Southeast Asia Aid Map: tracking official development finance

Southeast Asia is home to around 670 million people. The region is made up of a diverse mix of countries, ranging from regional giant Indonesia, whose 270 million-strong population makes it the third-largest democracy in the world, to Brunei, with a population of just 450,000. Southeast Asia’s economies are among the world’s most dynamic and are deeply integrated into international supply chains. Decades of rapid economic and development progress have lifted millions of Southeast Asians out of poverty and delivered improvements in education, health, and general living standards. The region’s rising economic heft also makes it increasingly important to other countries around the world in terms of the provision of global public goods including containing the threat of future pandemics, supporting an open and stable world economy, achieving the global transition to net zero carbon emissions, and upholding a rules-based international system.

Although Southeast Asia’s impressive economic progress has diminished the importance of aid — or official development assistance (ODA) — the region still faces large unmet financing needs, notably for infrastructure, human development, and responding to climate change. This means development cooperation financed by various forms of official development finance (ODF) — grants, loans, and other forms of assistance — has a critical role to play. As this report shows, ODF flows remain sizeable, especially when it comes to the region’s smaller, lower-income countries such as Timor-Leste, Laos, and Cambodia. But even in Southeast Asia’s larger emerging economies such as Viet Nam, Indonesia, and Philippines, ODF is a major source of finance for critical development priorities. Intensifying geostrategic tensions between China and Western governments have also seen a growing focus on using ODF, particularly in infrastructure, as a means of competing for influence.

All of this makes an understanding of the scale and contours of ODF in Southeast Asia of critical interest to governments in the region and their development partners.

The objective of the Southeast Asia Aid Map is to understand official development finance

The Southeast Asia Aid Map tracks and analyses all ODF in the region. It is the first of its kind for Southeast Asia. At the Map’s core is a publicly accessible database tracking all ODF flowing to the region at the project level, incorporating not only financing through traditional aid, largely in the form of grants and concessional loans, but also other forms of government-backed development finance, most notably non-concessional loans.

Focusing on the period 2015–21, the Map captures more than 100,000 projects across the region from some 97 development partners. This includes traditional bilateral partners such as the United States, Japan, and Australia; traditional multilateral finance providers such as the Asian Development Bank (ADB) and the World Bank; and non-traditional partners such as China, India, and Middle Eastern countries. Intraregional development cooperation between Southeast Asian nations is also included.

The Map not only captures project commitments (i.e. signed agreements) but also progress with delivery and implementation by tracking spent amounts (disbursements). This is critical in particular for understanding the role of non-traditional development partners such as China, where official, publicly available information on disbursements, and even non-official estimates, is limited or non-existent.

Southeast Asia receives about $28 billion a year in official development finance

Between 2015 and 2021, Southeast Asia received about $200 billion in ODF, an average of $28 billion a year (in constant 2021 US$). Virtually all of this goes to the region’s emerging and developing economies (i.e. excluding Singapore and Brunei), providing financing equal to about 1% of their collective gross domestic product (GDP).

Just over half is in the form of what the Organisation for Economic Co-operation and Development (OECD) classifies as other official flows (OOF), largely consisting of non-concessional loans by China’s state-owned policy banks as well as the two main multilateral development banks operating in the region — the ADB and the World Bank. The rest of ODF in the region is in the form of grants and concessional financing (mostly loans) on terms that the OECD would consider as ODA and mainly provided by the region’s traditional development partners.

There is a noticeable gap between ODF project commitments and actual disbursements. Commitments averaged about $43 billion a year, 50% higher than actual disbursements during 2015–21. The gap is largest in the infrastructure category, owing to several megaprojects financed by China and to a lesser extent Japan and the ADB, as well as large gaps for Myanmar in general. Measured in project commitment terms, ODF was equal to about 1.5% of GDP during 2015–21 for the region (compared to disbursed ODF equal to 1% of GDP). Although disbursement is the more important measure, commitments are also important to track as these indicate the policy intentions of development partners and the amount of ODF potentially available.

There is important variation in the role of ODF across Southeast Asian countries. While on average ODF is about 1–1.5% of GDP depending on whether one focuses on disbursements or commitments, it is considerably more important in smaller and lower-income countries. In Timor-Leste, ODF is equal to 12–15% of GDP and in Laos and Cambodia it is roughly 8–11% of GDP. In Myanmar, ODF spent was worth 3.4% of GDP, although project commitments were twice this amount, at 6.8% of GDP.

