Aid Fragmentation, Debt Distress, and Strategic Realignment in the Horn of Africa: Quantifying the 2025-2026 Funding Shock and Geopolitical Shifts

Sub-Saharan Africa is facing a simultaneous contraction in global humanitarian aid and rising exposure to conflict, debt distress, and climate shocks, creating a compounding regional stability crisis. As Western funding declines and external financing shifts toward Gulf and Chinese actors, structural aid dependency and weak fiscal capacity are increasingly amplifying fragility across the Horn of Africa.

1. The Scale of the 2025-2026 Aid Shock

1.1 Global ODA Collapse: The Headline Numbers

Preliminary 2026 DAC data from the OECD showed a real-terms fall in DAC member ODA from $215.1 billion in 2024 to $174.3 billion in 2025, a fall of 23.1% over the year, which was the deepest single-year contraction in the DAC reporting framework to date. ODA fell from 0.34% to 0.26% of the five largest members’ combined GNI, the lowest share of ODA to GNI since the adoption of the 2030 Agenda for Sustainable Development.

The entire decrease in ODA was driven by five DAC members, all of which cut their ODA for the first time, including the USA, Germany, the United Kingdom, France, and Japan, which together accounted for 95.7% of the overall fall (OECD, 2026a). The USA alone accounted for three-quarters of the global decrease, with its ODA declining by 56.9% compared to 2024, the largest annual decrease by any single member in the reporting history of the DAC. In terms of value, Germany became the largest DAC member for the first time, with $29.1 billion, displacing the USA.

The composition of the cuts also makes for analytical interest: core bilateral development programme funding, the category most directly connected to national budgets and poverty reduction strategies, dropped by 26.3%, another record. Humanitarian ODA contracted by 35.8% to $15.5 billion. Contributions to multilaterals declined by 12.7% to $47.9 billion, with cuts to the UN core budget reaching 27.0%.

The OECD forecast a continued decrease in 2026 of 5.8%, with ODA still 6.6% lower in 2028 than in 2025, thus indicating a structural rather than cyclical decline (OECD, 2026a; ONE Campaign, 2026).

For sub-Saharan Africa, the loss of ODA is categorical: bilateral ODA to Africa as a whole dropped by 23.9% in 2025. In 2025, Ukraine alone received more ODA from DAC members combined (including the EU institutional budget) than sub-Saharan Africa ($29.2 billion), while all LDCs combined received $28.1 billion, representing declines of 22% and 23%, respectively. Projected bilateral ODA in 2025 was at its lowest level since the mid-2000s for both sub-Saharan Africa and the LDCs (ECDPM, 2026; OECD, 2026a).

1.2 Country-Level Impact: Ethiopia, Somalia, Kenya

At the country level, an estimated over $1.7 billion a year in USAID cuts for Ethiopia represents the largest absolute aid cut in sub-Saharan Africa (together with the DRC) (CGD, 2025). Somalia, Kenya, Uganda, and South Sudan each lost more than $400 million per year in aid funding in January 2025 before the cuts (Michigan Journal of Economics, 2025). The Somalia 2025 Humanitarian Response Plan only received 29% of its necessary funding, and the U.S. confirmed it would not grant Somalia access to the block funding provided to UN agencies with U.S. money in 2026; USAID programmes spared during the 2025 cuts will be permitted to expire (Oxfam, 2026).

The funding exposure is multi-layered and concentrated. The 2025 Global Humanitarian Assistance Report states that, prior to the cuts, the U.S. provided 35% of humanitarian funding to Somalia. Ethiopia and Kenya lost 14% and 11% of their humanitarian funding, respectively, from the UK, while the UK reduced its ODA by 11% in 2025. Between 40% and 50% of the pre-2025 humanitarian funding base in Somalia was lost in one cycle because of these reductions (ALNAP, 2025).

