Australia has supplanted China as the dominant lender and infrastructure investor across the Pacific by investing billions of dollars through both foreign aid and loans. The latest Lowy Institute Pacific Aid Map reveals that in 2024, Australia provided approximately 37% of all development spending in the region, maintaining its position as the largest aid donor. This surpasses New Zealand at 11%, the US at 8%, China at 6%, and Japan at 3%.

Riley Duke, the map's lead author, described the shift as "striking," noting that China's lending to the region has been declining. He explained, "Historically this has been an area very much dominated by China. Beijing has built a lot of relationships and influence through these big loan finance infrastructure deals. So, it's significant that Australia seems to have crowded out China in this space."

Much of Australia's new infrastructure funding is channeled through the Australian Infrastructure Financing Facility for the Pacific (AIFFP), which since 2019 has committed over a billion dollars in loans and more than $850 million in grants. Duke cautioned that it is still too early to judge the success of Australia's infrastructure push, as it remains a newcomer in this space.

The Asian Development Bank and the World Bank continue to be major lenders, contributing 11% and 10% respectively of total development spending, ranking just behind Australia and New Zealand.

The Aid Map also highlighted that despite aid cuts under former US President Donald Trump causing uncertainty, the US administration's renewal of the US Compacts of Free Association with the Federated States of Micronesia, the Marshall Islands, and Palau—worth over $7 billion across two decades starting in 2024—has kept the US commitment to the region relatively steady.

Duke emphasized the importance of project quality, stating, "If a project is well-built and it contributes to economic growth, then it pays itself off." He also noted challenges, including "many contests for major World Bank and ADB projects, despite Australian government attempts to shift their operating model."

How successfully Australia delivers these projects will determine the legacy of its expanded role in Pacific infrastructure and lending.

Sources