New Kids on the Block: Middle Powers in Foreign Development

The dissolution of USAID on July 1, 2025, marked an abrupt break in U.S. engagement abroad. In the aftermath, the opportunity to rethink the entire system is needed. The retreat of traditional donors and the rise of new development actors reflect that broader shift in global governance. The era of rapid globalization following the Cold War began stalling in the early 2000s – modern events, such as the 2008 fiscal crisis and surging levels of armed conflict, exposed shortcomings of great power-led governance. We have entered an era of ‘Great Fragmentation,’ where the globe’s most influential state powers have experienced economic stagnation and a decline in influence.

Although the ideological and policy goals of great powers, defined as the United[HN1]  States, China, Europe, India and Russia in the post-World War Two period, have traditionally diverged, several of them share an increasing willingness to disrupt international order today. The return of great power competition has produced cascading instability: Russia’s invasion of Ukraine, China’s increasingly aggressive trade policies and its posture towards Taiwan, and America’s halting retrenchment from its traditional role of security guarantor and its retreat from its multilateral commitments are all symptoms of a world whose systemic undergirding is collapsing. International institutions designed to manage these shocks are too captured by great power politics to respond effectively. As a result, institutions built to govern the globe neglect the priorities of the majority of states.

As the United States and G7 donors scale back foreign assistance, countries and their leaders search for equilibrium, reliability, and stability. The world faces a widening $4 trillion annual financing shortfall to achieve the Sustainable Development Goals: a shared roadmap to tackling problems like poverty, climate change, disease, and inequality that no country can solve alone.

Enter the middle powers.

Defining a middle power is no simple task. Diplomacy that characterizes state power does not neatly reduce itself to a single metric or even just a handful. A useful working definition, though, is a state with meaningful regional influence but without the capacity to independently shape major international outcomes on its own. Rather than align fully with one great power, middle powers pursue multi-alignment, seeking to reform existing rules rather than overhauling them. Think Australia, Saudi Arabia, the UAE, Türkiye, or Brazil.

As frustrations with the bureaucratic nature of superpower-led financing institutions such as the UN, IMF, and World Bank have built, middle powers are doing more than filling in a temporary power vacuum. The Global South now has financing options beyond the great power and Western-dominated channels that have long defined development finance. The shift also goes deeper than volume; middle powers are restructuring how development projects are implemented.

 Unlike World Bank and IMF lending, which relies on dollar-denominated systems, middle powers offer alternative financing options. The BRICS (Brazil, Russia, India, China, and South Africa) New Development Bank issues loans in local currencies, in turn emphasizing national sovereignty and faster deployment than programs constrained to the U.S. dollar. Australia’s Infrastructure Financing Facility for the Pacific and the UAE’s Abu Dhabi Fund for Development blend traditional aid with private sector partnerships. By investing their public funds, countries decrease risk and attract private investors to contribute to development projects on issues such as climate or health. Unlike global powers which run into collective action paradoxes, middle powers find strength in collaboration. Rather than relying on multilateral institutions, middle power-led development tends to be minilateral, such as MIKTA (Mexico, Indonesia, South Korea, Turkey and Australia), and driven by regional blocs like the Association of Southeast Asian Nations (ASEAN).

Their approaches are pragmatic rather than ideological, and push a more equitable, representative system shaped by the voices of the Global South. Middle powers are active proponents of reform within the very institutions they are working around.

While blocs such as BRICS and MIKTA demonstrate the potential that minilateral institutions hold, they also highlight key shortcomings. Most middle powers lack institutional capacity and cross-department coordination to scale their projects. At the same time, regional diversity and differing foreign policy goals mean middle powers in the global north and global south represent a constellation of ambitious but disjointed actors.

While the coordinating infrastructure exists, the UN, IMF, and World Bank are mired in red tape and lacking regional specificity, which middle power-led projects prioritize out of need. As opposed to pushing through broken multilateral channels, the solution lies in redirecting great power resources to the architecture being built by middle powers.

This is where great power private capital comes into play. American and European private sectors are in no short supply of financial and intellectual capital. Great powers should direct this capital into financing platforms middle powers have already shaped – such as regional development funds and blended finance initiatives run through the African Development Bank or Asian Development Bank.

Beyond capital, great powers bring technical expertise and administrative infrastructure that middle powers are still developing. As China has demonstrated through BRICS, great powers can expand their influence by embedding themselves as partners within minilateral institutions rather than retreating entirely or engaging only with great power-led frameworks that are failing to deliver.

Positioning great powers as partners rather than leaders in the development space would not be without pushback, but continuing to resist a multipolar system rather than adapting to it has proven to be ineffective. The shift toward middle power leadership in international development is already underway – the question is whether great powers will engage strategically or cede influence entirely. Where middle powers may lack institutional capacity to execute the architecture they are building, great powers have the opportunity, and incentive, to invest in a system which is evolving as they decline.

As Washington works to understand the future of U.S. engagement with international development, Penn Washington has taken the initiative to develop a global policy project on the  Future of U.S. Foreign Assistance in the absence of traditional structures; this piece offers one viewpoint into a much larger and evolving question. To read more perspectives, check out our project here.

Alisa Shapiro is a Global Policy Programs intern for Summer 2026