For seven decades, Pakistan’s development story ran on a familiar script: Western governments wrote checks, and Islamabad built projects. That script effectively ended on January 20, 2025, when President Trump signed an executive order suspending nearly all US foreign assistance. Thirty-nine major USAID-funded projects, worth more than $845 million, were halted overnight, affecting an estimated 1.7 million people.
The suspension was the sharpest disruption, but not an isolated one. The UK is cutting official development assistance from 0.5 to 0.3 per cent of GNI by 2027, Germany’s development budget is contracting, and even the EU has kept Pakistan’s envelope flat. Total Western bilateral flows fell from roughly $1.0-1.2 billion a year between 2022-2024 to about $550 million in 2025. For a country that has leaned on Western grant aid since the 1950s, the message looked unambiguous: the money is drying up.
It isn’t – per a recent study conducted by me, Jon Danilowicz (former CG KPK), with the lead, Skip Waskin (former Assistant Coordinator to the US Ambassador to Pakistan, and Senior Fellow at the Atlantic Council), what is drying up is a particular kind of money – grant-based, Western, bilateral. What is replacing it is larger in volume but structurally different, and understanding that difference is now the central challenge for Pakistani policymakers.
Islamic philanthropy is growing faster: formal giving from Gulf-based foundations reached nearly $1 billion in 2025 and could exceed $2 billion by 2027, not counting the much larger, largely unmeasured flow of zakat-linked giving from Pakistan’s four-million-strong Gulf diaspora.
Multilateral development banks have moved to fill the gap, and then some. The World Bank’s Board approved a ten-year, $20 billion Country Partnership Framework in January 2025; the ADB followed in March 2026 with a five-year, $10 billion strategy. Together with smaller commitments from the Islamic Development Bank, AIIB and the OPEC Fund, total MDB financing is estimated at roughly $5.3 billion in 2025, potentially $7 billion by 2027 – several times what Western bilateral aid ever provided. But it is overwhelmingly loan financing rather than grants, concentrated in bankable sectors like energy, transport and water, with little weight given to health and education, where returns are real but harder to monetise. Japan, the Gulf States and South Korea are filling part of the remaining gap through infrastructure lending, budget-support deposits and grants.
Beyond bilateral and multilateral flows, the UN system and vertical funds – UNICEF, WHO, WFP, UNHCR, Gavi, the Global Fund, the Green Climate Fund – together contribute an estimated $2.9-4 billion annually to disease control and climate adaptation, though the humanitarian components are under pressure from donor fatigue. Private philanthropy, smaller in absolute terms, is growing in relative importance. Western foundations, led by the Aga Khan Development Network and the Gates Foundation, contributed an estimated $440-690 million in 2025. Islamic philanthropy is growing faster: formal giving from Gulf-based foundations reached nearly $1 billion in 2025 and could exceed $2 billion by 2027, not counting the much larger, largely unmeasured flow of zakat-linked giving from Pakistan’s four-million-strong Gulf diaspora. CSR, driven by Pakistan’s 2017 Companies Act, adds a further $110-200 million a year.
Add it all up, and the trajectory is not one of retreat: total development finance could reach $17.2 billion by 2027, up from roughly $10.9-13.3 billion in 2025. Pakistan’s problem is not a shortage of money. As the world’s second-largest Muslim-majority country, it sits at the natural centre of gravity for Islamic philanthropy.
But as financing shifts from Western grants toward multilateral and Gulf loans, an increasing share must eventually be repaid – manageable if borrowed capital goes into revenue-generating sectors, but far less manageable if debt service crowds out the “soft,” non-revenue sectors this new architecture largely bypasses: creating and exporting skilled labor for elderly care, hospitality, IT and nursing; bringing home based women into the workforce; creating a vibrant food processing sector by training 9 million small farmers; investing in prevention of diseases like diarrhea and stunting that cost tens of billions in productivity lost and treatment; to name a few. Infrastructure lending can build dams, grids and highways, but it cannot by itself produce the educated, qualified and healthy workforce needed to convert that infrastructure into economic output.
Rather than mourning the end of USAID-style grant dependency, Pakistan has an opportunity to build a more deliberate architecture around three tiers: macro-level engines – the World Bank and ADB frameworks – that mobilize private investment for productive and income generating sectors; emerging bilateral partners, namely Japan, South Korea and the Gulf, geared toward productivity-led growth; and a third tier Pakistan must build largely on its own: a social safety net funded through CSR, Islamic philanthropy, private foundations and global health-security financing.
Capturing the value of this landscape will not happen automatically. Four steps stand out. Islamabad should designate a central donor-coordination entity to map the field and match contributions to national priorities. It should be deliberate about which sectors receive loan-based investment, since infrastructure alone does not create prosperity – it is productive, educated people who convert it into output. It should convene separate donor conferences, one for traditional donors and one for foundations and CSR, to flag underfunded sectors and reduce duplication. And it should study its own history more rigorously than it has: under Kerry-Lugar-Berman, more than half the $7.5 billion authorised was never disbursed, and roughly $80 billion in ODA received since 1960 – some $150-165 billion in today’s dollars – has not resolved the country’s core challenges.
The end of USAID’s presence in Pakistan reads, at first, as a loss. But the aggregate numbers tell a different story: the landscape is not contracting; it is being restructured, toward a larger pool of capital than before. Pakistan’s trajectory will not be determined by how much assistance is available – there is more of it than ever. It will be determined by how effectively Pakistan manages a far more complex, multi-channel portfolio, governed on its own terms rather than the donors’. That is a demanding agenda, and, for the first time in decades, one substantially within Pakistan’s own control.
The writer is a Senior Advisor at the Atlantic Council