This chapter examines the evolving landscape of multilateral development co-operation, mapping the institutions and financing modalities that shape the multilateral development system. It shows how its historically expanding and increasingly diverse architecture is coming under growing strain from geopolitical fragmentation, declining trust in multilateral approaches and pressures on aid budgets. The chapter reaffirms the critical role of multilateral development co-operation in sustaining collective development outcomes in a more contested and constrained global environment. At the same time, it argues that the system needs a reset – to adapt its institutional configuration and operating practices to the demands of the global development agenda and to safeguard multilateral coherence, development impact and effectiveness.
Multilateral Development Finance 2026
Abstract
2.1.1. The system’s architecture is multifaceted and interconnected
Today’s multilateral development system is made up of more than 200 organisations. Known as multilateral development organisations (MDOs), they are defined in this report as those institutions with a sustainable development or humanitarian mandate and a governance structure based on multiple sovereign members. They include the entities that are part of the United Nations Development System (UNDS), multilateral development banks (MDBs), an expanding set of issue-specific financing facilities (vertical funds) and other institutions with specific institutional arrangements. Figure 2.1 shows the central role played by the multilateral development system as a channel of development co-operation.
Note: The table presents a non-exhaustive list of multilateral development organisations. Their acronyms are explained in the list at the front of the report.
Source: Authors’ design based on (OECD, 2026[1]), “OECD DAC Annex 2 - List of ODA-eligible international organisations”, available at
https://webfs.oecd.org/oda/DataCollection/Resources/OECD-ODA-Single-Table-2026-for-2025-flows.xlsx.
Two main official funding modalities – core and earmarked – underpin the functioning of the multilateral development system, with the balance between them having major implications for how the system operates. Core contributions refer to flexible resources provided by donors to MDOs. The MDOs can choose, within an overarching strategy, how they should be used to deliver on their mandates, invest in institutional capacities and respond to evolving needs. In the UNDS system, core resources take two main forms: “assessed contributions”, which are mandatory and calculated based on donors’ income, and “voluntary core contributions”, provided at donors’ discretion. In MDBs, core support is primarily provided through capital subscriptions from shareholders, as well as through voluntary contributions to concessional windows replenished periodically. Similarly, many vertical funds rely on periodic replenishment cycles through which donors provide resources to support their mandates. Non-core contributions, also known as earmarked or multi-bi aid, are bilateral resources channelled through MDOs but earmarked by donors for specific countries, themes or programmes, often through trust funds. This earmarking allows member states to retain a degree of control over their use. As examined further in Chapter 3, while earmarking can help target emerging priorities, it has also been shown to fragment funding, increase transaction costs and reduce multilateral flexibility (Ihl et al., 2025[2]) (Graham, 2017[3]). The balance between core and earmarked contributions not only affects individual organisations – it also shapes the coherence of the multilateral development system as a whole.
MDOs vary significantly in their core functions (financing, implementation, standard-setting) as well as in their thematic and geographic mandates (from universal to niche). Another key differentiating factor is the mix of instruments they deploy, ranging from grants and loans to guarantees, equity and technical co-operation. This instrument mix strongly influences the scale of financing each MDO can provide. Governance models and membership structures also diverge, including differences in the voice afforded to low- and middle-income countries in decision making.
The system we know today is the result of a steady and cumulative expansion since its inception in the aftermath of the Second World War. Over decades, countries have established new multilateral institutions to address emerging development challenges, adding successive layers of mandates and institutional complexity. This gradual process has produced a diverse yet intricate architecture. In the past two decades alone, the number of MDOs has nearly doubled, reaching more than 200 organisations in 2020 (OECD, 2024[4]). In many cases, the creation of new entities has reflected ad hoc responses to emerging challenges and shifting political priorities, rather than a deliberate redesign of the overall architecture. As a result, this process has both increased the system’s capacity to address a growing list of challenges while contributing to a more complex network of institutions.
The breadth of MDOs’ mandates is a defining strength of the multilateral development system, enabling it to cover a wide range of sustainable development challenges and to support countries with vastly different needs and contexts. MDOs’ mandates span multiple areas, including humanitarian response, social sectors, infrastructure development and economic transformation. Figure 2.2 illustrates this diversity through a clustering analysis of MDOs’ portfolios: this graphical representation underscores both the wide range of mandates across the system and the resulting challenge of ensuring coherence and co-ordination. Some MDOs, such as the World Bank Group’s concessional (IDA) and non-concessional arms (IBRD), occupy a central position in the cluster network, reflecting their broad engagement across multiple sectors, geographic and financing contexts.
