Funders of climate and development action face a gargantuan task at key gatherings over the coming weeks: working out how to move ahead when the world’s biggest aid donor is turning off the tap and causing turmoil in global financial markets.
Since taking office, US President Donald Trump’s team has moved to end $54 billion in overseas aid contracts – about 90% of its spending – while also pressuring allies in Europe to shift aid budgets to defence.
Trump’s stop-start tariffs on the US’s trading partners have also shaken markets in recent weeks, resulting in trillions of dollars in losses and deep uncertainty among investors.
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At the late April spring meetings of the World Bank and International Monetary Fund (IMF), and at a key financing for development conference in Seville in June, backers of efforts to tackle climate change and poverty in the Global South will seek a way forward for global goals that were already hampered by slow progress and inadequate funding – even before Trump took office.
“This is a tough moment. The trajectory has not been good for some time but now there’s a cliff,” said Gayle E. Smith, who was head of the US Agency for International Development (USAID) under former President Barack Obama.
“If the era of foreign aid as we’ve known it is likely over, how do we reimagine where all the money comes from?” she asked during an interview with Climate Home at the Skoll World Forum in Oxford this month.
More of everything
The truth, financial and aid experts say, is that no particular reform – whether debt restructuring, rethinking the international financial architecture, boosting private investment, expanding the donor pool or asking recipient countries to raise more cash for themselves – can make a big enough difference. But all of them working together in a far more coordinated and thoughtful way may offer a path ahead.
“We need to look at them as a system,” urged Mahmoud Mohieldin, a former World Bank official who is now the UN special envoy for financing the 2030 sustainable development agenda.
He, along with others in a group formed at the behest of the UN Secretary-General, is tasked with trying to fill the vast development finance gap and finding solutions to a crippling debt crisis that is preventing many poorer countries from financing their own advances.
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The job has gotten significantly harder as a result of the changes in the United States, Mohieldin indicated.
“We are not in 2000 – not even in December 2024 anymore. It’s a completely different world we are living in,” the former Egyptian investment minister told an event on climate and nature finance and debt, coordinated by the London-based International Institute for Environment and Development this month.
Political leadership lacking
At the World Bank and IMF spring meetings from April 21-26, bankers faced with implementing reforms to free up more climate finance, boost sustainable development and offer help to heavily indebted countries will also be worrying about broader issues of global financial stability – and potentially even their own future, with the Trump administration now reviewing US membership in “all intergovernmental organisations”.
The Fourth International Conference on Financing for Development, in Seville from June 30 to July 3, in turn, will bring together government officials, international institutions and other actors aiming to raise and channel finance to achieve the Sustainable Development Goals – an ever-more urgent challenge as big chunks of traditional development funding disappear.
Some of the key elements are clear, such as finding new ways to ease backbreaking debt levels in many poor countries that result in a hefty share of income going to interest payments rather than education, health and other essential services.
From the Bridgetown Initiative to the Paris Pact for People and the Planet – both of which seek to reform the international financial system to support green development – a range of innovative ideas have been proposed but none have been implemented at the scale and pace needed, Mohieldin said.
Barbados, for instance, last year received development bank support to refinance $300 million in high-interest debt, freeing up $125 million to improve a sewage treatment plant so it can produce water for irrigation and groundwater recharge in the water-short Caribbean nation.
Such debt-for-climate-resilience swaps and other financial system reforms are “all technically feasible,” said Mohieldin. “What’s lacking is political leadership” to make them happen faster and on a larger scale, he added.
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Some governments – including France and Kenya – and climate justice activists have also been pushing for levies on global industries, such as aviation, fossil fuels and financial markets, to generate new sources of revenue for climate action in developing countries. But these have been slow to emerge, with a taskforce set up to explore these options due to publish an assessment within the next two months.
Shipping talks this month ruled out using a new maritime emissions pricing system to generate money for broader climate finance, disappointing small island and African nations.
Meanwhile, Brazil’s COP30 presidency team will launch consultations by a so-called “circle of finance ministers” at next week’s IMF/World Bank Spring Meetings, who will work on a report for November’s climate summit, mapping out ways to mobilise a promised $1.3 trillion per year by 2035 in climate finance for developing countries.
Business case for investment
Bringing far more private money into climate and development action is widely recognised as crucial, especially as aid dries up – but much more work is needed to help businesses understand that such investments will have a significant financial payoff, said Mindy Lubber, the CEO of Ceres, a US nonprofit that works with companies holding assets of $49 trillion to make the case for sustainability.
“We can’t solve the problems that we live to solve without the leverage, power and resources of businesses. They have the capital,” she told the Skoll World Forum.
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While things like solar energy investments are already generating profits, “we need to bang into the head of every company that their bottom line is at risk” from harsher climate impacts and natural destruction that is producing water shortages, crop failures and failing insurance markets, she said.
“Every part of the economic system cracks if we don’t address these issues. You can’t have an economic system if you don’t have insurance. You can’t run manufacturing without water, without the natural resources you get from the developing world,” she added.
But Sonja Gibbs, head of sustainable finance at the Institute of International Finance, said shifting large amounts of private finance into climate and development programmes and debt relief would be challenging, not least because of the relatively small scale of many existing projects.
Deal with debt first
Experts said the clearest route to close the widening finance chasm is to ensure what remains of overseas development and climate aid is combined with philanthropic cash – with many big foundations now boosting spending – to test new ideas and lower risks for private investors.
That, combined with reforms of international financial institutions and stepped-up debt restructuring to free cash for poorer countries to meet their own needs, as well as efforts to win more domestic investment in those countries and to find new government donors, could help fill the gap.
“The debt crisis is much worse than the aid crisis,” said Kate Hampton, the CEO and former climate change lead of the Children’s Investment Fund Foundation, a philanthropy with more than $800 million in climate change grant commitments, including methane-tracking satellites.
Countries need to be able to fund and direct their own development, she said at the Skoll World Forum – and that can’t happen if debt strangles social spending and forces unsustainable reliance on aid.
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Mohieldin, the UN special envoy, said borrowers may need to create a club – like the Paris Club that exists for government lenders – to give them more leverage as a group and to share knowledge and technical assistance.
Smith, the former USAID administrator, also called for more investment in persuading a diverse and often divided public in wealthy nations that overseas aid benefits them and is in line with their values. Using social media channels – from TikTok to Instagram – to allow those benefiting from the support to tell their stories directly could help, she noted.
“We need to convey that this is not charity – it’s an investment in a world that works for everyone,” she said.