Pacific Aid Map: 2024 Key Findings

Key Findings

• Rhetoric outpaces action in the Pacific: ODF to the Pacific Islands region plummeted by 18% from 2021 levels, with falls in grant support and growing donor reliance on non-concessional financing.

• China reclaims its position as the Pacific’s second-largest bilateral donor: After a pandemic lull, Beijing has narrowly displaced the United States in ODF spending and ramped up its project commitments.

• Beijing’s Pacific strategy gets smarter: China’s ODF has acquired a more targeted focus on winning influence in specific countries, involving more grants and community-level outreach.

• Global headwinds complicate the Pacific’s ODF outlook: While Covid-related assistance dropped by 60%, non-pandemic development support also fell by 13%.

• Aid securitisation hampers human development: Strategic competition has come with a larger focus on infrastructure, opening gaps in health and education priorities.

• The infrastructure race poses growing debt risks: Some 60% of infrastructure financing in the Pacific is now being financed by loans.

• Geopolitics drives fragmentation of aid: The rise of “micro-donors” has meant that the same amount of ODF per capita is being dispersed across many more projects by many more donors.

• Taiwan drops off from the Pacific’s top ten bilateral donors: Taipei’s ODF declined to just $7.2 million in 2022, less than a fifth of its historical average.

• The pandemic response has driven progress on cross-cutting priorities: Gender equality, climate action, and aid localisation efforts have gained greater attention, but further work is needed.

Overview

Fragility and rivalry: 2024 Pacific Aid Map

In 2022, official development finance (ODF) to the Pacific — encompassing grants and concessional loans (ODA), and other forms of assistance, including non-concessional loans (OOF) — experienced its largest annual contraction on record, dropping by 18%. This was first and foremost the result of Covid-19 support to the region fading, although cuts to global aid budgets and the Ukraine War also played a role in donors diverting resources away from the region.

While total ODF flows in 2022 remained 19% above the pre-pandemic levels of 2019, the composition of development support to the region has changed: development support has become less concessional and involves greater reliance on loans. A decline in grant support, which has receded to pre-pandemic levels, threatens the region’s fragile economies, where economic scarring from the pandemic persists and human development gains have been limited over the last decade.

At the same time, geopolitical competition with China in the region has intensified ODF securitisation, with mixed results. A surge of smaller donors has crowded and fragmented the aid landscape. Infrastructure competition has pulled the focus from human development despite declines in key health and education outcomes across large parts of the Pacific. An infrastructure hyperfocus has also contributed to increased lending to the region, despite most countries facing elevated debt risks.

Australia remains by far the region’s largest donor, with total ODF to the Pacific above 2019 levels, but Australian grants have dropped slightly below their pre-pandemic average. Although there is much rhetoric around increased Pacific engagement, development support from the United States, New Zealand, and Japan saw significant contractions in 2022, falling below pre-pandemic levels. In the case of the United States, aid to non-Compact states remains low.

Against this backdrop, China has regained its place as the region’s second-largest bilateral donor, with a modest uptick in spending. Beijing has emerged from a pandemic-induced lull with a more competitive, politically targeted model of aid engagement. China is also engaging in new aid modalities, notably in the use of direct government budget transfers. These new modalities have featured heavily in the aid packages used by Beijing to secure diplomatic recognition by Kiribati and Solomon Islands, at the expense of official ties with Taipei. There has also been a region-wide increase in the frequency of gifts and small grant projects administered directly by China’s embassies.

The uptick in Chinese spending has been accompanied by a resurgence in new Chinese project commitments, signalling a revival in its ambition to engage in major infrastructure works in the Pacific. The 2024 announcement of the $135 million Vanua Levu Road Upgrade in Fiji marks China’s largest-ever grant-financed project in the Pacific. In 2022 and 2023, China also signed record project commitments in Solomon Islands and Vanuatu.