Clustering (t-SNE) of multilateral development organisations by dominant aid portfolio, 2015-2023 average
Note: t-distributed stochastic neighbour embedding (t-SNE) clusters are based on the five following macro-sectors: governance, social, infrastructure, humanitarian and production. The colour legend distinguishes between the dominant aid portfolio for each multilateral development organisation. Organisations positioned closer together in the map have more similar aid portfolios, while those further apart have more distinct sectoral profiles. The size of bubbles reflects MDOs’ outflows.
Source: Authors’ calculations based on OECD (2026[5]), Creditor Reporting System (dataset), https://data-explorer.oecd.org/s/52.
Beyond MDOs and their member states, the system relies on a broader network of stakeholders that channel, co-finance, implement and benefit from multilateral development co-operation activities. Member states remain the primary funders of most MDOs, but private actors (including philanthropies) are becoming increasingly important in some parts of the system, especially for vertical funds and some UNDS entities. For some MDOs, other multilateral organisations, civil society organisations and private investors sometimes act as implementing partners or co-financiers.
Low and middle-income countries, while being the main beneficiaries of these activities, are also shareholders and, in some cases, contributors to the financing of certain MDOs. Their triple role as recipients, shareholders and donors underscores the importance of governance arrangements, voice and accountability within the system. This is especially true in a context where traditional donors face growing constraints in maintaining their contribution levels, and where multilateral organisations may need to look more actively at a wider range of contributors and financing sources to help fill funding gaps. This is exemplified by the recent replenishment of the African Development Fund (ADF, the African Development Bank’s concessional window): despite the absence of some traditional donors, the ADF reached a record-high replenishment thanks in part to new and emerging donors stepping up to fill the gap. Notably, the number of pledging African countries more than tripled compared to the previous ADF replenishment, with 19 African countries making their first ever contributions to the fund (African Development Fund, 2025[6]). Such developments point to an evolution in the participation of developing countries in the financing and governance of multilateral development institutions.
2.1.2. Multilateral development co-operation covers a wide spectrum of needs, risks and financing contexts
MDOs are a core pillar of the development co-operation architecture and key delivery partners for bilateral development co-operation. Previous editions of this report have highlighted that MDOs receive and channel a growing share of development co-operation from the members of the OECD Development Assistance Committee (DAC). In 2024, MDOs channelled 41% of DAC members’ development co-operation, up from 37% in 2010. This underscores the increasing reliance of bilateral donors on multilateral mechanisms to deliver aid, although current shifts in global politics and fiscal constraints may prompt donors to reconsider how they prioritise and channel their development co-operation (see Section 2.2).
Thanks to the ability of some MDOs to aggregate resources from multiple funding sources and to leverage capital markets, the system delivers much more official development finance than it receives in contributions. MDBs, for example – thanks to their financing model – are able to leverage their balance sheets and borrow at favourable rates on the capital markets in order to on-lend to low- and middle-income countries. The World Bank Group’s International Development Association (IDA) illustrates this: its most recent replenishment mobilised USD 24 billion in donor pledges, which will support close to USD 100 billion in financing once combined with market borrowing. As a result of this leveraging capacity, the multilateral development system accounts for the majority of total official development finance received by developing countries over the past decade. In 2024, for example, MDOs delivered or channelled nearly two-thirds (60%) of total official development finance (ODF) to developing countries.
The multilateral development system is designed to operate across a broad range of needs, risks and financing contexts. Collectively, MDOs support countries at various development stages and in different areas, with roles ranging from responding to humanitarian needs and delivering essential services, to financing large-scale public investment and mobilising private capital (Figure 2.3). This breadth is a core strength of the system, as it allows different organisations to fulfil distinct roles while contributing to shared development objectives. Understanding how these roles relate to one another is essential for assessing whether the system’s architecture remains coherent and fit for purpose, particularly in a context of rising demands and tighter resources. Figure 2.3 illustrates these relationships, while recognising that in practice they may overlap and interact in more complex ways.
At the non-bankable end of the spectrum, the UNDS plays a foundational role by building the ecosystem that underpins development and delivering essential services. The matrix in Figure 2.4 confirms this role, showing a strong concentration of UNDS activity in humanitarian assistance and to a lesser extent in social sectors. These activities are rarely bankable and often take place in highly fragile or crisis-affected contexts but they are indispensable for protecting lives, maintaining basic service provision and building institutional capacity. Beyond immediate delivery, UNDS investments also help create the enabling environment (e.g. through governance, norms, data and human capital) without which neither public nor private finance can operate effectively.
