Traditional partners still dominate official development finance

China has become Southeast Asia’s largest development partner, but the majority of official development finance (ODF) to the region continues to come from traditional development partners. These are defined as members of the OECD Development Assistance Committee (DAC), as well as multilateral organisations primarily financed by those countries.

In Southeast Asia, major traditional partners include the multilateral development banks, Japan, South Korea, European countries, the United States, and Australia. Between 2015 and 2021, these institutions and countries accounted for nearly 80% of ODF spent in the region. They were also the leading providers of ODF in all Southeast Asian countries except Malaysia and Laos, where China dominates. During the pandemic years of 2020 and 2021, the role of traditional development partners became even more pronounced, with their share of ODF disbursed increasing to 85%.

Unmatched concessional support from traditional development partners

The provision of grant financing in the region is largely dominated by traditional partners. Over the 2015–21 period, traditional partners disbursed approximately $42 billion in grants, while non-traditional partners, led by China and India, contributed $2.5 billion. The United States was the largest single provider of grant financing (providing $7.4 billion), followed by Japan ($5.8 billion), Australia ($4.9 billion), Germany ($3.5 billion), and European Union institutions ($3 billion).

The sector most supported by traditional partners in Southeast Asia was government and civil society, accounting for 24% of total funding. Infrastructure — combining transport and storage, energy, water and sanitation, and communications — accounted for a total of 30%. This balance of funding has remained largely consistent over time. By contrast, non-traditional partners (led by China) spent just 3% on governance and more than 70% in infrastructure-related sectors.

Traditional partners, led by the Asian Development Bank (ADB) and the World Bank, increased their funding for health in response to the Covid-19 pandemic, providing $3.5 billion in funding in 2021, compared to between $1.2 billion and $1.4 billion per year from 2015 to 2019. Funding for governance also increased substantially during Covid-19, as traditional partners provided significant budget support to Southeast Asian countries, including to sustain key government expenditures.

Multilateral development banks lead traditional development efforts

The ADB and the World Bank are the primary multilateral development banks (MDBs) operating in Southeast Asia, and are the region’s two largest traditional development partners. After China, the ADB and the World Bank are respectively the second and third-most significant sources of ODF in Southeast Asia. Together, they provided more than $60 billion in official development finance to the region between 2015 and 2021, with an almost equal split (52% from the ADB and 48% from the World Bank). The vast majority (99%) of their finance was in the form of loans, of which around 20% were concessional.

The MDBs achieve financing scale by leveraging their balance sheets to support the larger emerging economies through non-concessional lending, while providing grants and concessional loans to Southeast Asia’s less developed economies. As a result, the ADB was able to respond substantially to the impact of the Covid-19 pandemic, becoming the largest source of ODF to the region in these years.

Over the 2015–21 period, the three major recipients of MDB ODF were Indonesia, the Philippines, and Vietnam. The MDBs also provided substantial support to Thailand, including the ADB-financed Bangkok Mass Rapid Transit Project XM-DAC-46004-51274-001-LN3669 and large Covid-related budget support loans (XM-DAC-46004-54177-001-LN3949, XM-DAC-46004-54177-001-LN3945). Indeed, total ODF from both MDBs increased sharply in response to the pandemic, jumping 82% in 2020 compared to the 2019 level.

Japan: the largest traditional bilateral partner, by far

Japan is the leading traditional bilateral development partner in Southeast Asia. Tokyo disbursed $28 billion between 2015 and 2021, accounting for 33% of the traditional bilateral ODF — ahead of Korea’s 24% and Germany’s 10%. Almost all (99%) of it was ODA. Indeed, in 2021, about 22% of Japan’s global ODA went to Southeast Asia, with Vietnam and Indonesia the largest benefactors. Nearly 80% of Japan’s assistance to the region was in the form of concessional loans.

Japan’s development finance was primarily focused on the transport and storage sector, accounting for 43% of its ODF between 2015 and 2021 and slightly outspending China. Many of Japan’s largest and most visible projects in the region were in transport, including the North–South Commuter Railway in Metro Manila 2015003080 - JICAPH-P262, the Ho Chi Minh City Urban Railway Construction Project 2016003046 - JICAVN15-P5, and the expansion of the Mass Rapid Transit system project in Bangkok 2016003059 - JICATXXXIV-1.

Japan also invested outside this traditional area of focus. One example is the humanitarian sector, where the Japanese International Cooperation Agency (JICA) provided large loans to Indonesia in response to natural disasters in 2020 2020003005 - JICAINP-44 and 2021 2021003027 - JICAINP-46. Tokyo also provided large loans during the Covid-19 pandemic to support social protection programs in Indonesia 2020003048 - JICAINP-45, the Philippines 2020003045 - JICAPH-C25, Myanmar 2020003068 - JICAMY-C2, and Cambodia 2020003074 - JICACP-C2. These transactions boosted Japan’s spending in the governance sector, where Tokyo has generally been less active than other traditional partners.