The outlook for development support in the Pacific is uncertain. Forecasting of major bilateral donor aid budgets indicates ODA — which includes grants and concessional loans and accounts for around 85% of the Pacific ODF package — will flatline in coming years. Pressures on both donor and Pacific government budgets are likely to grow, meaning more will need to be done with less to secure critical development wins. The allocation of development budgets from the region’s major donors also appears increasingly shaped by geopolitical concerns, raising questions about the trade-offs and sustainability of the current course.

On the whole, and despite a three-year pandemic-induced ODF surge, development support in the Pacific has become increasingly inadequate, caught between elevated regional needs, economic fragility, and heightened geopolitical pressures.

Analysis

1. Rhetoric outpaces action in the Pacific

ODF to the Pacific Islands region plummeted by 18% from 2021 levels, with falls in grant support and growing donor reliance on non-concessional financing.

The large ODF contraction in 2022 was driven largely, though not entirely, by the winding down of pandemic-related assistance to the region. Melanesia, with Papua New Guinea (PNG) at its core, bore the brunt of ODF cuts, experiencing 70% of the overall regional contraction. In contrast, Micronesian states saw a modest ODF rise, partly due to ongoing US Compact financing. Polynesia presented a mixed picture — Samoa, Tonga, and Tuvalu enjoyed ODF increases of 30–50%, while Cook Islands and Niue experienced sharp declines of 57% and 19%, respectively.

However, there were also important changes to the composition of development support. The year-on-year decline in total ODF was driven by a 43% drop in concessional loans and a 22% fall in grants (ODA).

Meanwhile, non-concessional loans (OOF) rose by 17% on the year to account for more than a quarter of the 2022 ODF package, despite shrinking fiscal space and rising public debt in many Pacific Island countries. In fact, the rise in OOF loans has offset the broader decline in ODA. In 2022, overall ODF remains 19% above pre-pandemic levels in 2019.

Grant support — the first best option for development financing in vulnerable small Pacific Island economies — has fallen below pre-pandemic levels for half the region, with total grants now lower than a decade ago. Total ODA — the sum of grants and concessional loans — is only slightly above pre-pandemic levels, thanks largely to concessional loans still being higher than in 2019.

Altogether, loan financing (both concessional and non-concessional) now represents 41% of the total ODF package, the highest share on record. By contrast, loans accounted for just 17% of development projects a decade ago. Even more striking, non-concessional loans have increased fivefold in that period, reaching 28% of the ODF package.

The Pacific Aid Map shows that some of the largest traditional donors were behind both the 2022 ODF contraction and the shift towards greater reliance on loans for regional development financing. Australia, which did not offer development loans before the pandemic, now has an ODF mix with 38% in loans. However, it is among the few major donors — alongside the Asian Development Bank, the World Bank, China, and the United States — whose ODF levels post-pandemic remain substantially higher than pre-pandemic. By comparison, Japan’s aid contracted by a much more pronounced 62% in 2022 on the year, returning slightly below pre-pandemic levels, while maintaining development loan financing at 50% — the highest among major bilateral donors.

In short, although total ODF remains above pre-pandemic levels in 2022, its composition may be increasingly inadequate to meet the region’s needs.

2. China reclaims its position as the Pacific’s second-largest bilateral donor

After a pandemic lull, Beijing has narrowly displaced the United States in ODF spending and ramped up its project commitments.

While development support is only one of the ways China has sought to build relationships in the Pacific, the loan financing that had come to characterise Chinese regional engagement fell precipitously for close to half a decade from the mid-2010s. New spending and commitment lows in 2020 raised further questions as to the trajectory of China’s Pacific aid program.

However, in 2022, Chinese development support to the Pacific grew to $256 million, a 6% increase on 2020–21 average spending levels. A modest uptick in spending, paired with declining support from Japan, New Zealand, and the United States, has meant China has regained its position as the region’s second-largest bilateral ODF donor in 2022. That year, the multilateral development banks emerged as the second and third-largest sources of ODF overall, after Australia.