Vertical funds typically occupy the catalytic segment of the spectrum to support global public goods and collective action. Their strong investment in global public goods, such as health, education, climate and biodiversity, reflects their mandate to address specific issues where markets fail and collective action is required. The matrix shows that some vertical funds also have a significant footprint in infrastructure-related areas, largely related to green investments. They often play a de-risking role, piloting new approaches, absorbing early-stage risk and demonstrating viability, with the expectation that successful approaches can be scaled through concessional or non-concessional MDB financing, often in collaboration with UNDS entities and other partners for implementation at country level.
Multilateral development organisations’ activities across thematic areas and income groups measured as a share of their financing volume, 2014-2024 average
Note: The chart should be interpreted by organisation row, whereby darker green indicates higher activity within a thematic area and darker red depicts higher activity within a country income group. Colours are not comparable across rows. LIC=low-income country; LMIC=lower-middle income country; UMIC=upper-middle income country.
Source: Authors’ calculations based on OECD (2026[5]), Creditor Reporting System (dataset), https://data-explorer.oecd.org/s/52.
MDB concessional windows sit at the centre of the spectrum, transforming high-risk investments into scalable opportunities. The matrix shows these windows to be strongly engaged in both social and infrastructure sectors, reflecting their dual mandate: supporting essential public investments while enabling large-scale financing (Figure 2.4). By blending grants and highly concessional loans, MDB concessional windows reduce risk to levels that allow projects to proceed in low-income and vulnerable contexts.
At the more bankable end of the spectrum, MDB non-concessional arms and private sector arms focus on scaling infrastructure and productive investment. The matrix shows a strong concentration of non-concessional MDB financing in infrastructure, and of private sector arms in production-related activities, consistent with their mandates to mobilise capital, crowd in private finance and achieve scale (Figure 2.4). These institutions play a critical role in providing financing for larger-scale investment in contexts that no longer require heavy de-risking efforts. However, their effectiveness depends on the functioning of the upstream parts of the financing chain, including catalytic public sector lending that helps strengthen the enabling environment for market-based finance.
Maintaining a clear and coherent division of labour across the multilateral development system requires proactive attention from MDOs’ member states and governing bodies. In a context of heightened pressure on development resources, organisations may face incentives either to expand into new areas to pursue funding opportunities or, conversely, to refocus on core mandates. While such adaptation can be justified in specific circumstances or at the institutional level, it can also end up blurring the logical division of roles across the system as a whole. In this sense, the financing spectrum presented above, while simplified and non-exhaustive, can serve as a broad compass for system stewardship: by situating multilateral activities along different risk and financing contexts, it helps clarify where each type of institution (i.e. grant-based versus leveraged) adds the most value. At the same time, financing modalities are only one dimension of comparative advantage; other factors, including institutional mandates, operational capabilities and system-wide functions, also shape the appropriate division of labour across organisations (MOPAN, 2026[7]).
The large footprint and ability of MDOs to operate across all contexts positions them as key actors of the post-Sevilla Financing for Development landscape. Recent international discussions on financing for development have re-emphasised country ownership and country-led development as central principles for delivering impactful support to developing countries in an increasingly constrained financing environment (United Nations, 2025[8]). The differentiated roles of multilateral development organisations across the risk and bankability spectrum provide an important mechanism for sequencing financing modalities in ways that reflect country priorities and capacities, and thus align external resources with national development strategies.
Multilateral development organisations are also well placed to support this agenda because they have country ownership embedded in their institutional and operational models. Evidence from the 2023-26 Monitoring Round of the Global Partnership for Effective Development Co-operation (GPEDC) shows that many UNDS organisations rely on extensive stakeholder consultation to design programmes, including of vulnerable and marginalised groups of the population (OECD/UNDP, forthcoming[9]). MDBs, meanwhile, work largely through countries’ public finance management systems, aligning their lending operations with national development plans and budgetary frameworks. GPEDC data confirm this comparative advantage further: on average, MDOs tend to outperform their bilateral peers on key effectiveness measurements, including on indicators related to country ownership (Figure 2.5). These findings suggest that the value of the multilateral development system lies not only in the scale of resources it mobilises, but also in how it delivers them.
Scores from selected development co-operation effectiveness indicators, bilateral vs multilateral average
Source: OECD/UNDP (forthcoming[9]), Making Development Co-operation More Effective - 2026 Progress Report.