2. Debt Distress: The Fiscal Trap Beneath the Aid Shock

2.1 Sub-Saharan Africa’s Structural Debt Deterioration

The aid shock has arrived at precisely the worst time of the debt cycle. An August 2025 working paper by the UNDP found that “the average total public debt ratio in sub-Saharan Africa virtually doubled over a ten-year period from 30 per cent of GDP at end-2013 to nearly 60 per cent of GDP at end-2024”, with the debt-servicing interest-revenue ratio more than doubling since 2010. In 2024, Kenya spent more than 50 per cent of its revenues on debt servicing, which the UN Secretary-General stated, in September 2024, was “unsustainable and a recipe for social unrest” (UNDP, 2025).

2.2 Kenya: High Risk, Rising Exposure

By the end of February 2026, public debt in Kenya rose to KSh12.84 trillion ($99 billion), resulting in the debt-to-GDP ratio increasing to 69.5%, the highest value since the peak of 73.4% in July 2023, from which it had temporarily declined in late 2023 and early 2024. The increase was 15.4% from February 2025 and 17.4% higher than the IMF target of 50% for developing countries. The IMF Regional Economic Outlook of April 2026 projects the ratio to rise further to 71.6% and 72.4% in 2026 and 2027, respectively, fuelled by projected continuing fiscal deficits of 6.4% of GDP for both years (Kenyan Wallstreet, 2026; IMF, 2026).

Servicing debt during FY2024/25 consumed KSh1.72 trillion, which represented nearly 69% of ordinary revenue collections. The IMF’s $3.6 billion programme for Kenya expired in April 2025 without a successor being agreed upon (Kenyan Wallstreet, 2026). The IMF has recommended that Kenya reclassify the securitised revenue flows of $2.6 billion as public debt, which will add approximately 3% to the recorded debt stock and increase the ratio close to the 2023 peak immediately (ibid.). The DSA for Kenya shows a high-risk classification, mainly driven by a higher cost of debt rather than the size of the stock. Kenya’s credit rating is speculative grade (B- S&P; Caa1 Moody’s; B- Fitch) (Cytonn, 2025).

2.3 Ethiopia: In Restructuring, Structurally Fragile

Ethiopia is now in formal debt distress and undergoing restructuring under the G20 Common Framework. In principle, agreement on debt treatment was reached on 21 March 2025 between the Official Creditor Committee and the Ethiopian authorities, with the signing of a Memorandum of Understanding imminent. The IMF-World Bank Joint DSA indicates that Ethiopia’s debt-carrying capacity (Composite Indicator score: 2.31) is weak and well below the threshold of 2.69 separating medium from weak carrying capacity (Debt Justice, 2025).

Under the current plans, Ethiopia should have a moderate risk rating by the end of the IMF programme in FY2027/28, as long as both external financing gaps are addressed and all debt indicators remain below the DSA thresholds, conditions that are now profoundly challenging because of the 2025 aid shock (World Bank/IMF DSA, 2025).

2.4 Somalia: Low Absolute Debt, High Grant Dependency

Somalia’s debt structure differs from that of Kenya and Ethiopia. Total public debt in 2025 is forecast at $1,155.2 million (8.9% of GDP), a figure that is stable relative to previous years and well below the 35% indicative ceiling (December 2025 Fourth Review of Somalia’s ECF Arrangement by the IMF). In terms of external debt distress risk based on the baseline, Somalia’s debt has been categorised as moderate risk.

The true vulnerability is therefore not necessarily the magnitude of debt, as total debt has barely changed, but rather grant dependency. Somalia lacks a domestic debt market, and its entire fiscal system relies on foreign aid in the form of concessional debt and direct budget support. Before January 2025, the U.S. was the primary contributor to all humanitarian financing in Somalia. The reduction of 35% of humanitarian financing in a country with a debt-to-GDP ratio of 8.9% but close to zero domestic fiscal capacity presents more of a vulnerability than any debt statistic can convey (IMF, 2025).

3. Humanitarian Consequences: Quantifying the Gap

In 2025, the total amount of money humanitarian agencies received toward the global consoli-dated appeal dropped to $12 billion, a 10-year low, compared with the $33 billion requested by OCHA’s Global Humanitarian Overview 2026. For 2026, OCHA seeks $33 billion to support 135 million people; the immediate life-saving imperative centres on 87 million people who re-quire $23 billion in urgent funding. The GHO acknowledges, “The cuts in 2025 have strained and even snapped humanitarian lifelines” (OCHA, 2025).