There has also been significant change in China’s country-level allocations. China’s year-on-year ODF spending in PNG declined to $79 million in 2022, almost half its annual spending average between 2008 and 2019. Fiji and Samoa have seen similar declines from pre-pandemic levels. These spending decreases have been offset by increases in other parts of the Pacific, notably the two countries that switched diplomatic recognition to China from Taiwan in 2019 — Kiribati and Solomon Islands.

However, more significant than the headline spending has been the resurgence in new project commitments, signalling a revival in China’s capacity and ambition to engage in major infrastructure projects in the region. The announcement of the $135 million Vanua Levu Road Upgrade in Fiji in 2024 represents China’s largest-ever grant-funded project in the Pacific.

This follows a series of loan-financed project commitments in 2022 and 2023, notably the $75 million Digital TV Transformation Project in PNG, the $66 million Huawei cell tower project in Solomon Islands, and the $120 million Malekula Phase III roads project in Vanuatu. The Solomon Islands and Vanuatu projects are China’s largest single commitments in these countries to date.

The rebound in Chinese commitments is even more pronounced when looking at the smaller Pacific countries (i.e., excluding PNG where large, irregular project commitments often obscure broader regional trends). Excluding PNG, China’s average annual commitments in 2022 and 2023 climbed to $190 million, above the pre-pandemic average of $169 million.

The wave of new project commitments reverses a three-year downward trend. China’s annual commitments for new projects in 2020–21 dropped to decade lows. While the Covid-19 pandemic partly explains the downturn in Chinese infrastructure deals signed, the decline began two years prior. Key factors behind this included rising Pacific debt risks, tighter capital controls in China, and increased competition in the infrastructure space from traditional partners.

3. Beijing’s Pacific strategy gets smarter

China’s ODF has acquired a more targeted focus on winning influence in specific countries, involving more grants and community-level outreach.

China has opted for a new double-pronged approach relying on large-scale grant financing, rather than loans, and high-frequency embassy activity in priority countries. This reflects a more competitive and politically attuned method to regional engagement.

From its rise as a major development partner in the late 2000s to its ODF peak in 2016, China’s Pacific engagement strategy focused heavily on debt-financed infrastructure and connectivity projects. This played to core strengths, in particular China’s construction expertise and the commercial interests of its state-owned enterprises. From 2008 to 2016, China was responsible for 89% of the Pacific’s bilateral debt and a third of all bilateral infrastructure works in the region. By the end of 2016, Beijing’s policy banks had lent more than $1.1 billion to the region. China was the major bilateral creditor to multiple Pacific governments that were at moderate or high risk of debt distress. However, this mode of engagement began to shift in 2018. Concerns over project quality and debt sustainability precipitated a drop in demand for Chinese loans. China’s annual loan disbursements plummeted to $120 million, half of what they were in the late 2000s.

The collapse in Chinese lending accelerated through the pandemic, with border closures and domestic economic pressures also halting project implementation. China’s narrow infrastructure focus meant its usual channels of engagement were closed off. In 2020, for the first time in the Pacific Aid Map observation period, China signed no new loan deals in the region. ODF spending in 2019 and 2020 hit the lowest levels in decades.

It was from this low point in ODF engagement that Beijing released its new aid strategy white paper, China’s International Development Cooperation in the New Era.² The new policy emphasises lower risk and more sustainable engagement with developing countries. In the Pacific, the change materialised at both the large and small ends of the ledger. In line with Chinese President Xi Jinping’s pronouncements of a new era of “small and beautiful” projects, China’s embassies have led a rapid increase in locally targeted, small grants programs. In 2022, China’s Pacific Island country embassies were responsible for roughly three times as many community-level projects as seen a decade earlier. These engagements take a variety of forms, including vehicle donations to local governments, cash grants to schools, and the gifting of agricultural equipment to local farmers. The aggregate effect of smaller, more targeted embassy outreach activities on China’s regional aid profile has been profound, with average project size after the pandemic dropping to $2 million, down from $8 million pre-2020.

