The choice of funding modality has a clear impact on a development project’s effectiveness. Crucially, World Bank development projects financed through trust funds have been shown to have a positive effect on economic growth. However, in comparison to core-funded projects, the effect is smaller.⁴ It is also evident that, compared to core funding, earmarked funding weakens the ability of multilateral organisations to fulfil their mandates in a cost-efficient manner.⁵ This is largely because earmarked funding entails higher supervision and transaction costs. Thus, to achieve outcomes comparable to those of core-funded projects, both donors and multilateral organisations often need to commit greater financial resources.⁶

Moving beyond the project level, what impact does earmarked funding have on organisational effectiveness? In this respect, high levels of earmarking tend to restrict flexibility – an effect consistently highlighted in the literature. By contrast, flexibility is widely identified as a key advantage of core funding, as it enables multilateral organisations to operate in line with their mandates and respond strategically to developments.⁷ More flexible forms of earmarking, such as soft earmarking, can offer some of these benefits.⁸ For instance, there is evidence that soft earmarking through trust funds such as Gavi has generated positive results in terms of cost and resource efficiency.⁹ According to the Malaria Consortium, however, the significant budget cuts recently suffered by Gavi pose a major risk when it comes to maintaining and improving vaccination rates, especially in low-income countries.¹⁰

These findings underscore that increased donor control through earmarking is associated with weaker project outcomes and greater system-wide fragmentation. Ear-marking tends to encourage project-based approaches among both donors and multilateral organisations. For organisations, this can undermine long-term planning, reduce flexibility, and limit their ability to respond to changing needs. Over time, the role of the organisation in question may shift towards being an implementing agent for donor priorities, thereby diluting its original mandate. Moreover, organisations with high levels of earmarked funding may need to use core funding to subsidise the administrative costs of earmarked projects.¹¹ In such circumstances, funds intended to support core mandates are diverted to cover the additional, unfinanced administrative expenses associated with earmarked contributions.¹² Taken together, rising levels of earmarking, combined with broader budget cuts, place avoidable strain on multilateral organisations.

In contrast to other multilateral organisations, the evidence relating specifically to the UN system is extensive and  consistent: the UN system requires core or softly ear-marked funding to fulfil its mandate in accordance with its corporate functions.¹³ Core funding is particularly important, as it ensures necessary institutional capacity, facilitates coordination across UN organisations, and supports longer- term strategic planning.

Despite these insights, important knowledge gaps remain. For instance, it is vital that we understand the various ways in which earmarked funding affects the entire multilateral system. The large number of actors involved, combined with the contrasting financing modalities, means the system is highly diversified. Given this, a key question to consider is how earmarking affects the cost- and outcome-effectiveness of the broader multilateral system. While some insights useful to future financing decisions may be inferred from organisation-level studies, there is a clear need for more system-level analysis.

Furthermore, there is scant evidence directly comparing the effectiveness of core and earmarked funding or showing how best to combine the two modalities. Evidence is also lacking on how the effectiveness of different financing modalities varies across regions, countries and sectors. Further research is needed in all these areas.