While the breadth of multilateral roles and the characteristics of MDOs’ operational models allow the system to deliver collective value that is greater than the sum of individual donor efforts, this collective value should not be taken for granted. It depends critically on factors such as sustained trust in collective action and shared institutions, as well as stable and predictable funding. These foundations are now being tested by a convergence of geopolitical and fiscal pressures that are reshaping incentives, weakening funding models and raising fundamental questions about the system’s capacity to adapt without undermining its core functions. The multilateral development architecture now operates in a context of heightened contestation over its role, legitimacy and effectiveness, with several large donors reducing their development co-operation budgets. These dynamics, explored in greater depth in the next section, raise questions not only about the volume of multilateral development finance, but also about the type of institutional configuration that is emerging in the system, the configuration that may be required to address future development challenges, and the configuration that can be sustained in a more constrained financing environment.
The multilateral development system is facing growing pressures to adapt in a rapidly changing development co-operation landscape. While long-standing concerns about the complexity of the multilateral development architecture, and the quantity and quality of donor contributions, have shaped debates on the effectiveness of multilateral development co-operation, the current context introduces a more acute set of risks. The following sections examine three pressures reshaping incentives and funding models: geopolitical fragmentation and declining trust, tighter and more volatile aid budgets, and growing scrutiny of value for money (Table 2.1).
2.2.1. The rise of a more fragmented geopolitical order could mark the end of a golden age of multilateralism
Geopolitical tensions are reshaping incentives within the multilateral development system and accelerating a shift away from collective approaches. As donors’ trust in the international rules-based order and multilateral system weakens, decisions about multilateral funding and engagement are increasingly driven by national priorities rather than assessments of global needs and systemic efficiency. For example, the United States recently announced its withdrawal from several international organisations and initiatives, citing concerns that their mandates were inconsistent with US national interest (Government of the United States, 2026[10]). Given the United States’ historical role as a central supporter of the multilateral system, such decisions carry significant implications for the stability and predictability of multilateral engagement. In addition, they may incentivise MDOs to accommodate donor preferences in order to secure resources, even when this comes at the expense of strategic coherence.
The multilateral development system was initially designed to function as a collective investment. Thanks to relatively predictable, flexible contributions, the system was able to pool resources, leverage contributions and benefit from economies of scale, as already discussed in Section 2.1. This co-operative environment underpinned the system’s capacity to support a large and growing set of programmes in low- and middle-income countries and to finance global public goods. This is illustrated by the green quadrant in Figure 2.6.
In contrast, the current context increasingly resembles a prisoner’s dilemma, in which both donors and MDOs face incentives to act in ways that are individually rational but collectively sub-optimal. Over time, however, donors have progressively favoured more discretionary and earmarked forms of engagement to maximise control and visibility over their contributions, while MDOs faced incentives to expand their mandates and resources. This trend has accelerated in recent years, with some donors withdrawing their support to the multilateral development system (orange quadrants, Figure 2.6). At the same time, some multilateral organisations may respond to pressures by seeking to secure resources through mission creep and greater reliance on earmarked funding.
These strategies may help individual actors secure short-term gains, but they also reinforce fragmentation, increase transaction costs and weaken system-wide coherence. As illustrated by the red quadrant in Figure 2.6, declining trust and non-co-operative adjustments on both sides can ultimately push the system towards a low-co-operation equilibrium in which leverage declines, multilateral financing becomes more fragmented and overall delivery capacity weakens. Exiting this low-co-operation equilibrium carries significant political and financial costs, underscoring the importance of preventing the system from reaching this tipping point in the first place.
This growing geopolitical fragmentation is also encouraging a shift from broad-based multilateral co-operation towards “minilateralism”, whereby small coalitions collaborate on more narrowly defined issues. With broad-based consensus harder to sustain and trust in collective arrangements eroding, both donors and institutions increasingly seek alternative ways to advance priorities without relying on quasi-universal agreement. One visible response to this environment is a growing reliance on coalition-based forms of multilateral engagement. For example, previous editions of this report have highlighted the growing number of vertical funds and other specific-purpose funding mechanisms observed since the early 2000s (OECD, 2024[4]) (OECD, 2020[11]). While part of this evolution reflects a search for specialisation as core development themes are already covered by long-established institutions and new initiatives seek to demonstrate relevance by focusing on gaps or emerging priorities, it is also shaped by the growing difficulty of sustaining broad-based commitments. Figure 2.7 illustrates how this shift has progressively transformed the multilateral architecture and contributed to the proliferation of multilateral development organisations. In this sense, the “variable geometry” multilateralism invoked by some political leaders (Government of Canada, 2026[12]) reflects in part the intensification of a longer-term trend, now accelerated by growing contestation of multilateralism and increasingly divergent priorities among donors.