China has been Southeast Asia’s single largest source of official development finance. But China’s financing has been in decline in recent years

China has been the region’s largest development partner, disbursing about $5.5 billion a year in ODF during 2015–21, with three-quarters going to infrastructure. China accounted for about a fifth of total ODF in the region and two-fifths of infrastructure ODF over this period. Most of China’s financing is concentrated in Indonesia as well as China’s closer neighbours, Laos and Cambodia. Unlike traditional development partners, China also focuses its ODF on Malaysia and Thailand, despite their status as higher-income countries in the region.

The vast majority (85%) of China’s disbursed financing takes the form of non-concessional loans from its two main policy banks — Export–Import Bank of China and China Development Bank. Only 10% of China’s ODF was in the form of concessional loans and 5% in grants. This mix in part reflects China’s focus on financing economic infrastructure as well as providing finance to higher-income countries such as Malaysia and Thailand.

Malaysia and Thailand would make up an even higher proportion of China’s ODF in the region were it not for significant project-level delays experienced by China’s high-speed rail megaprojects in both countries, including the $12.7 billion East Coast Rail Link project in Malaysia renegotiated in 2019 Mal001, and the $13.5 billion Thailand–China High Speed Rail project signed in 2015 Tha004. Indeed, there is a large gap between China’s project commitments and its actual disbursements, with the latter only 40% of the former during 2015–21. Problems with delivery have seen the scale of China’s financing decline in recent years, with China consequently overtaken as the region’s leading ODF provider by several traditional development partners during 2020 and 2021.

Traditional development partners provide the lion’s share of ODF, generally on much more concessional terms, and for broader development purposes beyond infrastructure

Traditional development partners — comprising members of the OECD DAC and multilateral institutions primarily financed by them — collectively provide almost 80% of total ODF and over 90% of ODA. Whereas China’s ODF is more concentrated on a sectoral (infrastructure) and geographic basis, traditional partners provide more balanced support across the region and development sectors, with a heavier focus on governance in particular.

The leading multilateral development banks in the region — the ADB and the World Bank — play a crucial role. The two banks are the second and third-largest ODF providers in the region, providing $4.5 billion a year and $4 billion a year respectively. The banks achieve financing scale by leveraging their balance sheets to serve the larger emerging economies through non-concessional lending while providing grant and concessional loan support to Southeast Asia’s less developed economies. The ADB in particular was able to respond substantially to the impact of the Covid-19 pandemic in 2020 and 2021, becoming the largest source of ODF to the region during these years.

Among traditional bilateral development partners, Japan and Korea are leading providers of ODF in the region. Japan averages around $4 billion a year in ODF disbursed, while Korea averages $3 billion. “Team Europe” — encompassing contributions from Germany and France in particular, along with other European Union members and institutions — is a significant contributor, averaging about $3 billion a year. Individually, Germany, France, and the EU institutions are the sixth, ninth, and tenth-largest ODF providers respectively in the region and are major players in terms of infrastructure financing. The United States and Australia provide $1.1 billion and about $870 million a year on average respectively. Both play relatively minor roles in infrastructure financing but provide a greater amount of ODF in other sectors, largely in the form of grants.

India and several Middle Eastern partners are modest non-traditional sources of ODF, providing a combined $430 million a year to the region, with over half coming from the Islamic Development Bank

The Southeast Asia Aid Map provides insights on the role of important non-traditional development partners, other than China. Middle Eastern sources provided about 80% of this. The single most important source of non-traditional ODF other than China is the Islamic Development Bank, which provides about $225 million a year to the region. Almost all of this goes to Indonesia in the form of non-concessional loans focused on agriculture and education. The OPEC Fund for International Development is also active, though only provides around $40 million a year in ODF. Saudi Arabia is the largest bilateral Middle Eastern development partner, providing about $45 million a year, mostly for scholarships. India was the single largest non-traditional bilateral partner (other than China), providing about $70 million a year in ODF to Southeast Asia, with almost 90% going to neighbouring Myanmar for transport and energy projects, financed by grants.

