EU blended development finance in the spotlight

European donor countries have increasingly promoted blended development finance approaches that intend to mobilize additional public and private investment using a mixture of grants and loans. The European Fund for Sustainable Development (EFSD) presented at the recent AU-EU Summit provides a prominent example of this approach. EU leaders have heralded the fund as the start of a new chapter for EU development policy. Expectations about what it can achieve are high: the European Commission estimates that an initial EU contribution to the fund of EUR 3.35 billion will stimulate EUR 44 billion of additional public and private investment.

As the fund moves into its implementation phase, this discussion paper reviews the innovative characteristics of the EFSD, outlines areas of contention in the debate surrounding its creation, and raises questions about its relationship to other elements of European development cooperation at country level.

The paper indicates that attention to demonstrating the added value of the EFSD in relation to other financing alternatives is essential. The assessment of added value is relevant both in terms of how the fund supports poverty reduction goals and how it enables investment that would not otherwise take place.