In contexts and areas where consensus is difficult to achieve, coalition-based approaches can help drive progress on specific global challenges where credible implementation capacity is ensured, but they carry risks. In the case of vertical funds, the implementation capacity is often ensured by relying on established multilateral organisations with country presence, such as UNDS entities and MDBs. While this approach can be more efficient than creating parallel delivery structures, it also carries risk, including an additional co-ordination burden for traditional MDOs, which themselves are under strain from sharp donor cuts. More broadly, the continued multiplication of issue-specific initiatives raises concerns over further fragmentation and institutional proliferation within the multilateral development architecture, potentially weakening system-wide coherence over time.
Multilateral development organisations by date of establishment and number of government donors in 2024
Note: Although UN Women may appear to be an outlier of the UNDS on this graph, it should be noted that the creation of UN Women in 2010 resulted from the merger of four pre-existing entities: the UN Division of the Advancement of Women (DAW), the UN International Research and Training Institute for the Advancement of Women (INSTRAW), the UN Office of the Special Advisor on Gender Issues (OSAGI), and the UN Development Fund for Women (UNIFEM).
Source: Authors’ calculations based on OECD (2026[5]), Providers’ Total Use of the Multilateral System (dataset), http://data-explorer.oecd.org/s/1td.
A similar dynamic is visible in multilateral fora, where informal coalitions have gained prominence, sometimes in place of formal multilateral processes. Recently, some international negotiations have accommodated coalition-based approaches as a pragmatic response to diverging interests, enabling groups of like-minded actors to move forward on what they perceive as priorities without being constrained by the need for broad-based agreement. This logic was evident at the Fourth International Conference on Financing for Development’s (FfD4) Sevilla Platform for Action (SPA), with the platform attracting 130 voluntary initiatives by various coalitions of actors at its launch in 2025 (United Nations, 2025[13]). The SPA and similar approaches signal an acceptance that progress on certain issues – such as innovative financing mechanisms, technical assistance, or thematic priorities supported by subsets of countries – may need to proceed through relatively small and informal coalitions rather than seek broad-based consensus.
However, while such coalitions can generate momentum when broad-based consensus is difficult to achieve, they also risk creating a “collective action vacuum” if they displace formal multilateral processes without having the capacity required for delivery. Unlike multilateral institutions, informal coalitions often lack durable governance structures, predictable funding and accountability mechanisms. When political commitments are made through such coalitions without being anchored in institutions responsible for their implementation, co-ordination, monitoring and reporting may remain superficial or, at best, uneven. In these cases, coalitions can create the appearance of collective action while weakening the institutional infrastructure needed to translate commitments into action, further straining an already fragmented multilateral development system. On the other hand, when established multilateral development organisations are tasked with supporting or monitoring these coalition‑based initiatives, resources and attention can be diverted from system‑wide priorities toward narrower agendas, particularly if the required support is not explicitly acknowledged or properly funded.
The geopolitical tensions described in this section are coinciding with tightening fiscal constraints in donor countries, amplifying the risks facing the multilateral development system. While geopolitical fragmentation and declining trust in collective action weaken the political foundations of multilateralism, the emerging aid crisis, in part linked to financial issues faced by donor countries, directly threatens the funding flows that sustain multilateral institutions. Reduced fiscal space, shifting domestic priorities and growing scrutiny of international spending are translating into aid budget cuts among several major contributors to the multilateral development system. The next section examines how these fiscal pressures are already starting to affect the system.
2.2.2. The global aid crisis threatens to unravel the financial foundations of multilateral development co-operation
The development co-operation landscape is entering a period of acute financial stress, often referred to as a global crisis of aid. In 2025, 11 DAC members officially announced substantial reductions to their aid budgets, signalling a break with the expansionary trend that characterised the multilateral development system in previous decades (OECD, 2025[14]). These 11 DAC members, which include several of the largest contributors to the system, such as the United States, United Kingdom, Germany and France, collectively accounted for 63% of DAC members’ multilateral funding in 2024 (Figure 2.8).
Share of DAC members’ multilateral contributions, 2024
Note: Calculations are based on disbursements, in 2024 constant prices.
Source: Authors’ calculations based on OECD (2026[15]), Providers’ Total Use of the Multilateral System (dataset), http://data-explorer.oecd.org/s/1td.
This aid crisis reflects the convergence of several reinforcing pressures that are simultaneously constraining political, fiscal and institutional support for development co-operation. Political backing for international development has weakened in parts of the donor community, while rising uncertainty about the geopolitical and economic outlook is also shaping how governments approach development co-operation. At the same time, fiscal constraints driven by the recent series of global shocks (e.g. COVID-19, Russia’s war of aggression against Ukraine) and the prioritisation of military spending, are narrowing fiscal space. These pressures are compounded by the severe liquidity shortages across the UN, which hosts many multilateral development organisations.