Official development finance plays a major role in meeting Southeast Asia’s critical development needs

Despite Southeast Asia’s rising economic heft, ODF remains important relative to the resources available for financing development, even in some of the region’s large economies. While private sources of finance — domestic private investment, foreign investment, and remittances — now dwarf aid flows to the region, it is not straightforward to direct these towards specific priorities such as education, health, and social protection. Even in the case of infrastructure development, most investment continues to come from the public sector.

ODF, therefore, has a special role to play, providing support targeted to the most pressing development priorities. ODF also comes on far better financial terms than market-based financing, with a large share of ODF provided in grants and concessional financing. Even non-concessional ODF is still generally provided on much more favourable terms than that available from the market.

The relevant basis to judge the importance of ODF to the region is thus not simply relative to GDP but compared to government revenue and, more specifically, government spending on key development priorities. ODF is only 1–1.5% of regional GDP, but equal to 6–9% of total government revenue. More importantly, ODF is equivalent to around 10–15% of total government development spending on infrastructure, education, health, and social assistance combined. ODF is also equal to roughly 20–30% of foreign direct investment and remittances inflows combined, indicating that a very sizeable part of external finance continues to come through official development channels as opposed to the market and private activity.

Critically, the importance of ODF in financing development holds across Southeast Asia’s emerging and developing economies, including larger economies. ODF is most important in smaller and lower-income countries such as Cambodia and Laos, who receive ODF equal to almost 80% of government development spending. ODF is also very large relative to government development spending in Timor-Leste and Myanmar. But even in the region’s larger emerging economies such as Philippines, Vietnam, and Indonesia, ODF is still upwards of 10% of total government development spending. In Malaysia and Thailand, ODF has played a smaller role to date but is material if viewed in terms of commitments, which capture the value of project deals made to date in these countries, particularly for large China-supported railway projects.

In Southeast Asia’s smaller and lower-income countries, ODF is absolutely critical to financing development. But even in stronger emerging economies such as Vietnam, Indonesia, and Philippines, ODF is far from marginal in shaping future growth and development prospects. External financing from development partners is therefore likely to remain of significant interest in the region for some time to come.

In 2020 and 2021, development partners dramatically ramped up financing in response to Covid-19, with the multilateral development banks, Europe, Japan, and Australia doing the heavy lifting

The Southeast Asia Aid Map underlines the role ODF plays in providing countercyclical and other emergency support during crises. Like the rest of the world, Southeast Asia has been badly affected by the Covid-19 pandemic. Many of the region’s development partners responded with substantial additional assistance. Total ODF to the region ramped up dramatically to $35 billion in 2020, representing a 55% increase on the previous year’s figure of $23 billion. In 2021, ODF flows fell back to $28 billion, still about 25% higher than the pre-Covid level.

The role of key development partners during Covid-19 varied immensely. The ADB responded the most forcefully, more than doubling its total ODF in 2020 by providing $5 billion in additional financing compared to the previous year and sustaining its financing at an elevated level in 2021. The Asian Infrastructure Investment Bank (AIIB) also responded with a large increase in financing in 2020, shifting away from its usual focus on infrastructure. Other major development partners including Europe, the World Bank, and Japan provided significant additional support. Among mid-sized bilateral development partners, Australia stands out, tripling the scale of its ODF to the region through a $1.1 billion budget support loan to Indonesia. By contrast, other major development partners, including China, the United States, and Korea, provided relatively little additional ODF during the pandemic. As noted earlier, a key result has been that the ADB, the World Bank, and Japan all overtook China in terms of the scale of ODF provided during 2020 and 2021.

China is Southeast Asia’s leading infrastructure financier but faces competition from the multilateral development banks, Japan, South Korea, and Europe, while the United States and Australia play minor roles

Infrastructure is the largest single category of ODF, encompassing projects in transport and storage, energy, communications, and water and sanitation. Between 2015 and 2021, the region received on average $11 billion in infrastructure ODF, comprising about 40% of total ODF to the region. Infrastructure ODF is heavily polarised between a handful of major financiers and the rest. China is by far the region’s leading infrastructure financier, providing $4 billion a year on average or a little under 40% of total infrastructure ODF. Japan is the second-largest at $2.5 billion a year. Both China and Japan have a heavy focus on infrastructure, with this accounting for 73% and 62% of their total ODF respectively. The World Bank, the ADB, and Korea are the next largest financiers, each providing about $1 billion a year in infrastructure ODF. Team Europe is also significant, averaging about $620 million a year. Other development partners play a minor role, with Australia, the United States, India, and the United Kingdom the next largest, but each providing less than 1% of total infrastructure financing in the region.