Grant financing has also surged. Grant-based projects now comprise close to two-thirds of China’s engagement, a stark comparison to pre-pandemic trends. The mobilisation of large-scale grant financing reflects a pragmatic recognition of the interests of regional governments and local players. For instance, the 2024 announcement of the $135 million Vanua Levu Road Upgrade in Fiji illustrates this trend, marking China’s largest grant-funded initiative in the Pacific to date.

However, not all new Chinese engagement has translated into more “beautiful” projects. Indeed, the Pacific Aid Map also highlights Beijing’s growing use of large-scale direct budget transfers. Of particular note has been China’s contributions to Solomon Islands’ Constituency Development Funds and Kiribati’s Social Stability Fund, each characterised by weak accountability mechanisms. Contributions to these funds supported China in securing switches in diplomatic recognition, with Beijing providing triple the amount previously coming from Taiwanese ODF programs in both countries. This shift seems set to continue, with the announcement in 2024 of a $20 million Chinese budget support package to Solomon Islands.³

Moreover, and despite China’s loan disbursements remaining significantly below pre-pandemic levels, Beijing has signed several large loans with Melanesian states since 2020. These loans, particularly in Vanuatu and Solomon Islands, are being disbursed into economies where debt risks have significantly worsened over the past five years. The lack of transparency around these loans and uncertainty regarding the efficacy of the projects they finance undermine aspects of China’s own debt sustainability frameworks and risk further degrading the political economy of many Pacific Island countries.⁴

4. Global headwinds complicate the Pacific’s ODF outlook

While Covid-related assistance dropped by 60%, non-pandemic development support also fell by 13%.

Between 2020 and 2022, more than $3.5 billion was committed in counter-cyclical and emergency support during the Covid-19 pandemic. The Asian Development Bank, Australia, and Japan were the largest contributors during this period, accounting for more than three-quarters of all registered regional Covid-19 support. As a result, ODF reached an all-time high in 2021, notably due to budget support programs and the distribution of vaccines by major partners. As expected, Covid-related disbursements have steadily declined, comprising only 15% of all commitments in 2022, compared to 27% in 2020 and 22% in 2021.

However, while much of the contraction in ODF in 2022 can be explained by the winding down of pandemic-era aid, non-Covid development support to the region also declined. Two other global factors may explain this more generalised ODF contraction in the Pacific.

The first is the Ukraine effect and a shift in Western donor priorities. While it can be difficult to precisely determine the impact of Russia’s 2022 invasion of Ukraine on Pacific ODF trends, the scale and sudden onset of the humanitarian crisis in Ukraine as well as the strategic urgency for many Western governments to support Kyiv in the face of Russian aggression undeniably had an impact on global aid budgets. The Ukraine War has likely reduced funds for other global crises and development programs, including in the Pacific.

In 2022, US aid to Ukraine surged nearly 30-fold, while aid to the Pacific dropped by 13%. However, the effect was most pronounced for Team EU — which includes all European countries and the EU institutions — as it has, on average, provided 6% of total Pacific development support. There was an eightfold increase in European aid to Ukraine, partly due to refugee-related spending. In parallel, European aid to the Pacific fell by 25%.

Secondly, some of Europe’s largest donors have also slashed their aid and development budgets, starting with the United Kingdom (under the previous conservative government), followed by Germany and France. Even the traditionally generous Nordic countries are scaling back, and the European Union is diverting funds away from traditional aid towards refugee inflows. Although Team EU represents a small portion of overall Pacific ODF, the impact of this broader ODF reduction will likely have long-term repercussions in the Pacific Islands region.

Closer to home, inflation has also squeezed Australia and New Zealand’s aid budgets, which led to a slight contraction in real terms during the 2021–22 financial year when measured in US dollars.

