Rethinking aid: Shifting toward smarter development financing

It is becoming very clear that the global aid landscape is undergoing a seismic shift. Following the termination of over 10,000 USAID projects worldwide, the UK has now slashed its aid budget from 0.5% to just 0.3% of GDP—a cut worth $7.6 billion a year. This is not an isolated event but part of a broader trend. Europe is expected to follow suit, putting further pressure on global development funding. 

This shift is driven by a combination of factors, including the rise of right-wing politics in Western countries, increased defense spending, and mounting deficit and public debt. As governments grapple with budget constraints, foreign aid—an area with limited domestic political support—has become an easy target for cuts. What was once an essential pillar of international relations is now viewed as an expendable line item in national budgets. This is the new normal.

For aid-reliant countries and for global development organizations, this changing global reality requires an urgent and bold rethinking of economic and social development funding strategies. Jordan has long depended on foreign assistance to support vital sectors, including infrastructure, health, and education. With limited natural resources, growing public debt and geopolitical challenges, foreign aid has played a pivotal role in stabilizing the economy. However, given the recent trend of declining aid from Western donors, it is imperative to attract alternative sources of funding that can drive sustainable development. The country must now pivot toward more innovative financing strategies to ensure long-term economic resilience and self-reliance.

Development finance institutions now play an increasingly vital role in mobilizing capital for development projects. Instead of relying solely on grants, financial instruments such as blended finance, impact bonds, and risk-sharing mechanisms are being used to attract commercial investment. Blended finance combines public aid with private sector funding to de-risk projects and make them more attractive to investors. Impact bonds allow private investors to finance development initiatives upfront and receive repayment based on the project’s success. Loan Guarantees and risk-sharing mechanisms further lower the barriers for private sector participation in high-risk sectors such as infrastructure, agriculture, and digital transformation.

A successful example of this approach has been adopted by the United Nations Capital Development Fund (UNCDF), which has pioneered innovative financing models to catalyze private sector investment in emerging economies. In countries across Africa and Asia, UNCDF has successfully leveraged small amounts of donor-funded grants to unlock significantly larger pools of private capital for essential infrastructure and business development.

For example, the UNCDF Blended Finance Investment Vehicle for Small and Medium Enterprises (BUILD Fund) was created by in partnership with Bamboo Capital Partners. The fund uses concessional finance (grants, low-interest loans and guarantees) to attract commercial investment into small businesses operating in developing economies such as Uganda, Senegal, and Nepal. By demonstrating financial viability and reducing risks for investors, the program successfully mobilized private investment into commercially viable projects. The model proved that a well-structured financing mechanism can mobilize limited foreign aid and public funding to create a “multiplier- effect”, attracting commercial investments that would otherwise hesitate to enter underserved markets and risky ventures.

Jordan can apply similar models to unlock investment in key sectors such as energy, digital infrastructure, and sustainable tourism. Expanding public-private partnerships where the Government and international donors can collaborate with private investors to co-finance infrastructure, health, and education projects providing sustainable solutions in these areas. With dwindling external assistance, fostering stronger collaboration between governments, international development organizations and the private sector has become crucial going forward.

Engaging the Jordanian diaspora in investment projects could also create new streams of capital for the national development effort. Many Jordanians abroad are embedded into vibrant socio-economic networks and have the financial capacity and willingness to contribute to the country's growth, but the right investment frameworks, incentives schemes and well-established communication channels must be in place to facilitate their participation. At the same time, Philanthropic foundations are also shifting from traditional grants to more strategic investments. Mission-related investments use foundation endowments to fund businesses aligned with their development goals. Meanwhile Businesses are increasingly incorporating development goals into their investment strategies, moving beyond Corporate Social Responsibility (CSR) towards Corporate Social Investment (CSI).Crowdfunding is another financing mechanism that can play a significant role in supporting entrepreneurs and social enterprises.All these financing mechanisms are viable tools to effectively deploy the shrinking aid to attract private investment and create a multiplier-effect capable of addressing the gap in project financing and economic development. 

Another key factor in achieving financial independence is fostering a dynamic investment ecosystem that encourages venture capital, angel investors, and financial institutions to support small businesses and technology-driven enterprises. A strong entrepreneurial environment will not only create new jobs but also help diversify Jordan’s economy, making it less vulnerable to external funding fluctuations.

The decline in foreign aid presents both a challenge and an opportunity. Jordan’s future economic resilience depends on how effectively it can transition from aid dependency to a more diversified and sustainable financing model. By embracing innovative financing strategies and fostering a stronger private sector-led approach, Jordan can ensure long-term economic stability and reduce reliance on unpredictable foreign aid.

This is not just a shift in financial strategy—it is a necessary evolution for Jordan’s economic sovereignty. The path forward requires bold policy decisions, innovative financing mechanisms, stronger investor confidence, and a commitment to leveraging both local and global capital in new and creative ways. The critical question is no longer about how much aid Jordan will receive in the future but rather how effectively the country can mobilize its resources to drive sustainable growth. Jordan stands at a crossroads, the time to act is now.