The donor-dependency trap in multilateral finance

A push to loosen earmarking has stalled for a decade and still doesn’t get at the root problem.

Namira Samir

28 August 20263 min read

Multilateral organisations act as an extension of governments to help other governments in need of assistance. But despite as many as 193 countries being members of major multilateral organisations, almost 50% of the funding for more than 200 multilateral organisations (Opens in new window) comes from just four donors – the United States, Germany, France, and the United Kingdom.

With that money come conditions on how it can be spent. For United Nations agencies (Opens in new window), 81% of the funding is earmarked or pre-defined for certain objectives. When funding is earmarked, the legroom for multilaterals to respond to changing needs is constrained by how donors have specified their use.

Consider a hypothetical scenario of a UN agency specialising in hunger in a Pacific island country facing recurrent climate shocks. Its funding might be earmarked for protein-based nutrition packs. If the country then experiences flooding that destroys access to clean water and sanitation and triggers a health emergency, the agency may be unable to redirect those funds to the more urgent needs.

Limits of this type matter particularly in the Pacific, where countries face an estimated annual climate financing gap of around US$3.3 billion (Opens in new window) and cannot rely on domestic fiscal resources alone. When external financing is also constrained by the priorities attached to donor funding, the ability of multilaterals to respond to changing development needs is constrained twice: by the scale of available resources and by the conditions attached to them.

Earmarking can limit the agency from redirecting funds to the more urgent needs (Tom Perry/World Bank)

The immediate response to this problem is often to call for reducing earmarking. But is that enough? Reduced earmarking has been tried – but stalled.

In 2016, The Grand Bargain (Opens in new window) was launched at the World Humanitarian Summit to demand donors provide at least 30% of funding as unearmarked or softly earmarked. By 2025, it involved more than 70 signatories controlling 95% of global humanitarian spending. Yet, the commitment has not produced a durable shift away from earmarking.

But even when earmarking is reduced, multilateral organisations remain vulnerable to shifts in donor political priorities. Take for instance the withdrawal by the United States from UN Women in 2026, which resulted from the Trump administration’s opposition to the agency’s funding of programs related to gender and reproductive health. More broadly, UN Women reported in 2026 that global aid cuts over the previous 18 months had contributed to more than one million women and girls (Opens in new window) losing access to essential services.

This pattern reflects a broader reality: efforts to reduce earmarking in development finance take years to manifest, and in the end, the donors might revert to their domestic priorities. Earmarking persists because it gives governments a way to demonstrate control over aid spending to domestic taxpayers and to advance foreign-policy priorities.

The ability of multilaterals to respond to changing development needs is constrained twice: by the scale of available resources and by the conditions attached to them.

The deeper problem, then, is not earmarking itself but the concentrated dependence of multilateral organisations on a small number of sovereign donors. That is the underlying issue that needs fixing. As long as that dependence persists, efforts to reduce earmarking will stay vulnerable to the political priorities of the governments that provide the money.

One area where some multilaterals are already active, but which deserves much greater attention across the system, is a development-finance mobilisation agenda that brings together domestic public resources with private and innovative financing mechanisms, including public-private partnerships, green bonds and blended finance. When multilaterals become less dependent on donor funding and more active as mobilisers of development finance, the value they offer government also changes. Rather than being seen mainly as sources of external funding, they become strategic partners capable of designing financing solutions and strengthening governments' long-term financing capacity in various development spheres.

For instance, in Indonesia, UNICEF worked with the East Java Provincial Government to identify 17 public and private financing mechanisms through an Integrated Subnational Financing Framework (Opens in new window), with the potential to mobilise IDR 200 trillion (US$13.3 billion) towards the province’s development financing needs, including child rights.

Multilaterals will always operate in the shadow of sovereign governments; after all, they were born to serve them. But the stark realities of heavy earmarking and volatile donor politics warrant a fundamental rethink of how multilaterals operate. By embracing development finance mobilisation, multilaterals can maintain their relevance in international development – supporting beneficiary governments beyond their existing limits.

About the author

Namira Samir

Namira Samir is a development economist specialising in social protection financing, innovative finance, gender and informality.

Topics

Aid & development United Nations Gender & equality Pacific Islands