A generalised contraction in ODF comes at a delicate time for the post-Covid economic trajectory of the Pacific Islands region. Growth has returned to most Pacific Island economies, in part due to the resumption of global tourism and stimulus from public infrastructure projects. However, several downside risks hang over this tentative recovery, including constrained fiscal space, vulnerability to disaster risk, and volatility in global commodity prices and supply chains.

Looking forward, the prospects for Pacific ODA (grants and concessional loans) are bleak. Budget estimates of the Pacific’s largest bilateral donors show either flat or declining real ODA support for the region. This does not include multilateral funding to the region.

Australia’s ODA budget — which accounts for 40% of the region-wide ODF envelope — is set to rise by 4% in the 2023–24 financial year, with modest growth locked in from there at 2.5% annually to 2027, which is effectively flat when adjusted for inflation.⁵ Japan, the second-largest traditional donor to the Pacific, hit record global ODA levels in 2023 but faces a 6% cut to its ODA budget in 2024 due to economic challenges, with little prospect for future increases.⁶ New Zealand’s ODA envelope is set to peak in 2024 with a 23% increase on the previous year; this is expected to decline sharply from 2025 onwards.⁷ US ODA rose by 6% in 2023, largely driven by support for Ukraine, but future aid earmarked for the Pacific remains uncertain due to legislative challenges and political uncertainty.⁸ The EU aid budget saw a modest 3% increase in 2023 and looks likely to hold steady in 2024, but is projected to drop by an average of 31% annually across the Pacific from 2025 to 2027, compared to the 2021–24 allocations.⁹ Finally, according to the Pacific Aid Map team’s own estimate, China’s ODA is likely to return to pre-pandemic levels, with projected spending of $250 million annually.

Forward budget estimates for 2023 and 2024 suggest that ODA from major Pacific donors remains higher than pre-pandemic levels, but is in gradual decline. This calculation excludes smaller bilateral donors and multilateral donors. Nevertheless, the situation remains concerning.

To meet the region’s development goals and address the effects of an escalating climate crisis, a significant boost above currently projected levels of ODA will be required.

5. Aid securitisation hampers human development

Strategic competition has come with a larger focus on infrastructure, opening gaps in health and education priorities.

Over the past decade, donors have increasingly securitised aid in the Pacific, treating security and development as interlinked.¹⁰ As China emerged as a major development partner in the Pacific, with many Pacific Island countries joining Beijing’s Belt and Road Initiative, traditional donors introduced new strategies to strengthen their engagement with the region.¹¹

However, despite growing international engagement with Pacific Island countries, there are reasons to be concerned. In particular, the securitisation of aid leaves the region contending with human development gaps, elevated debt risks, and a more fragmented aid landscape.

Following China’s example, donors have increasingly shifted their focus towards infrastructure development. In 2008, infrastructure accounted for 15% of the ODF package; by 2019, just before the pandemic, this figure had doubled. Meanwhile, human development initiatives in health and education, primarily financed by traditional partners, have dropped by 8% over the period when excluding Covid-related support. This despite persistent development challenges in the region, such as limited healthcare access and inadequate education — particularly in literacy, vocational training, and higher education.

In the health sector, non-Covid health aid has dropped by 28% since peaking in 2018 — a troubling trend given the region’s growing health challenges. Meanwhile, aid for education has also fallen sharply over the last decade, hitting a record low in 2020.

Commitment numbers reveal that future infrastructure financing is set to surge dramatically, with signed infrastructure deals rising by 67% in 2022, while human development funding will come back just above levels of a decade ago.

6. The infrastructure race poses growing debt risks

Some 60% of infrastructure financing in the Pacific is now being financed by loans.

Infrastructure financing is delivering much-needed development projects and gains across the region. But it must be approached with caution, as it also poses the risk of leading to unsustainable debt levels. Infrastructure loans increased by 56% between 2008 and 2018. Since 2020, ten new infrastructure loans have been announced by Australia, six by China, and two by the European Union. The region’s remaining infrastructure loans were announced by the two major multilateral development banks (MDBs): eight by the Asian Development Bank and six by the World Bank. Overall, 60% of infrastructure financing in the Pacific is being funded by loans.