Japan’s contribution across Southeast Asia was relatively balanced in the period reviewed. Vietnam received 26%, Indonesia and the Philippines around 20% each, and Myanmar, where Japan is the largest partner, 15%. Since 2018, Vietnam has received less Japanese support, with its share falling from more than 40% in 2015 to just over 11% in 2021. The Philippines and Indonesia, by contrast, have accounted for a growing proportion of Japan’s assistance.

South Korea has emerged as the second-largest traditional bilateral partner

Korea is the region’s second-largest traditional bilateral partner after Japan. It disbursed about one-quarter of its global ODF in Southeast Asia.

Korean ODF was concentrated primarily in two sectors: industry, mining, and construction; and energy. In the former, South Korea was the largest traditional partner in the region (and second overall, after China), accounting for more than $5 billion in ODF between 2015 and 2021.

Korea’s assistance goes overwhelmingly to just two countries: Vietnam and Indonesia, which together constitute 75% of Korean ODF to the region. This may be a result of the commercial lens Korea applies to its development activities in Southeast Asia. South Korea’s ODF is led by the Korea Export–Import Bank and focuses on supporting investments by Korean firms, in line with the former Moon administration’s New Southern Policy.

Team Europe, collectively a major player

Team Europe is collectively the fifth-largest traditional ODF partner in Southeast Asia. Germany, France, and EU institutions are individually the sixth, ninth, and tenth-largest ODF providers in the region respectively. Between 2015 and 2021, Germany spent $8.5 billion, France more than $5.3 billion, followed by the European Union institutions ($3.2 billion), United Kingdom ($2.2 billion), Norway ($1.2 billion), and Switzerland ($1.17 billion).

Germany provided both loans and grants to Southeast Asia, with around $3.5 billion or 41% of its assistance in the form of grants. France was more weighted towards loans, with just $944 million, or 18% of its spending, coming through grants.

Indonesia accounted for 52% of Germany’s development assistance, followed by Vietnam (19%), while France spread its support more evenly across Indonesia (35%), Vietnam (25%), Cambodia (17%), and the Philippines (16%). Around half of the United Kingdom’s development assistance in Southeast Asia between 2015 and 2021 went to Myanmar, making it Myanmar’s fifth-largest traditional partner after Japan, China, the World Bank, and the United States.

European partners were primarily focused on governance (26%), education (12%), and energy (11%).

United States: largest grant provider to Southeast Asia

The United States is a mid-sized development partner in Southeast Asia, providing $7.8 billion of development financing to the region, about 4% of the overall ODF over the period. However, a notable feature of US ODF is that it was almost entirely (95%) in the form of grants, with only $415 million of loans made by the Overseas Private Investment Corporation. The two main sectors of US focus were health (25%) and governance (23%).

With respect to health, the United States is the region’s largest bilateral partner (outspent only by The Global Fund to Fight AIDS, Tuberculosis, and Malaria, to which the United States is the largest contributor). The United States spent $1.9 billion on this sector between 2015 and 2021, well above China’s contribution of $544 million. The United States was also the largest partner in the environmental protection sector. One-third of US ODF ($1.7 billion) during 2015–21 went to the governance sector.

Australia: a mid-sized but responsive development partner

Australia is a mid-sized development partner in Southeast Asia, providing $6 billion or about 3% of the total ODF disbursed by all development partners. Australia’s ODF in the region declined from $930 million in 2015 to $571 million in 2019, but it tripled in 2020 due to the provision of pandemic support ($1.7 billion) before returning to $850 million in 2021. Like the United States, Australia’s spending in Southeast Asia has been predominantly characterised by ODA grants, with these accounting for more than three-quarters of spending. Indeed, Australia is the third largest grant provider to the region, behind the United States and Japan. Australia made just two loans during the period 2015–21, both to Indonesia: one for road improvements in eastern Indonesia 2006001140 - 06A682, and the other in 2020 to support Indonesia’s Covid-19 response AUS-INDO-LN-2000.

Between 2015 and 2021, Indonesia accounted for slightly more than half of Australia’s development assistance to Southeast Asia. Timor-Leste was the next largest recipient, where Australia was by far the largest partner, spending more than twice as much as Japan, the next largest. Other significant recipients of Australian ODF were the Philippines, Vietnam, Myanmar, and Cambodia. Due to a reprioritisation of programming in response to the Covid-19 pandemic in 2020 and 2021, Australia gave most of its funding to the governance and health sectors. Notably, funding for health rose from less than $23 million in 2019 to $319 million in 2021.

Education has represented a declining share of Australia’s development assistance to Southeast Asia. Australian funding in this sector has fallen from more than $150 million in 2015 to $45.6 million in 2021, in part due to a reduction in funding for basic education programming in Indonesia and the Philippines.