Old-style aid has been decimated, debt vulnerabilities in developing economies remain high, and multilateral development banks and institutions have to deliver more with less. Meanwhile, the economic environment for developing economies has been hard hit by conflicts in Ukraine and the Middle East.
This calls for a fresh approach to debt relief and multi-lateral refinancing: one that will better enable developing countries to escape the revolving door of debt relief and build themselves sustainable economies.
From institutional influence to strategic influence
It’s a role the UK is well placed to fill. Our influence has never rested on financial contributions alone. It also derives from our shareholder positions, technical expertise, diplomatic relationships and longstanding role in shaping international institutions.
Maintaining that influence matters for developing countries, as well as for us. More prosperous and resilient economies create stronger trading partners and more resilient supply chains. They also provide a way out of the wider geopolitical and security risks caused by persistent economic fragility and repeated debt crises.
Beyond debt relief
Debt relief can restore fiscal space and reduce the immediate burden of debt servicing. But it does not, by itself, change the underlying economic realities of a developing country.
The experiences of the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative (MDRI) are instructive. Debt burdens were substantially reduced. However, long-term sustainability depended on what came next: strong domestic institutions able to turn fiscal space into productive investment; diversification into higher-value activities and movement up value chains; and access to markets that allows countries to capture the returns from that investment and sustain growth.
Systems matter
In this round of refinancing, predictability will matter. Especially for highly aid dependent countries, when governments cannot anticipate future funding streams, it’s even harder for them to allocate resources, plan tax policy and maintain public programmes. Unpredictability comes with a cost.
Too often, we expect developing countries to build stronger institutions while financing them through a system that is inherently short term and unreliable. Passing legislation in 2015 to guarantee 0.7% of our national budget went to development assistance did not prevent it being cut to 0.5% in 2020 and to 0.3% in 2025.
So what should the UK do differently?
- Manage the multilateral system as a portfolio
We should consider major multilateral commitments as part of a single portfolio rather than making decisions institution by institution. Thus, the question at each major replenishment should be: What is the UK trying to achieve across its multilateral portfolio, and which institutions are best placed to deliver it?
The UK could use its shareholder positions to encourage common country-level diagnostics, longer-term investment pipelines and clearer division of labour between institutions. The aim would be to reduce duplication, fill gaps and avoid situations where a country’s financing is effectively reset every few years around separate institutional funding cycles.
- Make predictable, sustained finance part of the strategy
We can make the pound more useful by providing greater certainty over when and how it will be available, with longer-term, more predictable financing in productive investments that require several years to deliver returns. This is particularly important for institution-building and infrastructure, where stop/start financing undermines effectiveness. Uncertain financing comes with a cost.
- Align UK trade policy with development financing
Finance can help build productive capacity; trade policy determines whether that capacity can connect to markets. The UK has the opportunity to use these two instruments more deliberately together. The UK’s Developing Countries Trading Scheme (DCTS) provides one example. Since January 2026, expanded regional accumulation — including a new 50-country African group — allows eligible countries to source inputs from across the region while retaining preferential access to the UK market. This can help overcome constraints of infrastructure, investment, skills or technology, so countries can access new market opportunities.
Trade shouldn’t be a dirty word in the aid world. The UK should consider trade opportunities more explicitly when designing and targeting development finance to enable countries to move into higher-value activities — creating stronger trading partners, new markets for UK businesses and more resilient supply chains.
- Strengthen evidence-based resource allocation
If resources are constrained, the UK needs to consider more carefully where its marginal contribution is most valuable. This requires a better understanding of what is constraining productive development in different countries and which combination of institutions and instruments could address those constraints.
A stronger analytical understanding of countries’ productive structures would help. Input/output and Trade in Value Added (TiVA) analysis, for example, shows how countries participate in regional and global production, where domestic and foreign value-added sit within exports, and where there may be opportunities or constraints to moving into higher-value activities.
These considerations should not determine which countries deserve finance. Rather, they should provide the evidence base for assessing where could UK finance and shareholder influence can make the most difference.
An opportunity to shape the future
As it heads into a new round of debt relief and development financing, our Labour government has the opportunity to shape a system that provides more predictability, better integration between financial instruments, and better coordination between fiscal and trade policies to enable truly sustainable development.
It can deploy the UK’s financial, shareholder, trade and diplomatic influence to improve the fit between country circumstances, financing instruments and improve economic outcomes.
The challenge is not simply how to provide debt relief or increase Multilateral Development bank lending. It’s how to use scarce public resources to better enable countries to escape the revolving door of debt relief.
The UK cannot determine the development path of individual countries. But we can influence whether the international system gives them more control over their destiny.