-term emergency response. The World Bank estimates that between 2020 and 2024, the region sustained more than US$60 billion in economic damages from natural disasters.
The Lowy Institute warns that this growing demand for emergency relief is distorting aid priorities. In countries like the Philippines, Indonesia, and Laos, disaster responses are consuming a greater share of available funding, leaving less for governance, health, education, and civil society development.
At the same time, development finance is shifting geographically. With Western donors retreating, countries such as China, Japan and South Korea have increased their engagement.
China has focused on infrastructure loans through its Belt and Road Initiative, while Japan and South Korea have expanded support for digital infrastructure, governance, and women’s rights programmes. However, the Lowy Institute notes that much of this financing is commercial in nature, and often targets infrastructure or trade connectivity over social sector investment.
The shift could leave smaller and more vulnerable Southeast Asian communities underserved, particularly in areas not prioritised under large-scale infrastructure or regional integration plans.
As donor priorities shift and climate crises intensify, the region is under growing pressure to mobilise domestic resources, attract private investment, and strengthen regional cooperation. While Southeast Asia’s economies have demonstrated resilience in the past, the coming years are likely to test the limits of that endurance.
Without a coordinated response to declining aid and rising climate threats, development gains made over the past two decades risk being reversed, especially for those least equipped to adapt.
*Image courtesy: Lowy Institute
-Asia Media Centre