When the System Fails: Can We Build a Better Future for Global Aid

The sudden freeze on USAID funding has sent shockwaves through the global development sector, exposing systemic fragilities and opening the door for transformation. As the world’s largest donor — contributing $60 billion in 2023, accounting for 40% of global aid (OECD, 2024) (1), the United States has played a pivotal role in shaping humanitarian and development systems. Yet, despite these vast investments, the sector has struggled to address the escalating climate crisis and rising global instability. While the suspension of funding threatens millions reliant on aid for health, food, and social services, this disruption is symptomatic of a failing system.

Rather than treating this as simply another crisis, we have an opportunity to examine how our present development patterns might evolve into future possibilities. In these times of significant disruption, we need tools that help us make sense of the why development sector is struggling to meet its goals and what the current behaviours can tell us about the future. The Three Horizons Framework provides a structured way to analyse this transformation, mapping the evolution from today’s dominant system (Horizon 1) to emerging innovations (Horizon 2) and long-term transformative possibilities (Horizon 3). This model helps us understand the tensions between entrenched power structures and the emergence of alternative approaches, enabling a more strategic transition between present challenges and future solutions. Figure 1 below outlines the three horizon Model and illustrates how the three horizons intersect.

Figure 1 — Three Horizon Model (taken from the Three Horizons Toolkit)

This article is the first in a three-part series examining global development through this lens. Here, we focus on Horizon 1, the current dominant model that is increasingly strained by systemic failures. We explore how this system fosters dependency, sustains power imbalances, and perpetuates fragility, with a specific focus on climate finance and the politicisation of aid.

The First Horizon: Power and Dependency in Global Development

The strength of the Three Horizons Framework lies in its ability to identify systemic patterns rather than isolated problems. When viewed through this lens, the flaws of global development are not accidental; they are actively maintained through institutional choices and entrenched power dynamics. Two interlinked patterns illustrate this: the approach to climate finance and the increasing politicisation of aid. Both reveal a centralised, risk-averse system that prioritises short-term interventions over systemic resilience. While not exhaustive, these examples highlight how power is wielded in global development, often undermining the very goals the system claims to pursue.

Climate Finance and the Fragility Trap

The climate crisis and fragility are escalating in tandem, disproportionately affecting vulnerable communities and exposing how the development sector’s entrenched institutional choices are actively worsening instability. Rather than adapting to the scale and urgency of the crisis, the development system remains locked in a model designed for short-term relief and post-disaster reconstruction. These structural rigidities not only impede resilience-building but actively reinforce cycles of fragility.

Financial Dependencies and the Aid Trap

Despite repeated commitments, climate finance remains inadequate, misallocated, and structured in ways that entrench economic instability. While developed nations pledged $100 billion annually for climate adaptation, the UNEP Adaptation Gap Report (2023) (2) estimates that developing countries require $215–$387 billion per year — yet only $21 billion was delivered in 2021. Worse still, over 60% of climate finance is debt-based, burdening fragile economies like Mozambique and Sri Lanka with unsustainable obligations. These loans, often tied to IMF-imposed austerity measures, force governments to slash essential public services, weakening state capacity and deepening dependency (3). The financial architecture prioritises creditor stability over genuine climate resilience.

This dynamic creates a reinforcing loop: donor-driven finance priorities lead to debt accumulation, necessitating austerity measures, which in turn weaken governance and increase reliance on external intervention. Affected states remain excluded from decision-making, perpetuating a system that prioritises donor control over local resilience.

Short-Termism and Maladaptation

Aid remains overwhelmingly reactive, with funding cycles prioritising emergency relief over long-term adaptation. Only 25% of climate finance is allocated to adaptation, despite mounting evidence that short-term interventions often exacerbate long-term vulnerabilities. The 2023 IPCC report highlights the prevalence of “maladaptation,” where poorly designed projects increase future risks rather than reducing them[4].

The dominance of short-term funding cycles favours quick, visible results over systemic transformation. This leads to interventions that justify continued donor control while failing to address root causes. Without accountability mechanisms, this leads to ongoing cycles of maladaptation and poorly designed projects.

Power Asymmetries in Climate Governance

Meanwhile, high-emitting nations and corporate polluters evade accountability, while fragile states bear the brunt of climate-induced instability. The Loss and Damage Fund, established at COP27 and operationalised at COP28[5], remains critically underfunded. Wealthy nations prefer voluntary contributions over binding commitments, delaying meaningful action. This power asymmetry marginalises the voices of affected countries and maintains a system that serves donor interests rather than frontline communities.

This power asymmetry creates its own reinforcing feedback loop: wealthy nations control climate finance mechanisms, ensuring that affected countries lack decision-making power. Because financial flows bypass local actors, adaptation strategies remain externally driven and ineffective, increasing reliance on international interventions.