The funding gap for humanitarian needs in the Horn of Africa has transitioned from an emer-gency into a structural crisis. Somalia, Ethiopia, and Kenya combined required $2.65 billion in humanitarian assistance in 2021, of which they received just under 61% of requested funds. Humanitarian needs increased in 2025, while just under one-third of all humanitarian needs were met in the three countries (Oxfam, 2026).

For the Ethiopia 2024 Humanitarian Response Plan, which requested $3.237 billion in support for 15 million people, critically low levels of funding throughout the year meant that the plan remained significantly underfunded. FEWS NET predicts that 15.9 million Ethiopians will re-quire urgent humanitarian food assistance in July 2026, as drought reduced crop production in East Hararghe by 54% and in West Hararghe by 34% (Oxfam, 2026).

Somalia requires $850 million for the UN humanitarian response, and the U.S. failure to include Somalia in UN-channelled funding in 2026 resulted in a complete shortfall of available re-sources. An estimated 6.5 million Somalis require urgent food assistance at acute levels of inse-curity, almost double the level recorded in August 2025. FEWS NET predicts that 3.0-3.49 mil-lion Kenyans will require urgent humanitarian food assistance from October 2025 to May 2026. Losses totalling 1.4 million livestock in Somalia (WFP) add an asset-destruction dimension to food security projections in the region that humanitarian agencies can only partially mitigate (Oxfam, 2026; OCHA, 2025).

The Global Fund was forced to withdraw $1.43 billion in previously allocated funding for its 2023-2025 grant cycle; country allocations within the Horn range from 5% in South Sudan to 16% in South Africa. Gavi, which received $9 billion of its $11.9 billion request in June 2025, is no longer receiving U.S. funds after U.S. Health Secretary Robert F. Kennedy Jr. announced that the United States would cease contributions to the organisation (Africa Practice, 2025).

4. Strategic Realignment: Measuring the Pivot to Non-Traditional Partners

4.1 The Gulf States: Scale and Scope

The Western withdrawal from the Horn is part of a longer trend of structural shifts in financing from Western countries to the Gulf states and China; the 2025 shock has drastically intensified this trend. Direct investment from the GCC states in Africa amounted to $113 billion during 2022-2023 alone. During 2011-2021, investments from GCC states in Africa were collectively less than this amount (Al Jazeera Centre for Studies, 2025). FDI in Africa as a whole increased by 75% in 2024 due to significant investment flows from the Gulf states (Al Jazeera Centre for Studies, 2025).

The UAE has managed to build a security and investment network around the Horn, involving eight agreements related to counterterrorism signed between 2016 and 2024 with Somalia, Ken-ya, and Ethiopia, among others. This has further developed into military training and equip-ment, the development of elite security units, and, in Ethiopia’s case, the provision of drone as-sistance during the Tigray War and training by experts from Dubai Police to Ethiopia’s Federal Police in 2025 concerning counterterrorism and VIP protection (BIC-RHR, 2025).

This trend is parallel to that of Saudi Arabia, where “Vision 2030 has created a political will for increased foreign engagement”, which includes, among other initiatives, a 2024 agreement to build a logistics hub in Djibouti, a potential project for Assab port development in 2025, and a multilateral deal between Saudi Arabia, Somalia, and the OPEC Fund for economic assistance (GRC, 2025; Carnegie, 2025).

The geometric logic of this new architecture is, however, inherently unstable. The MOU signed in January 2024 between Ethiopia and Somaliland, providing Ethiopia with access to the sea in return for port rights and the potential recognition of Somaliland by Ethiopia, created a counter-coalition composed of Saudi Arabia, Egypt, and Eritrea versus the UAE, Ethiopia, and their al-lies. This competitive strategy over port control has a clear tendency towards the over-militarisation of the Horn’s coastline, which could easily offset the expected stabilisation ad-vantages of Gulf investment (Middle East Council, 2024).