Despite China’s leading role, the infrastructure competition picture in Southeast Asia is mixed. This is because there is a large gap between China’s commitments and its disbursements. Between 2015 and 2021, China signed projects worth about $12 billion a year — three times more than its actual infrastructure ODF disbursements and three times the value of the infrastructure projects signed by Japan, the next largest player. China is consequently by far the dominant player in terms of commitments across most infrastructure sectors, with the exception of water and sanitation. But measured in terms of disbursements or projects delivered, China faces significant competition — notably from Japan in transport and storage, and Korea in communications. In energy, China enjoys a dominant position, disbursing almost half of all ODF in the sector. The overall picture is thus mixed. In terms of the promise of substantial infrastructure finance, China is far ahead, with no other partner signing anywhere near the scale of infrastructure project deals. But measured in disbursements or actual projects delivered, China faces competition from a variety of players.

Climate development finance reached almost $11.6 billion in 2021. But the outlook is mixed, with far more concerted efforts needed to help Southeast Asia transition to more resilient low carbon development

Tracking climate-related ODF is difficult due to differing accounting approaches and limited reporting, even among traditional development partners. The Southeast Asia Aid Map nonetheless attempts to capture this, relying on climate financing reporting to the OECD where this exists and otherwise seeking to apply the same methodology to projects that would appear to qualify. This approach identifies whether projects have climate-related objectives (i.e. mitigation or adaptation) as their “principal” purpose or as a “significant” objective within a project otherwise focused on other development objectives.

The Map shows that climate-related ODF has been rising in Southeast Asia, reaching $11.6 billion in 2021 and roughly doubling as a share to over two-fifths of total ODF. The ADB and Japan are the largest providers of climate development finance, with each providing almost $2 billion a year between 2015 and 2021. China, Team Europe, and the World Bank are the next largest, averaging about $1 billion a year each.

Despite the apparent increase in climate-related ODF, there remain a number of negative signs. First, the increase in climate development finance has only been through projects rated as having a significant climate objective. By contrast, projects with a principally climate-related objective have remained flat in volume terms and declined as a share of total climate-related ODF. Second, in terms of financing the energy transition, the Map finds that while financing for non-renewable energy projects (fossil fuel and waste fired) has declined significantly, so too has financing for renewable energy projects. Hence, to the extent that there has been a switch in financing focus, this has to date simply been achieved through a sharp reduction in overall energy support, at odds with the region’s need for more and cleaner energy. Related to this, a third issue is that rising climate-related ODF has occurred within a broader context of relatively stable total ODF over the entire 2015–21 period, indicating that climate amounts have not been additional to existing development support. Fourth, though the amount of climate-related ODF disbursed is rising, new climate-related project commitments have decreased over 2015–21, aside from a temporary spike higher in 2020. Overall, the trajectory of climate development finance therefore appears far from the dramatic scale-up needed to support the region’s transition to resilient low carbon development.

Intraregional cooperation is growing but is still a small part of official development finance in Southeast Asia

Intraregional ODF provided by one Southeast Asian country to another has remained minor, averaging just $76 million a year during 2015–21 or only 0.3% of total ODF in the region. Thailand is by far the largest intraregional development partner, providing about 85% of total intraregional ODF, most of it focused on the Mekong subregion of which it is a part. Vietnam is the second-largest provider, accounting for the majority of the remainder of intraregional ODF. Most of its financing is focused on supporting its neighbour, Laos. Overall, Laos, Myanmar, and Cambodia are the largest recipients of intraregional ODF recorded by the Map. Indonesia’s intraregional ODF has remained minor, despite its status as the largest economy in the region (though in line with its status as a lower middle-income country). From 2015 to 2021, Indonesia’s intraregional ODF averaged just $200,000 a year, with most directed to Myanmar, Timor-Leste, and on a regional basis. The Map records even smaller contributions to intraregional ODF from the region’s three richest countries: Singapore, Brunei, and Malaysia.