On July 1, 2025, the U.S. Agency for International Development (USAID) officially ceased to exist, with its few remaining programs and staff absorbed into the U.S. State Department. With its closure, U.S. foreign assistance funding dropped to $13 billion, a substantial decrease from the average $51.4 billion that the United States spent annually between 1946 and 2023. Historically, the United States has been the largest funder of development and humanitarian assistance worldwide and a global leader in the sector. In the future of foreign aid series, SFS faculty and alumni weigh in on the impact of these changes and the opportunities that they may present.
Professor Steven Radelet, Donald F. McHenry Chair in Global Human Development and distinguished professor of the practice, explores alternative sources of new funding for development from tax revenues in low- and middle-income countries to sustainable investment by private corporations. Radelet previously served in various positions in the U.S. government including chief economist of USAID, senior adviser for development for Secretary of State Hillary Clinton and deputy assistant secretary of the treasury.
Foreign aid is falling sharply around the world. Global totals are projected to be between 18-26% ($40-$60 billion annually) lower in 2025 than they were just two years earlier because of major cuts by France, Germany, the United Kingdom and, most significantly, the United States. These cuts in funding will have dire consequences, with millions of people facing food shortages, reductions in life-saving drugs and medicines and cuts in other essential services.
Alternative sources of funding
There is no other source of funding that can completely fill this gap, at least any time soon. Some people suggest that the private sector could fill this gap, but businesses base their investment decisions on rates of return, not on filling development needs. There is no incentive for private businesses to increase investment in response to the cuts in aid—in fact, they may do the opposite as the prospects for growth and stability diminish in some countries, especially in the poorest countries that receive the most aid and the least private investment. Others suggest that foundations or philanthropists could fill the gap, but most foundations were already allocating all of their available funds and do not have unused money they can draw on. Moreover, they operate at a much smaller scale than government donors. Foundations may be able to do more, but nothing close to the amount needed to fill the gap.
The most promising source of new funding is tax revenues in low- and middle-income countries themselves. As their economies grow, their tax bases grow, generating more funding that can be used for development purposes. Look for some governments to step up and do more. However, for obvious reasons, it is difficult for governments to increase their tax base significantly without encountering political resistance. Tax revenues are a promising source of new funding but have limits, especially in the near future.
New opportunities
The cuts in aid create one of the biggest challenges facing low income countries in the last two decades. But with that challenge comes an opportunity. The changing landscape calls for new energy, ideas, creativity and ingenuity. It creates new career opportunities for people who wish to work in development. For example, while private companies cannot completely fill the aid gap, many companies are increasingly interested in financing sustainable investments that both generate profit and have a development impact. Thus, they are looking for people with expertise in development to work alongside other staff with more traditional business expertise. Foundations and philanthropies will be looking for experts to help them leverage their existing financial assets more fully and to help them measure their results so that each dollar has its maximum impact. Governments in low- and middle-income countries will need greater expertise in how to best allocate and evaluate their expenditures. Moreover, many of today’s development challenges are similar to those facing low-income people in rich countries, so development experts can put their skills to use in higher-income countries as well, working with local government and community organizations on energy, environment, education and health issues.
The challenges of fighting global poverty and creating a more prosperous, equitable and sustainable global community have not gone away, and, in many ways, have intensified over the last decade. These challenges require a new generation of experts to jump in and fight to make the world a better place.