While 75% of these loans are directed to the region’s largest economies, such as PNG and Fiji, the remaining quarter is allocated to smaller economies, a majority of which already face elevated debt risks. For example, both Solomon Islands and Vanuatu have recently received large infrastructure loans, not only from China but also the two MDBs. According to the International Monetary Fund, both economies are classified as being at moderate risk of debt distress, with limited capacity to absorb economic shocks. Both countries are also at the forefront of the impact of climate change. Debt suspension clauses, which automatically pause payments after major disasters or shocks, could offer one element of a potential solution moving forward.¹²

A significant portion of regional infrastructure allocations is now being driven by the Australian Infrastructure Financing Facility for the Pacific (AIFFP). In 2022, the AIFFP committed nearly $750 million to projects in PNG, Fiji, Micronesia, Nauru, and Palau in an attempt to displace China’s dominance in the Pacific’s infrastructure development landscape. This increased annual regional infrastructure development commitments by 60% in 2022 alone.

It is important to note that while Australia and multilateral development banks have become major lenders in the Pacific, their lending practices adhere to frameworks designed to assess and manage risks to a country’s debt sustainability. In contrast, China does not appear to follow comparable frameworks, which may lead to significant debt burdens for borrowing countries in the region.¹³

However, despite efforts by traditional donors to crowd out China, the latter continues to lead in pipeline (committed) infrastructure spending, largely due to legacy projects in the transport and energy sectors — even if it remains unclear how many of these projects will ultimately be completed. Multilateral development banks follow closely behind China in terms of projects awaiting implementation. Australia’s recent AIFFP investment means that Canberra is catching up in the transport sector.

7. Geopolitics drives fragmentation of aid

The rise of “micro-donors” has meant that the same amount of ODF per capita is being dispersed across many more projects by many more donors.

Over the past decade, the number of bilateral aid partners in the Pacific has doubled, while the total inflation-adjusted ODF envelope has only grown by a third — approxi­mately in line with the region’s population growth. In parallel, the number of projects has nearly doubled. This means more donors are spreading the same amount of aid per capita across many smaller projects in the region.

Fragmentation matters because each aid relationship, regardless of its size, imposes an administrative burden on the recipient government. Smaller and one-off projects tend to be less efficient because they come with high fixed costs. This is particularly problematic in the Pacific, where governments have limited administrative capacity.

Since 2008, there has been a significant surge in the “long tail” of aid flows across all Pacific sub-regions, marked by a growing number of micro-donors — those contributing less than 1% of a recipient country’s total ODF inflows. Fiji provides one such example: in 2008, the country had six micro-donors running programs totalling less than 1% of Fiji’s ODF inflow. By 2022, it had 20.

Many of these smaller bilateral donors are relatively new to the Pacific and a majority are European. Out of the Pacific’s 20 most lightweight donors, 17 are from Europe. While some act on humanitarian grounds or as part of broader diplomatic or Indo-Pacific strategies, others are driven by less altruistic goals, such as securing UN votes, often lacking the long-term focus needed to drive meaningful development outcomes.

8. Taiwan drops off from the Pacific’s top ten bilateral donors

Taipei’s ODF to the Pacific declined to just $7.2 million in 2022, less than a fifth of its historical average.

Taipei’s regional ODF spending has plummeted as its diplomatic channels have closed off. The decline marks Taiwan’s first exit from the Pacific’s top ten bilateral donors in the Pacific Aid Map’s 15-year observation period. The contraction in aid corresponds with Taiwan’s loss of diplomatic partners as it has struggled to maintain diplomatic recognition against an increasingly influential China.

Taiwan’s ODF spending in the Pacific declined for three consecutive years following the loss of Kiribati and Solomon Islands as diplomatic partners in 2019. The abrupt switch of Nauru in early 2024 further narrows Taiwan’s diplomatic foothold in the region. As a result, Taiwan is now left with only three Pacific partners: Marshall Islands, Palau, and Tuvalu.