While bilateral aid agencies appeared to bear the brunt of the aid cuts initially, the multilateral development system is far from insulated from these shocks. Reductions in bilateral aid budgets, the downsizing or dismantling of development co-operation agencies, and the merging of aid portfolios into ministries of foreign affairs have made the headlines. Yet, strains are also emerging across multilateral development organisations, including increased funding volatility and uncertainty, as well as organisational adjustments such as staffing reductions and programme down-scaling. The projections presented in Chapter 3 suggest that this reduction in funding to the multilateral development system is likely to be sustained in the coming years. However, the exact extent to which these pressures translate into reduced multilateral funding will depend on how donors allocate cuts between bilateral and multilateral channels: reductions may be transmitted symmetrically across both, fall disproportionately on multilateral contributions, or be partly offset if donors shift a larger share of constrained budgets through multilateral mechanisms.
Recent withdrawals and defunding decisions by major donors underscore the vulnerability of multilateral organisations to domestic political cycles and fiscal pressures. Decisions such as the withdrawal of the United States from several UN entities and funding windows illustrate how rapidly national political shifts can translate into abrupt financing shocks for multilateral institutions. As described in Section 3.1.2, these episodes highlight a structural fragility of the system: many MDOs depend heavily on a small number of dominant contributors, making them particularly exposed to policy reversals in a handful of member states.
More fundamentally, there is a growing risk that aid budget cuts will have asymmetrical and amplified effects through multilateral development finance. Historically, one of the multilateral development system’s key comparative advantages has been its ability to leverage member contributions by pooling and leveraging resources to mobilise financing at scale. As highlighted in the last edition of this report, each dollar channelled by DAC members to the multilateral development system generates, on average, three dollars in sustainable development finance, reflecting the strong leverage power of the system (OECD, 2024[4]).
The danger today is that cuts could see the leverage turn negative, whereby even relatively modest cuts in member contributions lead to disproportionately large reductions in multilateral output (see also Section 4.2.1). As multilateral contributions decline, leverage mechanisms weaken, co-financing falls and institutional capacity contracts, magnifying the impact of initial budget reductions. The scale of this effect will depend critically on where cuts occur, as some multilateral organisations and funding modalities preserve multilateral leverage better than others. In this context, uncoordinated funding decisions taken by individual donors risk producing system-wide consequences that extend far beyond their immediate fiscal savings.
Faced with the combined pressures of geopolitical fragmentation and tightening fiscal constraints in major donor countries, the multilateral development system is entering a phase in which adaptation is unavoidable. These conditions are accelerating the reform momentum across the system, not only as a response to immediate financial stress but also as an attempt to preserve relevance, legitimacy and delivery capacity in a more constrained environment. The next section examines how ongoing reform initiatives are reshaping the multilateral development system, and whether they are equipping it to adapt to these pressures or merely enabling short-term survival.
2.2.3. Cost efficiency considerations are driving multilateral reform
Political and financial imperatives are driving multilateral reform in ways that risk sidelining effectiveness goals. In a context of tightening budgets and heightened scrutiny from multilateral stakeholders, reform agendas are often framed around demonstrating value for money, maximising leverage and containing costs, rather than addressing long-standing structural challenges. While these reforms respond to real and pressing constraints, the risk is that short-term financial and political imperatives could crowd out deeper efforts to strengthen effectiveness, accountability and collective outcomes.
This tension is visible in the current wave of MDB reform, where the focus has shifted in response to evolving shareholder priorities and tighter fiscal space in major donor countries. Early reform narratives, such as the Bridgetown Initiative, emphasised expanding MDB mandates to scale up financing for global public goods, with climate action occupying a central place alongside traditional development objectives (Bridgetown Initiative, 2022[16]). More recently, MDB reform discussions have increasingly centred on balance sheet optimisation, capital adequacy adjustments and financial innovation, alongside a renewed emphasis on economic growth and job creation. The World Bank leadership, for example, has placed job creation at the heart of its strategy for the coming years (Banga, 2025[17]). This reorientation of the MDB reform drive reflects in part an effort to adapt to domestic political shifts in major shareholders like the United States, although it also aligns with the strong emphasis that many low- and middle-income countries place on economic growth and employment.
