Leveraging the next EU budget for sustainable development finance: The European Fund for Sustainable Development Plus (EFSD+)

In the European Commission proposal for the next long-term budget 2021-2027 of the European Union (EU), the proposed Neighbourhood, Development and International Cooperation Instrument (NDICI) Regulation introduces an innovative unified financial architecture to crowd in private sector investment outside the EU, based on three pillars: the European Fund for Sustainable Development-plus (EFSD+), a unified budgetary guarantee – the External Action Guarantee (EAG), and financial assistance.

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    The EFSD+ is conceived as a flexible mechanism, but some of its features remain too sketchy. These features could be not only much better specified but also better connected to a range of important issues, such as climate objectives, gender equality and women’s empowerment principles, youth focus, linkages to business environment, geographical balance, targeting of fragile and poorer countries, specification of investment windows, provision of grievance mechanisms, and addressing tax governance issues. The governance of the EFSD+ could also be much more elaborated. The current proposal delegates great power to the European Commission on shaping these questions during the implementation of the EFSD+.

    Careful attention should also be given to systemic issues related to the EU architecture for investment outside the EU. This includes the place and role of the European Investment Bank (EIB) as the EU bank, unspecified in the proposed regulation. It also relates to the coherence and synergy of the EFSD+ proposal with broader reform ambitions for the EU architecture for external investment.

    Building on an open and flexible system, the European Commission proposal for the EFSD+ and EAG is an important step in the right direction towards a more effective EU financial architecture. It benefits from the Multiannual Financial Framework (MFF) and NDICI momentum, an opportunity which should not be missed. The EU has an opportunity to show it can innovate in a responsive manner to changing times and increasing challenges. This requires collective efforts, within the EU, but also in partnership with multilateral institutions and initiatives, and most of all partner developing countries. Ensuring that major concerns are addressed in the NDICI Regulation should thus be a priority if the EU is to use in a timely fashion the opportunity of leveraging its next budget for more effective sustainable development finance.

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