Official development assistance (ODA) from major donor countries is projected to decline by 6.9 per cent in 2026, taking total aid to $152 billion, its lowest level since 2014, as developing economies face mounting pressure from slowing global growth, volatile capital flows and higher energy costs, according to a United Nations report.
The projected decline follows an 8.5 per cent fall in 2024 and a sharper 23.3 per cent contraction in 2025. ODA is expected to amount to just 0.23 per cent of donor countries’ combined gross national income (GNI), less than a third of the internationally agreed target of 0.7 per cent.
The United Nations Conference on Trade and Development (UNCTAD), in its Trade and Development Report 2026: The Geoeconomics of Development, warned that shrinking development assistance is compounding the challenges faced by countries that have limited fiscal space to respond to economic shocks and invest in infrastructure and industrial development. The report said 16 of the 33 members of the Organisation for Economic Co-operation and Development’s Development Assistance Committee (DAC), including the five largest donors, have announced aid reductions for 2026.
The report highlighted a shift in the geographical distribution of assistance. Between 2020 and 2024, ODA to developing regions across Africa, the Americas, Asia and Oceania declined by $0.8 billion, while assistance to Europe and unspecified recipients increased by more than $24 billion each.
The decline in aid comes as many developing economies face rising debt-servicing costs and higher external financing expenses. Countries dependent on imported fuel and food are particularly vulnerable to price shocks, while high global interest rates and a periodically strengthening dollar have increased pressure on their balance of payments.
UNCTAD also reported that volatility in portfolio flows to emerging markets has doubled, adding to uncertainty for economies reliant on external finance. Such volatility can amplify market swings and complicate efforts to sustain long-term investment.
The report projected global economic growth to slow to 2.6 per cent in 2026, down from 2.9 per cent in 2025. It said the conflict in the Middle East had disrupted transit through the Strait of Hormuz, pushing oil prices to around $100 a barrel and reigniting inflationary pressures.
The impact is uneven across developing economies. India is projected to grow by 7.3 per cent in 2026 and 6.8 per cent in 2027, supported by domestic demand, expanding manufacturing capacity and public infrastructure programmes, despite its heavy reliance on oil imports. China’s growth is projected to moderate to 4.5 per cent in both years.
However, UNCTAD said most developing economies outside a group of fast-growing Asian economies were no longer catching up with developed countries in per capita income. Fuel and food importers, particularly small island developing states, face acute balance-of-payments pressures as higher energy and cereal prices increase import costs.
The report’s foreword said the global economy had shown greater resilience than expected, with world trade reaching a record $35 trillion in 2025 and expected to grow by about 4 per cent in 2026. But this resilience masks a widening divide between economies able to absorb shocks and those constrained by limited fiscal resources and rising borrowing costs.
The report also flagged an imbalance in investment in strategic industries, including semiconductors, energy transition technologies and artificial intelligence infrastructure. Advanced economies capture about 70 per cent of high-value investment in these sectors, while developing economies lead mainly in critical minerals and strategic materials, often capturing limited value from downstream manufacturing.
Strategic sectors’ share of global greenfield investment rose from 16 per cent in 2020 to 44 per cent in 2025. Artificial intelligence infrastructure and related technologies accounted for 12.4 per cent of global greenfield investment, worth $845.7 billion. The semiconductor value chain accounted for 8.1 per cent and energy transition technologies and services for 7.8 per cent.
UNCTAD highlighted the gap between resource production and value creation in global supply chains. Africa produces much of the world’s cobalt but retains less than 1 per cent of the value generated in green supply chains, underscoring the challenge of moving beyond raw material extraction into processing and manufacturing.
The report said industrial policy requires sustained investment over decades, backed by financial policies that help manage capital-flow volatility and direct domestic finance towards development objectives. However, shrinking aid and the scale of industrial support available to developed economies make it harder for developing countries to compete.
The disruption to energy supplies through the Strait of Hormuz has reinforced the economic risks of dependence on imported fossil fuels. UNCTAD said renewable energy can strengthen energy security, noting that renewables are cheaper than the lowest-cost new fossil fuel alternative in more than 90 per cent of cases.
The report also highlighted differences in the role of gas in setting electricity prices across European markets. Gas set the marginal electricity price 15 per cent of the time in Spain, compared with 89 per cent in Italy, illustrating how the exposure of power systems to fossil fuel price volatility varies.
Global trade in electric vehicles rose 11 per cent in the first quarter of 2026, while the report cited estimates that artificial intelligence data centres account for 2.5 to 3.7 per cent of global greenhouse gas emissions, exceeding aviation’s share.
Despite the expected expansion in global trade, UNCTAD warned that trade policy is increasingly shaped by tariffs, subsidies, local-content requirements, regulatory measures and restrictions on strategic technologies. Governments are reorganising supply chains around selected bilateral relationships, creating uncertainty for countries seeking to expand exports and attract investment.
The report called for stronger regional cooperation alongside a multilateral trading system that preserves non-discrimination and special and differential treatment for developing economies. It also stressed the need for long-term industrial strategies and development finance to help countries build productive capacity and capture more value from global supply chains.
The report said regional cooperation can widen the options available to developing economies. India, for instance, has agreed to share its digital public infrastructure with 23 countries. Such initiatives, UNCTAD said, can extend the reach of national policies when supported by wider economic cooperation.
With ODA set to decline for a third consecutive year, the report warned that developing countries face a narrower margin to finance development priorities while responding to energy shocks, trade fragmentation and increasingly volatile financial conditions.