Securitisation response over long-term adaptation

The consequences of these systemic choices are most evident in regions such as the Sahel, where climate-driven resource competition, exacerbated by erratic rainfall and desertification, has fuelled escalating conflicts between pastoralists and farmers[6]. Yet, development interventions continue to prioritise securitisation and militarised responses over investment in long-term adaptation strategies.

This reflects a broader trend where climate-related instability is framed as a security threat rather than a governance and development challenge, leading to interventions that reinforce, rather than address underlying vulnerabilities. These approaches, in turn, marginalise affected communities, exacerbating grievances and fuelling further instability. This heightened instability reinforces the perceived need for security-focused interventions, ensuring that development actors remain locked into militarised responses rather than addressing root causes. Figure 2 below illustrates the feedback loops that are entrenching existing power dynamics and continuing a cycle of fragility and dependency.

Figure 2 — Feedback loops perpetuating fragility

Critical shifts in policy interventions

These patterns are not accidental but the result of deliberate institutional choices that prioritise financial control, donor security, and short-term outcomes over structural resilience. Transforming the system requires dismantling these feedback loops and reinforcing alternatives that promote equity and self-determination.

Figure 3 below reveals several critical intervention points where changes in policies or behaviours are required to shift these structures of power. These key intervention points include:

  • Ending the financial dependency cycle by shifting from debt-based finance to grant-based mechanisms and removing austerity conditions that weaken state capacity.
  • Reforming funding structures to extend investment in long-term adaptation rather than short-term emergency response.
  • Decentralising climate finance decision-making to empower local governments and civil society actors.
  • Shifting the securitisation narrative by redirecting funds from militarised responses toward sustainable livelihoods, climate adaptation, and inclusive governance.
Figure 3 — The critical intervention points

The Politicisation of Aid: Reinforcing Fragility

The politicisation of international aid is worsening fragility in conflict-affected and fragile states by aligning aid distribution with political and strategic interests rather than humanitarian and developmental needs. This system perpetuates dependency cycles, distorts governance structures, undermines state legitimacy, and leads to fragmented coordination among aid agencies. Institutional choices and entrenched power structures sustain these feedback loops, ensuring that aid remains a tool of influence rather than a mechanism for genuine development.

Aid Conditionalities and Sovereignty Erosion

Conditionalities attached to development aid range from governance reforms to security cooperation and political alignment. These conditions often shift recipient governments’ focus away from locally defined priorities. While donor-driven reforms can sometimes promote institutional improvements, they frequently undermine sovereignty by imposing external agendas that fail to align with local needs. The IMF (2022) highlights how such conditions erode government legitimacy, making national leaders more accountable to donors than to their citizens[7].

This dynamic fosters resentment reduces public trust in state institutions, and weakens governance structures. As governments prioritise donor-imposed reforms over local needs or local elites divert aid resources, public dissatisfaction grows, weakening state legitimacy and reinforcing dependency on external funding. This, in turn, compels governments to seek further aid to compensate for lost domestic legitimacy, deepening their reliance on donor-driven policies rather than building autonomous governance structures.

Aid as a Conflict Driver

In conflict zones, the political nature of aid can directly exacerbate instability. Armed groups frequently divert humanitarian aid to sustain their operations, while externally driven assistance efforts are often instrumentalised to serve geopolitical interests. Research from UCDP (2023) highlights cases such as in the Sahel where aid flows inadvertently extended the duration of conflicts, as factions manipulated distributions to their advantage, reinforcing patterns of violence[8]. Additionally, when aid distribution is perceived as favouring certain ethnic, political, or regional groups, it deepens social divisions and heightens grievances, further undermining state legitimacy and stability.

The perception of biased aid distribution fuels grievances and social divisions, which then feed into further cycles of violence and instability. As conflicts escalate, international actors increase their intervention, providing additional aid that, when mismanaged, further exacerbates divisions and perpetuates conflict. This cycle enhances geo-political rivalries and ensures a continued need for external assistance, keeping fragile states trapped in a state of perpetual crisis.

Fragmented Coordination and Donor Competition

The politicisation of aid also leads to reduced coordination and enhances bureaucratic inertia among international actors, particularly within the UN system. The influence of donor governments and their geopolitical priorities has resulted in competition among UN agencies, which operate in silos rather than through a cohesive strategy. This fragmentation is driven by agencies competing for funding, prioritising donor-driven objectives over a unified response, and struggling with overlapping mandates. Research by Weiss and Thakur (2021) notes that this lack of coordination has led to inefficiencies, duplicative interventions, and service delivery gaps in complex crises, including humanitarian responses in Yemen and stabilisation programs in the Sahel[9]. In addition, the politicisation of UN agencies can cause delays in response times and inconsistent engagement with local institutions, further weakening state capacity rather than strengthening governance structures.