4.2 China’s Structural Position

The significance of China’s engagement with the Horn can be understood not through its ODA volume recorded in OECD statistics, which do not reflect the full extent of China’s engagement, but through its scale. Between 2011 and 2021, Ethiopia and Kenya were the two largest recipients of Chinese state finance among the world’s poorer countries, accounting for almost two-thirds of state-owned bank financing and official export credits to developing countries (UK Parliament IDC, 2022).

Through the BRI initiative, China also established its first overseas military base in Djibouti and contributed to the Addis Ababa-Djibouti Railway and Kenya’s SGR. In contrast with traditional ODA arrangements, and as a measure of effective influence, the share of Horn countries’ external debt owed to China as a non-Paris Club creditor continues to grow despite the moderation of absolute lending volumes compared to the peak reached in 2021-22.

The inclusion of China in the restructuring process under Ethiopia’s Common Framework signifies its role as the principal creditor and the institutionalisation of China’s role in diplomacy concerning Horn countries’ debt. China’s agreement in principle to the March 2025 restructuring deal was confirmed in March 2025, with a required role on the Official Creditor Committee. Its willingness to write down Ethiopian debt and the conditions associated with debt reprofiling will have important implications for Ethiopia’s fiscal space throughout this decade.

5. Risk Quantification: Composite Vulnerability Index

The previously discussed data sets allow us to build a basic combined risk score for Horn states using a combination of four calculable metrics: the level of dependence on aid (ODA as a percentage of GNI), the level of debt vulnerability (IMF/WB DSA rating and debt service-to-revenue ratio), the size of humanitarian need (funding rate of the national HRP), and exposure to violence (ACLED political violence trajectory).

Sources: OECD (2026a); IMF DSA country reports (2025); OCHA FTS and GHO 2026; ACLED (2025-2026); CGD (2025); Oxfam (2026).

6. Implications and Forward-Looking Outlook

The convergence of a 2025 aid shock, pre-existing debt distress, active conflict, and strategic realignment has produced an overlapping set of compound risks that none of these trends singly, and only partial combinations of them, can adequately explain. The implications therefore require integrated analysis.

The EAC integration project is materially at risk. It will require sustained political stability and investor confidence in corridor states for the EAC’s largest cross-border projects, including LAPSSET, the regional power pool, and the SGR network, to succeed. The Kenyan government’s lapse of the IMF programme and its inability to reclassify securitised revenues without breaching critical debt thresholds directly constrain its capacity to backstop corridor infrastructure. A downgrade of Kenyan sovereign debt in 2026, a distinct risk given a Caa1 rating from Moody’s and a projected debt-to-GDP ratio of 72.4%, would raise borrowing costs for East Africa’s Eurobond-issuing states in tandem.

The Somali state architecture is acutely at risk of regression. An instantaneous removal of between 35% and 50% of Somalia’s pre-2025 aid base coincides with the presidential election cycle in 2026 and an unresolved al-Shabaab insurgency, a combination that risks institutional regression. States in which governance is underwritten by aid, Somalia being a clear regional example, face compounded fragility when external support is withdrawn faster than domestic revenue capacity can be generated. The 5.7 million Africans estimated to be forced below the extreme poverty line ($2.15/day) by aid reductions (ISS, 2025) will include a disproportionate share of Somalis, whose employment pathways to al-Shabaab, in empirical terms, correlate closely with economic hardship.

The strategic environment around the Red Sea is deteriorating. Gulf states are rapidly increasing investment in Horn port infrastructure, from Berbera to Djibouti to Assab, in the context of intra-Gulf rivalry, Houthi disruptions to Red Sea traffic, and Ethiopia’s persistent maritime ambitions. The emerging UAE–Ethiopia–Somaliland axis, opposed by a Saudi–Egypt–Eritrea alignment, ensures that infrastructure investment is increasingly embedded in strategic competition with a high risk of escalation. Western withdrawal from ODA has not reduced the strategic significance of the region; rather, it has shifted the ownership and configuration of that strategic significance.