A concrete illustration of the MDB reform reorientation towards capital efficiency is the launch of the World Bank Group’s new Guarantee Platform in 2024 as part of the institution’s broader evolution agenda. Housed in the Multilateral Investment Guarantee Agency (MIGA) and bringing together guarantee expertise from the World Bank, IFC and MIGA under a single structure, the platform aims to streamline products and enable the institution to operate increasingly as a “leveraging bank” rather than primarily a lending bank (World Bank Group, 2025[18]). Guarantees are attractive in a constrained fiscal environment because they can mobilise multiples of private capital relative to the capital they consume. However, the difference they make to development depends on careful targeting. In this sense, the Guarantee Platform embodies both the promise and the tension at the heart of current MDB reform: the pursuit of scale and leverage must remain aligned with country needs and the system’s broader collective mandate.
Recent MDB reforms have increased leverage, but donor investment in these institutions has not kept pace with increasingly ambitious lending targets. With many MDBs continuing to operate under zero-growth administrative budgeting, bottlenecks to MDB ambition are likely to be institutional, reflecting underinvestment in staff, technical skills and systems. Signs of these pressures are already evident in several multilateral development banks, underscoring the need for a more holistic approach to strengthening MDB capacity. For example, from 2008 to 2024, the combined IBRD-IDA portfolio volume grew by 127% in real terms, while administrative expenditure contracted by 2% over the same horizon (World Bank, 2024[19]). In its FY2025 budget document, the World Bank highlighted the need for greater investment in staff resources and skills to maintain this growth trajectory (World Bank, 2024[19]).
Within the United Nations system, reform pressures are being driven by acute financial stress, with liquidity constraints shaping both the pace and substance of change. Persistent and substantial arrears, and growing criticism from major member state donors, have pushed the UN system into a position where short-term financial survival has become a central concern. In this context, the reduction of the UN 2026 programme budget by USD 270 million compared to 2025 (Figure 2.9), and the UN Secretary General’s proposal to reduce the institution’s workforce by 19% (United Nations, 2025[20]), underscore the extent to which reform is being driven by constraints. While these measures may be unavoidable in the face of immediate liquidity challenges, caution is required to ensure they do not end up crowding out longer-term reforms aimed at improving coherence, mandate clarity and system-wide impact, particularly at a time when demands on the UNDS, and in particular its humanitarian entities, continue to expand.
Note: The UN programme budget is used primarily to finance the operating, staff, and programme expenses of the UN’s main organs (General Assembly, Security Council, Economic and Social Council, Secretariat and International Court of Justice).
Source: Authors’ calculations based on United Nations (2024[21]), Resolutions Adopted by the General Assembly on 24 December 2024, https://digitallibrary.un.org/record/4071044?ln=en&v=pdf; and United Nations (2025[22]), Resolutions Adopted by the General Assembly on 30 December 2025, https://docs.un.org/en/A/RES/80/244%20A-C.
Despite being driven largely by political and financial imperatives, the current wave of reform creates openings to address some long-standing structural weaknesses of the system. For many years, concerns have been raised about institutional proliferation, overlapping mandates and limited system-wide transparency on results and impact. The severity of current financial pressures may increase the political space to revisit these issues more seriously than in the past, including by exploring options for rationalising functions where mandates have become redundant or where a single entity could deliver on the agenda of several. Figure 2.10, Panel A shows that some sectors tend to have a greater incidence of overlapping multilateral aid portfolios, even within the same country, contributing to a crowded operating environment for MDOs. Of all the sectors, health exhibits the highest degree of overlap in MDOs’ country-sector portfolios. While such overlap can reflect intentional co-ordination, it also underscores the importance of clear role differentiation and strong co-ordination mechanisms to ensure each portfolio adds value.
Note: Near neighbours are defined as multilateral development organisations with cosine similarity of ≥ 0.85 in their country-sector aid portfolios. Cosine similarity measures how similar two portfolios are in the distribution of their activities across countries and sectors; values range from 0 (completely different portfolios) to 1 (identical portfolios).
Source: Authors’ calculations based on OECD (2026[5]), Creditor Reporting System (dataset), https://data-explorer.oecd.org/s/52.