China’s aid involvement in the Pacific has grown to pursue various objectives, but reinforcing the “One China” policy remains a key motivating factor in its regional engagement, emphasising that Taiwan is part of China, with Beijing as the sole legitimate government. Consequently, countries can only diplomatically recognise — and thus receive aid and development funding from — one of the two governments.

In Kiribati and Solomon Islands, fresh annual ODF flows from China are three times the level provided by Taiwan prior to their diplomatic switches to Beijing. In both cases, China took over a majority of pre-existing Taiwanese projects, budget support measures, and discretionary spending funds. For Kiribati, the switch included the announcement of a $50 million grant package with financing for purchase of an Embraer commercial aircraft and refurbishment of the Canton airstrip. Similarly, Solomon Islands received $60 million in grant financing for the 2023 Pacific Games Stadium Project. Beyond ODF, both countries also saw jumps in two-way trade with China and an uptick in Chinese tourist arrivals.

The reduction in Taiwanese spending has not solely been driven by the loss of diplomatic partners in the region. Taiwan’s ODF flows to its ongoing Pacific partners have also dipped below historical averages, which may be indicative of a broader policy change. Following the loss of Honduras as a diplomatic partner in 2023, Taiwan’s then-president Tsai Ing-wen signalled a change in approach, stating that Taipei would no longer “engage in a meaningless contest of dollar diplomacy with China”.¹⁴

In the face of wavering Taiwanese support and robust counter-offers from China, one open question is how much longer Taiwan can maintain its remaining diplomatic ties in the Pacific. China continues to offer lucrative deals to Taiwan’s remaining Pacific partners. In 2024, Palau’s President Surangel Whipps Jr published an open letter claiming that Chinese officials were attempting to bribe Palauan officials, promising aid, tourists, and $20 million in financing for a call centre.¹⁵

The status of Palau and Marshall Islands as Compact of Free Association (COFA) states with the United States makes a diplomatic switch less likely, however the agreements provide no explicit guarantees. The Federated States of Micronesia is part of the same COFA arrangement but has recognised China since 1989 and continues to receive high levels of Chinese ODF support. Tuvalu, the only non-COFA Pacific state recognising Taiwan, also looks unlikely to change. Taiwan has been one of Tuvalu’s closest international partners over the past decade and is the focus of more than 80% of Taiwan’s post-2019 ODF spending in the region. Tuvalu’s signing of the Falepili Union with Australia, an agreement that brings Australia into the country’s security and defence decision-making, further reduces the likelihood of a switch in diplomatic recognition.

9. The pandemic response has driven progress on cross-cutting priorities

Gender equality, climate action, and aid localisation efforts have gained greater attention, but further work is needed.

Gender equality

Gender inequality remains a persistent challenge in Pacific Island countries, yet donor funding to address it lags behind the global average. Between 2008 and 2022, only 3% of total aid to the Pacific was dedicated to projects where gender equality was a “principal” focus, below the global average of 4%. Projects with “significant” gender equality objectives made up 29% of ODF, compared to a figure of 40% globally.

The highest point for gender equality financing occurred in 2020 due to gender equality objectives being incorporated into Covid-19 support packages, with a sharp rise in gender equality-focused loans from the Asian Development Bank and Japan. However, as overall aid to the Pacific contracted in 2022, gender equality financing took a hit, particularly from Japan, which registered a 13% larger drop in gender equality-focused aid than in its overall ODF. In contrast, major donors such as the Asian Development Bank have continued to prioritise gender equality objectives, with the ADB accounting for half of the region’s total gender equality financing by 2022. Partly as a result, gender equality development financing remains well above pre-pandemic levels.

