Budget 2025: Overseas Aid Will Be Refocused on SE Asia and the Pacific
Pacific Island nations and some countries in Southeast Asia will get a larger share of Australia’s foreign aid as the government refocuses spending in the 2025/26 Budget to provide support after the United States slashed USAID.
The changes are small within a budget that’s shrinking in real terms. And because this will be done from the existing allocation, multilateral programmes will receive less, or no, money.
Australia is maintaining its level of spending on overseas development assistance (ODA) as other developed nations reduce it.
This year, it’s set at $5.097 billion, a 2.7 percent increase over the 2024/25 aid budget of $4.961 billion. But with inflation projected at 3 percent, that equates to a small year-on-year decline in real expenditure.
Even considering cuts by other countries, Australia will remain one of the least charitable OECD donors.
Very few give 0.2 percent or less of their Gross National Income (GNI) as foreign aid, which Australia hit in 2022/23. The following year, its aid-to-GNI ratio fell to 0.19 percent, and this year it will fall to 0.18 percent.
Among traditional OECD donors, Australia sat alongside Greece and Portugal. Now, it will be joined by the United States after Elon Musk’s Department of Government Efficiency (DOGE) cut almost all USAID spending.
Shift to Focus Aid on Close Neighbours
Foreign Affairs Minister Penny Wong said in a post on X that the development programme “is central to ensuring the stability and security of our region. In these uncertain times, we are making sure Australia’s development assistance is going to the Pacific and Southeast Asia, where Australia’s interests are most at stake.
“This will deliver a 40-year record development investment in the Indo-Pacific, helping to build economic resilience, support climate action, and keep Australians safe.”
She said previous cuts to foreign aid under Liberal-National governments had “left a vacuum for others to fill in our region, making our region less secure.”
Three-quarters of the aid budget will now go to the Indo-Pacific, including $1 billion over five years to boost economic resilience, $370 million over three years to address the humanitarian crisis in Burma (also known as Myanmar), and $355 million over four years to respond to climate disasters.
Institutions Lose Funding
The losers in this reprioritisation are multilateral institutions, whose payments—worth $119 million—will be cut or delayed.
This includes a reduction in the amount given to the Global Partnership for Education, and deferring funds earmarked for a global fund to fight HIV, malaria, and tuberculosis.
Not all international programmes will get less. Australia’s latest three-year contribution to the World Bank’s International Development Association is $660 million, significantly up on the previous $488 million commitment made in 2021/22.
Stephen Howes, director of the Development Policy Centre and Professor of Economics at the Australian National University, notes much of the current funding is directed to commercial suppliers, whose share of the aid program has increased from 15 to 25 percent.
“Those extra 10 percentage points have come at the expense of other government departments (six percentage points), NGOs (two percentage points), universities (also two points),” he said.
“If DFAT is serious about localisation, I would suggest two targets: funds to partner governments and funds to partner-country NGOs. One could also aim to increase funds to local contractors, but arguably they should compete with international companies in a competitive market.
“Unfortunately the former, as showed, has declined, and the latter—funds to partner-country NGO —is not being measured,” Howes said.
The interim Chief Executive of the Australian Council for International Development (ACFID) Matthew Maury, cautiously welcomed the Budget announcement.
“Australia is facing an uncertain and challenging global environment,” he said in a statement. “With cuts to development assistance announced by many traditional donors, Australia has sent a clear signal that we are not retreating from our region.”
But he also noted the fall in the aid-to-GNI ratio.
“While holding the line is commendable, and we welcome the initial steps to fill the gap in this budget, ACFID looks to further commitments that meet the escalating needs across the world,” he said.
His organisation wants both major parties to commit to gradually lifting foreign aid to 1 percent of the federal budget.
