Kaya
Selby, RNZ Pacific journalist
A new
report forecasts a US$200 million annual shortfall in aid to
the Pacific, as New Zealand and other Western partners pull
back.
The Lowy Institute, an Australian foreign
affairs think tank, said New Zealand is expected to reduce
its overseas aid funding by about 35 percent in the next two
years.
That is despite 10 percent of all development
funding in the region coming from Aotearoa.
According
to Lowy Institute’s 2025 Pacific Aid Map, it has left
Australia to fill in the gaps, now accounting for 43 percent
of all aid to the region.
Meanwhile, China is becoming
more local, and as a result of its drive for development,
more popular.
Lead researcher Riley Duke said aid to
the Pacific has fallen to pre-pandemic levels.
“Crisis
support loans, those big budget support initiatives that
were mobilised by countries like Australia and Japan for the
Pacific, had a limited lifespan, and they’ve wound down,”
Duke said.
Duke said, at the same time, a refocusing
of aid towards infrastructure projects, and away from areas
like health and education, is taking their toll on the
effectiveness of certain projects.
“Across the region,
what has suffered from that have been the more old school
areas of development focus, so things like education and
health… both of those sectors have seen consistent
declining support over the last decade.
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“Any
additional money that’s gone to infrastructure hasn’t been
fully additional… it’s come at the cost of some of those
traditional aid focus areas of education and
health.”
This comes as fewer development partners are
willing to offer large-scale concessional loans, preferring
to make small-scale grants instead, the report
claimed.
“This stability has provided some cushioning
amid worsening fiscal pressures, as many Pacific governments
confront slower than anticipated growth and rising debt
pressures,” the report noted.
Despite a 16 percent
drop in funding of all kinds between 2022 and 2023, leaving
the region vulnerable, along with the rest of the
world.
“Sharp aid cuts by major Western donors have
thrown the global development landscape into disarray,” the
report warned.
Aid ‘a tool in the soft power
toolkit’
Duke said that Australia could provide more
than half of all Pacific aid by 2028.
“That means
Australia is seeing its like-minded partners, foremost New
Zealand, the US and the UK, stepping back a bit,” he
said.
He added Australia is in a position where, based
on its own priorities, it will be shouldering more of the
responsibility to support development in the
region.
For the Pacific, this puts Australia at a
significant advantage over New Zealand in terms of
relationship-building, Duke said.
“I think in parts of
the world, like the Pacific, it’s the currency of
engagement. It’s how relationships are built… it can be a
way that a richer economy can demonstrate that they care
about the outcomes of a region.”
New Zealand is ‘a
stingy donor’
For Dr Terence Wood, a development
expert who has been highly critical of Aotearoa’s aid
retreat, Australia’s position does New Zealand no
favours.
Wood said New Zealand is giving its aid to
the region with an increasing focus on the new Cold War and
countering China’s influence.
“For example, in Niue,
we are a much larger donor in Australia, in Samoa we’re
about the same size as Australia. So there are parts of the
Pacific where our presence is every bit as
important.”
Wood said that New Zealand’s aid approach,
amid an ever-increasing scarcity, is becoming more
transactional rather than being based on a larger vision for
long-term outcomes.
“The first thing that we will do
is reduce our funding to multilateral organisations that
operate globally, and we’re already a pretty stingy donor
when it comes to contributing to global public goods,” he
said.
“The next thing we’ll do is we will reduce our
aid spend in other parts of the world. If we cut our aid to
African countries, for example, that will have a real
impact, given how poor some of those countries
are.
“We’ll be getting worse at a time which is
particularly unfortunate, given what the Trump White House
is doing.”
However, despite an ongoing rollback of the
United States’ aid programmes, the Lowy report argues that
impact will be far less severe in the Pacific.
“The
Pacific Islands are far less exposed to USAID cuts than
commonly assumed. Most US support to the region is delivered
through protected Compact of Free Association Agreements,
leaving a comparatively small footprint outside of these
arrangements,” the report said.
“Nonetheless, there
are some acute impacts, particularly on vaccination and
media programs.”
Duke said the reputational damage
caused by the USAID cuts is playing right into Beijing’s
hands.
“The US has been, for many years, suffering
from a bit of reputational free fall… China is present
everywhere else in the Pacific, but its role has changed a
lot.”
This comes at a time when China is pulling back
on their traditional “debt-trap” lending, instead providing
locally focused grants. This, Duke said, makes China far
more visible to Pacific communities.
“There’s been a
big shift. China’s programme has gotten a lot smaller,
there’s been less appetite for Chinese loans… so it’s a
more competitive space,” he said.
“It’s made (China’s)
Pacific aid strategy a lot nimbler, [with] more grassroots
projects. It’s engaging at the local level with equipment
donation, it’s doing scholarships all over the region, it’s
sponsoring local, local football teams, all this kind of
stuff.”
PNG, Fiji, Palau hardest hit
Palau, a
country in free association with the United States, saw a 61
percent drop in its aid from 2022 to 2023. It received
around US$42m two years ago.
The report said that
Palau remains among the more aid-reliant countries in the
world, with aid accounting for 12 percent of its
GDP.
The impact may be harder felt in Fiji, which saw
foreign aid drop by $354m, or 57 percent, over the same time
frame.
The Pacific’s second-largest economy relies far
less on aid than others, the report said. Most of its
remaining funding has focused on migration and climate
adaptation projects.
Papua New Guinea saw the greatest
drop in real terms, losing around $431m, or 24.6 percent. It
now receives its lowest level of aid since
2017.
Despite that, PNG remains the least
aid-dependent country in the region, as well as the most
economically successful.
Its loss comes on the back of
a massive uptake in loans from Australia and the Asian
Development Bank, the report said.
“Almost half (44
percent) of the development finance received by PNG between
2008 and 2023 came in the form of loans. As a share of total
received development support, loan-financed projects have
increased significantly.”
“Between 2008 and 2015,
loans accounted for around a third of total ODF. Since 2016,
this has increased to more than
half.”
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