Australia’s global aid program shows a lower share of gender-focused projects in the Pacific compared to the rest of the world. Yet this may be temporary. Australia has recently reinstated a target for 80% of its development funding to comprise a gender equality component, and now requires gender objectives in all projects exceeding AU$3 million. This policy has the potential to triple Australia’s current levels of gender equality financing in the Pacific. If fully implemented, Canberra’s renewed commitment would also boost overall gender equality development funding in the region by 33%.

Climate action

The International Monetary Fund estimates Pacific Island countries face an annual climate adaptation gap of 6.5% to 9% of GDP, or $2.4 to $3.4 billion. With their small economies and significant development challenges, these countries rely heavily on external financing for adaptation efforts.

Between 2008 and 2019, climate financing in the Pacific grew steadily from a small base, with annual disbursements averaging $369 million, or 13% of total ODF. About 36% of these projects had a “principal” focus on climate adaptation and/or mitigation objectives. During the pandemic, climate-related financing surged, with more than 35% of 2021 ODF marked as being related to climate change — more than double the prior decade’s average. However, much of this increase came from projects where climate goals were classed as “significant” rather than “principal” objectives, often incorporated into pandemic recovery packages.

In 2022, despite an annual contraction in climate ODF mirroring the overall ODF decline, the increase in “principal” climate projects highlights a positive trend, with total climate ODF staying above pre-pandemic levels. In addition, partial data indicates that climate ODF since the pandemic has increasingly shifted towards adaptation efforts rather than mitigation. This focus aligns with the Pacific’s unique circumstances as a tiny source of global emissions that nonetheless faces some of the most severe impacts of climate change. The pandemic has significantly accelerated adaptation initiatives, particularly through infrastructure projects aimed at bolstering resilience to climate-related threats such as rising sea levels and extreme weather events.

While the overall outlook for climate funding is positive, it remains magnitudes lower than estimated requirements.

Aid localisation efforts

Globally, aid agencies are increasingly focusing on “localisation”, which involves providing more direct funding to local groups. But progress has been slow, with risk aversion, administrative hurdles, dual accountabilities, divergent values, and power asymmetries being the main challenges.

In Pacific Island countries, however, localisation efforts have improved significantly. For the first time, the 2024 edition of the Pacific Aid Map examines donors’ efforts to localise aid in the Pacific, focusing on implementation channels and partner organisations used by donors. Aid is considered localised when the implementing partner is the recipient government (through its departments and ministries), a regional or local public organisation, or a local non-governmental organisation (NGO).

Localisation efforts have increased steadily over the past decade. In 2008, localised projects accounted for 19% of total ODF projects. This had jumped to 52% by 2022. Of this, 88% was directly implemented by the central governments of the recipient countries, while the remaining funds were managed by various regional agencies and organisations, including the Secretariat of Pacific Communities, the Pacific Islands Forum and its affiliated bodies, such as the Forum Fisheries Agency, as well as local NGOs, to a much lesser extent.

Direct budget support during the pandemic has significantly boosted aid localisation efforts, with Australia alone providing more than $1.4 billion to the PNG Treasury in the past three years. However, when excluding budget support, the infrastructure sector emerges as the primary area where local governments and organisations take the lead in implementation.

This trend is mostly driven by large infrastructure investments from major MDBs. While funding flows directly to recipient governments, those governments must nevertheless adhere to MDB procurement rules for disbursement. For large infrastructure projects, this often results in Pacific Island governments contracting accredited international firms, despite receiving the funds locally.

Among all bilateral donors, the United States leads the way for its aid localisation efforts in the region, through the financing provided under the COFA payments to North Pacific states. Each year, 80% of US ODF funding is spent directly by the central governments and public sector institutions of the COFA countries.

There is a strong global push among major donors for locally led development, with many aligning their efforts to support the Sustainable Development Goal on localisation. Notably, Australia’s new International Development Policy commits to increased investment in locally led solutions, while the US Agency for International Development (USAID) recently announced an enhanced commitment to transparency, inclusivity, and responsiveness to local actors. We expect this positive trend to continue.