New Zealand is expected to reduce its overseas aid funding by about 35 percent in the next two years, according to Lowy Institue's Pacific Aid Map. Photo: RNZ Pacific / Hilaire Bule
A new report forecasts a US$200 million annual shortfall in aid to the Pacific, as New Zealand and other Western partners pull back.
The Lowy Institute, an Australian foreign affairs think tank, said New Zealand is expected to reduce its overseas aid funding by about 35 percent in the next two years.
That is despite 10 percent of all development funding in the region coming from Aotearoa.
According to Lowy Institute's 2025 Pacific Aid Map, it has left Australia to fill in the gaps, now accounting for 43 percent of all aid to the region.
Meanwhile, China is becoming more local, and as a result of its drive for development, more popular.
Lead researcher Riley Duke said aid to the Pacific has fallen to pre-pandemic levels.
"Crisis support loans, those big budget support initiatives that were mobilised by countries like Australia and Japan for the Pacific, had a limited lifespan, and they've wound down," Duke said.
Duke said, at the same time, a refocusing of aid towards infrastructure projects, and away from areas like health and education, is taking their toll on the effectiveness of certain projects.
"Across the region, what has suffered from that have been the more old school areas of development focus, so things like education and health... both of those sectors have seen consistent declining support over the last decade.
"Any additional money that's gone to infrastructure hasn't been fully additional... it's come at the cost of some of those traditional aid focus areas of education and health."
This comes as fewer development partners are willing to offer large-scale concessional loans, preferring to make small-scale grants instead, the report claimed.
"This stability has provided some cushioning amid worsening fiscal pressures, as many Pacific governments confront slower than anticipated growth and rising debt pressures," the report noted.
Despite a 16 percent drop in funding of all kinds between 2022 and 2023, leaving the region vulnerable, along with the rest of the world.
"Sharp aid cuts by major Western donors have thrown the global development landscape into disarray," the report warned.
Aid 'a tool in the soft power toolkit'
Duke said that Australia could provide more than half of all Pacific aid by 2028.
"That means Australia is seeing its like-minded partners, foremost New Zealand, the US and the UK, stepping back a bit," he said.
He added Australia is in a position where, based on its own priorities, it will be shouldering more of the responsibility to support development in the region.
For the Pacific, this puts Australia at a significant advantage over New Zealand in terms of relationship-building, Duke said.
"I think in parts of the world, like the Pacific, it's the currency of engagement. It's how relationships are built... it can be a way that a richer economy can demonstrate that they care about the outcomes of a region."
New Zealand is 'a stingy donor'
For Dr Terence Wood, a development expert who has been highly critical of Aotearoa's aid retreat, Australia's position does New Zealand no favours.
Wood said New Zealand is giving its aid to the region with an increasing focus on the new Cold War and countering China's influence.
"For example, in Niue, we are a much larger donor in Australia, in Samoa we're about the same size as Australia. So there are parts of the Pacific where our presence is every bit as important."
Wood said that New Zealand's aid approach, amid an ever-increasing scarcity, is becoming more transactional rather than being based on a larger vision for long-term outcomes.
"The first thing that we will do is reduce our funding to multilateral organisations that operate globally, and we're already a pretty stingy donor when it comes to contributing to global public goods," he said.
"The next thing we'll do is we will reduce our aid spend in other parts of the world. If we cut our aid to African countries, for example, that will have a real impact, given how poor some of those countries are.
"We'll be getting worse at a time which is particularly unfortunate, given what the Trump White House is doing."
However, despite an ongoing rollback of the United States' aid programmes, the Lowy report argues that impact will be far less severe in the Pacific.
"The Pacific Islands are far less exposed to USAID cuts than commonly assumed. Most US support to the region is delivered through protected Compact of Free Association Agreements, leaving a comparatively small footprint outside of these arrangements," the report said.
"Nonetheless, there are some acute impacts, particularly on vaccination and media programs."
Duke said the reputational damage caused by the USAID cuts is playing right into Beijing's hands.
"The US has been, for many years, suffering from a bit of reputational free fall... China is present everywhere else in the Pacific, but its role has changed a lot."
This comes at a time when China is pulling back on their traditional "debt-trap" lending, instead providing locally focused grants. This, Duke said, makes China far more visible to Pacific communities.
"There's been a big shift. China's programme has gotten a lot smaller, there's been less appetite for Chinese loans... so it's a more competitive space," he said.
"It's made (China's) Pacific aid strategy a lot nimbler, [with] more grassroots projects. It's engaging at the local level with equipment donation, it's doing scholarships all over the region, it's sponsoring local, local football teams, all this kind of stuff."
PNG, Fiji, Palau hardest hit
Palau, a country in free association with the United States, saw a 61 percent drop in its aid from 2022 to 2023. It received around US$42m two years ago.
The report said that Palau remains among the more aid-reliant countries in the world, with aid accounting for 12 percent of its GDP.
The impact may be harder felt in Fiji, which saw foreign aid drop by $354m, or 57 percent, over the same time frame.
The Pacific's second-largest economy relies far less on aid than others, the report said. Most of its remaining funding has focused on migration and climate adaptation projects.
Papua New Guinea saw the greatest drop in real terms, losing around $431m, or 24.6 percent. It now receives its lowest level of aid since 2017.
Despite that, PNG remains the least aid-dependent country in the region, as well as the most economically successful.
Its loss comes on the back of a massive uptake in loans from Australia and the Asian Development Bank, the report said.
"Almost half (44 percent) of the development finance received by PNG between 2008 and 2023 came in the form of loans. As a share of total received development support, loan-financed projects have increased significantly."
"Between 2008 and 2015, loans accounted for around a third of total ODF. Since 2016, this has increased to more than half."
