Foreign Aid Is Shrinking- Can Debt Relief and Remittances Fill the Gap?

Foreign aid suffered an unusually sharp contraction in 2025, leaving many countries searching for other sources of money to protect public services, humanitarian programmes and development spending. A new study titled 'Debt relief and remittances can offset foreign aid cuts for most countries, but some remain locked out,' published in arXiv preprint by Andrea Vismara, Rafael Prieto-Curiel and Rosie Hayward, examines whether reducing external debt payments or increasing money sent home by migrants could help fill that gap.

The researchers estimate that bilateral foreign aid cuts affected 130 recipient countries and removed about $25.9 billion in financing, equivalent to a 9.5% reduction in total foreign aid flows to those countries. Their central finding is encouraging for some economies but troubling for others; relatively modest debt relief or additional remittances could replace the losses in many countries, yet the nations facing some of the deepest development challenges can be structurally unable to use one or both options.

Aid cuts were large, but their impact was far from equal

The research shows that net aid from Development Assistance Committee countries fell 23.1% in real terms in 2025, described by the authors as the largest annual decline on record. Twenty-six of 34 DAC members reduced their spending, while the United States, Germany, the United Kingdom, Japan and France accounted for 95.7% of the overall contraction. Humanitarian assistance was particularly affected, falling 35.8% to $15.5 billion.

Because detailed 2025 country-to-country data were not yet available beyond Ukraine, the researchers applied donor-specific reductions to the 2024 aid network to estimate how much individual recipient countries lost. The model suggests that 40% of countries experiencing cuts were in Sub-Saharan Africa, followed by 17% in Latin America and the Caribbean and 15% in East and Central Asia. India and Syria each lost close to $1 billion in estimated aid, followed by Jordan, Ethiopia, Turkey and the Democratic Republic of Congo, with estimated losses ranging from roughly $750 million to $936 million.

Absolute losses tell only part of the story. Syria faced the largest estimated reduction relative to its economy at 5.25% of Gross National Income, followed by South Sudan at 4.6% and Somalia at 4.2%. The sectors suffering the largest global losses were government and civil society at $10.2 billion, emergency response at $5.5 billion and health at $4.2 billion.

Debt relief and remittances could help, but not everywhere

Countries affected by the cuts collectively paid around $274 billion in external debt service in 2024, roughly 11 times the $25.9 billion aid loss. The researchers calculate that cancelling 18% of annual debt-service payments could fully compensate roughly half of affected countries. That solution reaches a hard limit in fragile economies with very little debt service to cancel. Even complete debt-service relief would fail to replace the lost aid in 18 countries.

Syria, Somalia and Afghanistan stand out because their annual debt payments are tiny relative to their estimated aid losses, while all the other countries facing this constraint are in Africa. Many spend less than 2% of GNI servicing debt, reflecting weak access to conventional debt markets rather than simply manageable debt burdens.

Remittances offer a second possible cushion: Countries experiencing aid cuts received around $632.2 billion in remittances during 2024, more than 20 times the estimated aid loss. The researchers calculated additional remittance capacity by estimating how much could theoretically be sent if every working-age international migrant participated in sending money home.

Mobilising only 10% of this unused theoretical remittance capacity could fully offset aid losses for more than half of the affected countries. Yet even mobilising the entire estimated gap would leave 16 countries unable to replace their lost aid. All are in Africa, with particularly large shortfalls identified for Djibouti, Tanzania, Malawi and Zambia.

Geography helps explain the difference: Migrants from many Sub-Saharan African countries live in neighbouring countries where earnings are generally lower than in high-income destinations, limiting how much additional money can be sent home. Remittance participation is already high in many of these diasporas, leaving less unused capacity. By comparison, large migration corridors connecting countries with the United States, Gulf states and other high-income economies create much greater remittance potential.

Four groups reveal why one solution cannot fit every country

Using aid losses as a share of GNI, required debt relief and required remittance mobilisation, the researchers divided 105 countries with sufficient data and populations above one million into four vulnerability groups. Their statistical analysis found that the first two principal components explained 95.1% of variation, largely separating the overall severity of the aid shock from the type of compensation available.

The low-exposure group contains 22 countries, including India, Brazil, Mexico, Indonesia, the Philippines and China. Aid losses represent very little of their economies, while debt and remittance networks provide considerable financial flexibility. The moderate-exposure group contains 42 countries, including Ghana, Nigeria, Cameroon, Colombia, Cambodia and Vietnam. Its median GNI loss is 0.2%, and both debt relief and additional remittances remain realistic options in many cases.

A much harder situation emerges among the 16 aid-debt constrained countries, which include Syria, Somalia, Afghanistan, Sudan, South Sudan and Yemen, classified by the World Bank as Fragility, Conflict and Violence Affected Settings. Their median aid loss equals 1.7% of GNI, while replacing that loss through debt relief would require cancelling a median 181.5% of annual debt service — an impossibility. Their established international diasporas leave considerably more room for remittances, although conflict, weak institutions and inadequate formal transfer channels can prevent that potential from being fully used.

The 25 aid-remittances constrained countries face the opposite problem. All except Jordan are in Sub-Saharan Africa, including Tanzania, Malawi, Kenya, Botswana, Sierra Leone and the Central African Republic. Their median remittance mobilisation requirement is 226.7% of estimated available capacity, meaning the amount needed is more than twice the theoretical additional remittances available. Many remain connected to multilateral and other external creditors, making debt-service relief a more realistic response. The Central African Republic, Malawi and Zambia are especially vulnerable because the study finds that neither complete debt-service relief nor full remittance mobilisation would be enough to compensate their estimated losses.

No Single Financial Lifeline Can Replace Foreign Aid

The research challenges the idea that aid can simply be replaced by another global pool of money. Debt relief works best where countries have substantial debt payments to reduce, while remittances work best where sizeable diasporas are connected to higher-income labour markets and still have room to increase transfers. The countries excluded from one mechanism often have greater access to the other, creating what the researchers describe as a structural trade-off within the global financial system.

The authors also caution that neither mechanism is equivalent to aid. Debt relief creates government fiscal space, but whether those savings reach health, education or other services depends on institutions and spending priorities. Remittances are private household transfers and may not reach the communities or public programmes previously supported by aid. The analysis is conducted at the national level, meaning local inequalities in aid, debt burdens and remittance access remain largely hidden. More detailed subnational financial data will be needed to understand who ultimately gains or loses when development finance changes this quickly.