The lack of coordination among international actors leads to ineffective interventions, increasing the need for further aid to address the gaps left by fragmented responses. This creates a vicious cycle where funding continues to be directed towards disjointed programs, perpetuating inefficiencies and reinforcing the competitive donor landscape rather than fostering a cohesive, strategic approach to addressing fragility.

Economic Dependency and Lack of Structural Reform

The structural weaknesses of politicised aid are further evident in its impact on economic development. Prolonged reliance on aid discourages economic diversification and weakens incentives for governments to develop self-sustaining revenue systems. The IMF (2022) notes that many fragile states prioritise short-term donor-funded projects over long-term economic planning, delaying structural reforms necessary for sustainable development[10]. This creates a vicious cycle where states remain dependent on external assistance rather than investing in durable solutions that address the root causes of fragility.

Despite the rhetoric of local ownership, international aid remains overwhelmingly top-down, sidelining local actors and institutions. Local organisations receive less than 2% of direct funding (Development Initiatives, 2022), severely restricting their ability to shape interventions suited to community needs[11]. Economic dependence on aid is preventing the development of sustainable revenue streams, forcing governments to continually rely on donor assistance. This lack of financial autonomy reduces the incentive to implement structural reforms, further entrenching dependency. As a result, fragile states remain locked in a cycle where external aid replaces rather than supports self-sufficiency, ensuring continued donor control over national economic policies. Figure 4 below illustrates the feedback loops that are entrenching existing power dynamics and continuing a cycle of fragility and dependency caused by the continued politicisation of development aid.

Figure 4 — Politicisation of Aid Feedback loops perpetuating fragility

Rethinking Aid: Addressing Systemic Weaknesses to Break the Cycle of Fragility

To break this cycle, fundamental shifts in the aid system are required, including:

  • Decolonising aid structures by granting local actors greater control over development priorities and resource allocation.
  • Aligning aid with long-term resilience strategies rather than short-term donor objectives.
  • Reducing conditionalities that distort governance priorities and weaken state legitimacy.
  • Improving coordination mechanisms among aid agencies to prevent fragmentation and competition.
  • Prioritising direct funding to local organisations to strengthen their role in development interventions.
  • Embedding transparency and accountability mechanisms to prevent aid from being manipulated in conflict dynamics.
  • Reforming power dynamics in multilateral institutions to give recipient countries a greater role in decision-making.

Without these structural changes, international assistance will continue to entrench vulnerabilities in fragile states rather than addressing the root causes of instability. Figure 5 below reveals several critical intervention points where changes in policies or behaviours are required to shift these structures of power.

Figure 5 — The critical policy shifts

What Comes Next? Exploring Horizon 2

Horizon 2 represents the space where existing power structures are beginning to be challenged by emerging innovations and alternative approaches. It is where the leverage points identified above are being used to disrupt entrenched systems and open pathways for systemic transformation. This transition phase is critical in shifting development practices from dependency-driven models to more resilient, locally-led approaches.

Key actors in Horizon 2 include:

  • Innovative financial models such as grant-based climate finance mechanisms and debt forgiveness programmes that remove constraints on fragile economies.
  • Locally-led initiatives that empower communities to design and implement their own adaptation and development strategies, reducing external dependency.
  • Multilateral coalitions advocating for a more equitable climate finance architecture, ensuring that affected countries have a meaningful role in decision-making.
  • New governance models that decentralise aid distribution, prioritising direct funding to local governments and civil society organisations over traditional donor-led structures.
  • Technology-driven solutions that leverage digital finance, blockchain, and AI for transparent and accountable climate finance distribution.
  • Policy advocacy networks working to reform international institutions and shift the balance of power towards recipient countries.

By analysing these interventions, we will explore how they are already being applied, who the key actors driving change are, and how they can be scaled to accelerate the transition towards Horizon 3, the long-term vision of a sustainable, equitable global development system.

In the next article, we will delve deeper into these emerging trends, examining their potential to challenge the status quo and reshape the global development landscape.

[1] Source: OECD (2024). Development Aid at a Glance. Organisation for Economic Co-operation and Development.

[2] UNEP Adaptation Gap Report, 2023 — United Nations Environment Programme (2023). Adaptation Gap Report 2023.

[3] Eurodad Report on Debt and Climate Finance

[4] IPCC Sixth Assessment Report

[5] Climate Home News — COP28 Coverage

[6] International Crisis Group (ICG) — ICG, “Compounding Crises: How Politicization of Aid Exacerbates Fragility” (2021)

[7] IMF (2022) — Conditionalities and Sovereignty in Aid-Dependent States

[8] Uppsala Conflict Data Program (2023). Aid and Conflict in Fragile States

[9] Weiss, T.G., & Thakur, R. (2021). Global Governance and the UN: An Unfinished Journey.

[10] IMF (2022) — Conditionalities and Sovereignty in Aid-Dependent States

[11] Development Initiatives (2022) — Tracking Direct Funding to Local Organisations