Debt concerns grow as development aid shifts from grants to loans

15 April 2024

In 2022, Official Development Assistance loans rose by 11% to $61 billion, while grants fell by 8% to $109 billion – a shift that could increase developing country debt burdens.

Global Official Development Assistance (ODA) surged 22% to a record $287 billion in 2022. Despite this overall increase, aid specifically targeted at developing regions declined by 2%, or $4 billion.

The nature of aid also saw a significant shift, moving towards concessional loans instead of grants – a trend that could add additional fiscal strain on developing countries still grappling with the economic aftermath of the COVID-19 pandemic.

In 2022, ODA loans rose by 11% to $61 billion, while grants fell by 8% to $109 billion.

The shift is detailed in a new United Nations report, "Aid under Pressure," which highlights the problematic nature of increasing loan-based aid amid rising international interest rates and growing debt distress.

Currently, more than 40% of the world’s population, around 3.3 billion people, lives in countries where governments spend more on debt interest payments than on health or education.

"This worsens debt sustainability, particularly for countries at high risk or in debt distress," the report says.

The share of grants in total ODA hits two decade low

The share of grants in total ODA fell to 63% in 2022, marking the smallest percentage in two decades – except for the initial year of the COVID-19 pandemic, which saw a drop to 62%. During the 2012-2021 period, the share averaged 68%.

Historically, the peak year for grant-based ODA was 2006, bolstered by significant debt relief under initiatives such as the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.

The shift towards loan-based aid seen in all developing regions

The transition from grants to loans is evident across all developing regions.

Over the past decade, the share of loans in total ODA more than doubled in Latin America and the Caribbean to 49%. This shift is also significant in Asia and Oceania and Africa, where loans increased to 40% and 29%, respectively.

In 2022, grants saw the sharpest decline in Asia and Oceania, falling by 12%, with Latin America and the Caribbean and Africa experiencing decreases of 8% and 6%, respectively. Meanwhile, loan increases were most pronounced in Latin America and the Caribbean, which saw a surge of 49%, followed by Asia and Oceania and Africa with rises of 12% and 1%, respectively.