AfDB warns of a $39.84 billion drop in Africa’s foreign funding in 2025 due to shrinking donor aid.
The African Development Bank (AfDB) has projected a sharp $39.84 billion decline in foreign financial inflows to Africa in 2025, driven primarily by cuts in Official Development Assistance (ODA) from top donor countries such as the United States and Germany.
This projection, detailed in the African Economic Outlook 2025, underscores the growing fiscal strain on donor economies and the cascading impact on low-income African nations that heavily depend on aid for budget support.
“If trends continue, Africa could lose 12% of aid from the 17 largest DAC donors—equivalent to a 7% drop in overall inflows or $4.2 billion,” the report stated.
Highlights
1. ODA Contraction: Cuts from 17 major Development Assistance Committee (DAC) members, led by USAID and Germany, are expected to drive a 12% decline in aid to Africa.
2. Perspective: The projected drop exceeds the combined GDP of Comoros, Guinea-Bissau, and São Tomé and Príncipe in 2023.
3. 2023 ODA to Africa: Totaled $35.9 billion, with the U.S. contributing over 40%.
4. Trend: Aid to Africa fell by 3% in 2023, after a 6% drop in 2022—reversing gains made during the COVID-19 surge in 2020.
Impact on Low-Income Countries
Low-income African nations face heightened fiscal vulnerability as ODA reductions threaten the financing of health, education, and infrastructure sectors. These economies rely heavily on aid, often using it to plug deficits and support social services.
“ODA plays a critical role in sustaining these economies,” the AfDB warns, “and reductions will have disproportionate effects on the poorest nations.”
Remittances Also Declining
Even remittance flows, usually considered stable, dropped by 6.2% in 2023, falling to $91.1 billion from $97.1 billion in 2022.
The report attributes the drop largely to a stronger US dollar, which reduced the value of remittance transfers.
Although resilient, remittances are procyclical—falling in good times and rising during economic hardship in recipient nations.
Transfer costs and economic openness also influence remittance volumes.
What This Means for Africa
Africa’s reliance on external funding is increasingly risky amid:
• Donor country austerity and inflation
• Global economic stagnation
• Currency volatility
The AfDB stresses the need for domestic resilience, recommending:
• Strengthening macroeconomic fundamentals
• Boosting export capacity
• Promoting value addition
• Ensuring policy and political stability
“Africa must reduce its vulnerability to external shocks by focusing on sustainable internal economic reforms,” the report concludes.
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