Reforms already underway in the UNDS represent a constructive step towards addressing some of these structural issues. Figure 2.10, Panel B shows that UNDS entities exhibit the highest average number of country‑sector near neighbours, meaning that their aid portfolios tend to overlap more frequently with those of other MDOs in the same countries and sectors. This pattern partly reflects the UNDS’s co‑ordination and implementation responsibilities, as well as the fact that for many years UNDS entities have been asked to deepen collaboration and “deliver as one” on the Sustainable Development Goals (SDGs). However, such calls for co-ordination were intended precisely to address existing fragmentation and overlapping engagements, not to legitimise mandate expansion in the absence of clear role differentiation. In this light, the UN80 initiative (Box 2.1) has a unique opportunity to rationalise functions within the UNDS, while also introducing greater discipline in mandate evolution by systematically assessing expansion both internally (in terms of available expertise, staffing and financial resources) and externally (in relation to other organisations’ comparative advantages and system-wide coherence). Ultimately, the extent to which the UN80 initiative delivers on this potential will depend heavily on its ability to use current financial pressures to realign incentives and resources, as well as to drive structural clarification and mandate discipline. Such reforms should help MDOs refocus on areas where they add distinct value and explore opportunities for rationalising the architecture to reduce overlap and transaction costs. This may involve, where appropriate, organisational mergers or the orderly sunsetting of organisations whose mandates have become redundant or no longer reflect current development priorities, building on approaches such as the portfolio similarity analyses developed by the OECD.
The UN80 initiative was launched by the UN Secretary-General in 2024 as a system-wide reform to respond to mounting financial pressures and address long-standing structural challenges. It is intended to provide a coherent framework for reform at a time when declining and more volatile funding, combined with expanding mandates, are testing the system’s resilience. UN80 is organised around three workstreams: (i) enhancing efficiencies and operational improvements, including cost-saving measures; (ii) reviewing mandate implementation; and (iii) examining potential structural changes to strengthen coherence and impact across the system.
UN80 is unfolding in an exceptionally constrained funding environment that is creating a risk of reform by attrition. Cost-cutting pressures have left many UNDS entities with little choice but to do “less with less” through hiring freezes, staff reductions, travel restrictions, office closures and relocations to lower-cost duty stations. Evidence from the Multilateral Organisation Performance Assessment Network (MOPAN) suggests that these measures have often been taken in isolation, without a system-wide strategy. In several entities, cuts have disproportionately affected policy, normative, oversight and evaluation functions, as well as local partnerships.
UN80’s second workstream on mandate implementation highlights a growing gap between mandates and results. While UN80 mandates increasingly emphasise sustainable and inclusive results, MOPAN evidence suggests that performance in these areas often falls short. A key driver is the under-resourcing of normative, policy and advisory functions. Projectised and earmarked funding incentivises visible short-term delivery over upstream work such as policy dialogue, capacity development and institution-building, while reliance on short-term consultants weakens continuity. UN80’s mandate implementation review provides an opportunity to not only rationalise mandates, but also to strengthen the enabling conditions (including incentives and resources) for delivering them.
A central objective of UN80’s third workstream is to strengthen intra-UN collaboration based on comparative advantage. In principle, multilateral organisations differ in their mandates, expertise, country presence and instruments. In practice, however, comparative advantage is not used systematically as an organising principle. While organisations frequently refer to their strengths in strategic documents, there is no shared framework to translate these claims into a rationalised division of labour. In addition, earmarked and competitive funding often incentivises organisations to expand their portfolios beyond their core strengths in order to secure resources and visibility. The MOPAN evidence underscores that consolidation decisions should be grounded in system-wide analyses of comparative advantage and funding arrangements that align resources with agreed divisions of labour.
Source: MOPAN (2026[23]), Multilateral Effectiveness in a Shifting Landscape – Key Messages, https://www.mopan.org/content/dam/mopan/en/publications/our-work/insights/thematic-briefs/key-messages/mopan-thematic-briefs-key-messages-ENG.pdf.
Together, the pressures outlined in this chapter point to a multilateral development system that delivers substantial collective value but that needs to adapt significantly to meet stakeholder expectations. Its ability to pool resources, leverage capital and operate across a wide range of risk and financing contexts has allowed it to achieve outcomes that the sum of individual donors could not deliver, a capacity of the system that has been recently reaffirmed in international commitments such as the Sevilla Commitment and the Sevilla Platform for Action. Yet, this collective value depends critically on trust in collective action and funding choices that reinforce system-wide coherence. Preventing a shift towards a low co-operation equilibrium and the subsequent erosion of the system’s capacity and relevance will require more than incremental reform. It calls for resetting the system around its core principle: that multilateral action should remain greater than the sum of individual donor efforts.
Whether such a strategic reform is possible will depend both on decisions taken by donors about how and where to allocate resources, and on how MDOs themselves adapt their strategies and operational practices. The next chapter explores funding to the multilateral development system, examining recent trends in inflows, emerging vulnerabilities and the trade-offs donors face in a more constrained and politically charged multilateral development system. Chapter 4 then turns to the multilateral development organisations, assessing how their institutional behaviours, reform choices and delivery models will shape the system’s capacity to respond to current and future development challenges.
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