The OECD anticipates that the decline in ODA will continue through 2028. Due to the structural nature of the funding contraction, driven by defence budget austerity, domestic political pressures within donor states, and the formal dismantling of the USAID structure, no return to 2023 ODA levels is projected within the current planning horizon. Analysts, investors, and policymakers must therefore assume that the approximately $50 billion annual global ODA reduction is structural rather than transitory when developing risk scenarios for the Horn

Policy Recommendations

1. Multilateral Creditors (IMF, World Bank, AfDB)

Revise debt sustainability frameworks to incorporate grant dependency as a distinct vulnerabil-ity. Somalia’s 8.9% debt-to-GDP ratio masks significant fiscal fragility. The IMF should im-plement a “grant dependency overlay” whereby countries with no domestic debt market and more than 30% of GNI derived from ODA would be subject to automatic intensive surveillance when ODA falls by more than 20% from the previous year.

2. Governments of the Horn of Africa (Ethiopia, Kenya, Somalia, Djibouti, South Sudan)

Introduce an IGAD-led regional emergency fiscal coordination mechanism. The aid shock is simultaneous but asymmetrical, and a “Horn Liquidity Facility” underwritten by non-traditional donors (EU, Germany, UAE, China) could backstop essential social spending, including health and food security, even as individual countries pursue debt restructuring independently. Without coordination, Kenya’s programme lapse and Ethiopia’s delayed Common Framework engagement risk generating contagion effects across the region.

3. Non-Traditional Partners (UAE, Saudi Arabia, China)

Shift from infrastructure-heavy pledges toward conditional budgetary assistance for humanitarian and social sectors. The $113 billion in Gulf FDI in infrastructure and security (2022–23) does not compensate for a $50 billion annual decline in ODA. A defined share, approximately 15–20%, of new infrastructure financing should be directed toward humanitarian implementers such as the WFP, WHO, and UNICEF in the Horn. Without such rebalancing, insurgency risks, including those linked to al-Shabaab, may undermine the security dividends of port and corridor investments.

4. Remaining DAC Donors (Germany, EU Institutions, Japan)

Front-load multi-year commitments for the 2026–2028 Humanitarian Response Plans in the Horn. Given OECD projections that ODA will bottom out in 2028, a predictable funding floor, for example $1.5 billion over three years across Somalia, Ethiopia, and Kenya, would enable UN agencies to plan beyond short-term operational cycles. As the largest DAC donor, Germany should take the lead in initiating a “Horn Stability Compact” ahead of Kenya’s 2027 elections.

Final Notes

This 2025–2026 shock is not merely a temporary perturbation to a functioning aid architecture. It represents a structural break. OECD initial data indicate that ODA levels have fallen to 2015 levels, sub-Saharan Africa has experienced a 23.9% bilateral cut, humanitarian ODA has dropped by 35.8%, and the United States alone is responsible for 75% of the global fall, with a 56.9% reduction in its ODA. Given that the Horn of Africa already records over 9,000 conflict-related fatalities per year in Ethiopia, that only 29% of Somalia’s Humanitarian Response Plan (HRP) is funded, and that Kenya spends 69% of ordinary revenue on debt servicing, alongside simultaneous political transition risks in all three countries, these shifts translate into a regional risk landscape that is deteriorating rapidly.

Strategic redirection towards the Gulf and China is underway and is likely to intensify, but these actors do not provide direct substitutes. Gulf finance is concentrated in infrastructure and security cooperation rather than social sectors or humanitarian assistance, while Chinese finance is increasingly oriented towards restructuring rather than expanding new flows in Ethiopia. Neither offsets the withdrawal of US aid from UN-channeled frameworks that have sustained food security, surveillance systems, and governance support across the region for two decades.

The quantitative outlook is equally clear. The OECD projects a further 5.8% decline in ODA for 2026, with no return to previous levels through 2028. Somalia’s HRP will remain critically underfunded. Kenya’s debt-to-GDP ratio is projected to reach 72.4% by 2027. Ethiopia’s restructuring trajectory depends on political stability that is unlikely to be guaranteed by the June 2026 electoral cycle. Aid withdrawal has therefore shifted from a temporary shock to a structural condition, which must now be incorporated into any serious assessment of risk, investment, and policy planning in the Horn of Africa.

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