Photo: 123RF / Chutima Chaochaiya
Australia’s aid budget has shrunk in real terms despite a small nominal boost to the Pacific.
The Pacific’s largest aid donor has raised its Official Development Assistance (ODA) for the region by just three percent to AU$2.2 billion in its federal budget for the 2026-27 fiscal year.
The World Bank projects that Pacific-wide inflation will rise to 4.6 percent in the same period.
Pacific aid now makes up around 42 percent of Australia’s overall $5.2 billion aid spend.
Professor Stephen Howes, a development economist, told RNZ Pacific that compared to last year, the overall spend is shrinking by four percent in real terms.
“We’ve had a lot of inflation in Australia … and the aid programme wasn’t adjusted for that,” he said. “There’s not a lot of support for aid in general, and we’ve seen that worldwide, as well as in Australia.”
Foreign Minister Penny Wong said Australian aid has become a strategic tool, with three quarters belonging to the Indo-Pacific.
“At a time of global uncertainty, Australia will remain a reliable partner our region can count on,” she said in a statement.
“We are building the region we want – one that is peaceful, stable and prosperous, where sovereignty is respected and countries can determine their own futures.”
Meanwhile, South-East Asia will see ODA increase by 5.7 percent to $1.3b, while Middle East and Africa loses 5.6 percent to $144 million.
Funding to the United Nations Development Programme, the Global Partnership for Education, UNAIDS and the Pandemic Fund is also reduced.
Globally, western aid spending is in freefall, according to the OECD. Last month they reported a 29.1 percent decrease in bilateral ODA in the 2025 calendar year.
‘A missed opportunity’
Minister Wong said that aid must be strategic.
“Our investments in diplomacy, development and regional partnerships strengthen both Australia’s national security and the resilience of our regio.”
Howes, who runs the Development Policy Center at the Australian National University, noted that the share of total aid to Asia and the Pacific increased from 74 percent to 76 percent.
He said “there’s no doubt” that aid has become a geopolitical tool.
Nevertheless, he said it was “disappointing” to see a business-as-usual approach, after two and a half months of conflict in the Middle East.
“Given that we are facing this economic crisis globally from the Iran war, and given after the pandemic there was a response through the aid programme, you might have expected that,” he said
He noted an allocation of $75.5m for regionwide efforts by the Department of Foreign Affairs and Trade (DFAT).
Stephen Howes
Photo: ANU
Howes said it could make for a useful cash reserve, particularly for fuel.
“The extra regional send includes funding for potential budget support … along the lines of the $30m just announced for Fiji.”
“They are giving themselves a bit of flexibility; otherwise the allocations are pretty much exactly the same.”
Aid as a share of the overall federal budget has fallen from 0.65 percent to 0.57 percent, Howes wrote for DevpolicyBlog.
DFAT noted that Australia is implementing “landmark agreements” with Tuvalu and Nauru, and a new alliance with Papua New Guinea.
