The EU’s Development Budget Needs a Future-Proof Overhaul

Europe finds itself at both a geopolitical and fiscal crossroads. It must meet the demands of the new world order, address unfolding conflict and humanitarian crises across the globe, tackle the climate crisis and invest in its partner countries. But its finances are inadequate to deal with the multitude of challenges it faces.

The European Union’s (EU) main development cooperation instrument—the Neighbourhood, Development and International Cooperation Instrument (NDICI - Global Europe)—was designed to consolidate the EU’s global role and efforts. It has, however, been left with little room to respond to proliferating challenges and crises.

In this piece, we explore blind spots within the current EU budgetary framework and assess its success, as we look ahead to the next EU Multiannual Financial Framework (MFF) for 2028-2034. The bottom line is that the current EU budget has not been fit for purpose; not in scope or in size. We argue that the EU has been trying to do it all with inadequate budgets and a lack of foresight and planning. Underfunding NDICI-Global Europe has undermined the EU’s credibility with partners. Country allocation should be ring-fenced, but global challenges demand increased funding. Flexibility instruments have been helpful but must not be raided and require better management and replenishment mechanisms. The next European Commission must seize the opportunity to remedy this in the next MFF 2028-2034. 

Deprioritisation of development

The EU budget for 2021-2027 has been used to respond to multiple challenges, with billions reallocated to supporting Ukraine, curbing migration and reducing Europe’s energy dependence on Russia. 

In 2020, amidst the COVID-19 crisis, the EU began to ramp up its public borrowing. Next Generation EU (NGEU) empowered the European Commission to borrow up to EUR 750 billion (in 2018 prices) until 2026. To make this possible, EU Member States agreed to increase the EU’s debt guarantees via an added 0.6 percent of gross national income (GNI) in callable headroom, and they also agreed to consider introducing new resources for the EU —such as, digital, climate and financial-transaction levies—in the future. The initial European Commission proposal for NGEU acknowledged the importance of joint borrowing to “better support our global partners” and proposed a reinforcement of EU development and humanitarian aid spending of EUR 16.5 billion, but these top-ups were not approved by the Member States. An estimated annual shortfall of EUR 15-25 billion in the next MFF to repay NGEU loans puts the EU’s external action budget—Neighbourhood and the World (Heading 6) under serious threat of being unable to deliver on core priorities and partnerships.

As part of the mid-term revision of the MFF, the European Commission proposed increasing the ceiling of the external action budget—Neighbourhood and the World—by EUR 10.5 billion, “to provide the absolute necessities in a context of extraordinary geopolitical tension.” Instead, the Member States decided to redeploy EUR 2 billion from the existing development budget to finance migration and other activities in the southern Neighbourhood, and for Syrian refugees and host communities in Turkey, Jordan, Lebanon, Iraq and Syria. This has led to a 7.48 percent pro-rata cut to all NDICI-Global Europe budgets for the period 2025-2027, undermining the EU’s ability to respond to future crises and expand its support to multilateral organisations. This has also further strained relationships with African partners at a time when this partnership is more vital than ever, particularly for the EU’s geoeconomic agenda. 

Underfunded global challenges

The primary instrument for development cooperation—the NDICI-Global Europe—with a total budgetary ceiling of EUR 79.5 billion for 2021-27. Funding is allocated through geographic programmes (covering the Neighbourhood, Sub-Saharan Africa, Asia and the Pacific, and the Americas and the Caribbean), thematic programmes (encompassing human rights and democracy, civil-society organisations, peace, stability and conflict prevention, and global challenges), a flexibility cushion of unallocated resources for emerging challenges and priorities, and a rapid response mechanism for crisis and conflict prevention. 

Geographic programmes are at the centre of NDICI-Global Europe, with a EUR 60 billion allocation, around half of which is concentrated in Sub-Saharan Africa (at least EUR 29.2 billion), and around a third of which is focused on the EU’s Neighbourhood (at least EUR 19.3 billion). The geographic programmes make up 75 percent of NDICI-Global Europe. 

From the get-go, NDICI-Global Europe faced the challenge of balancing flexibility and responsiveness, with various pre-set targets and earmarked “sub-budgets” to make sure that guaranteed levels of funding were available for selected regions and topics. This approach has increased the predictability of geographical resources and locked them in for critical country-focused development needs and priorities. However, with a total budget of just EUR 6.4 billion over seven years “global challenges”, lumped in with other thematic programmes, have been severely underfunded. For instance, EU contributions to Gavi, the Vaccine Alliance, Global Fund to Fight AIDS, Tuberculosis and Malaria, and the Global Partnership for Education alone represent close to EUR 2 billion of the global challenges programme out of a total budget of less than EUR 4 billion. This has forced the European Commission to use the emergency cushion to mobilise funding for these mechanisms. With replenishments for several global health initiatives on the horizon within the current MFF, this approach has already proven unsustainable. 

Underfunded and misused flexibility instruments

Heading 6 contains a flexibility margin that was deployed for the EU Facility for Refugees in Turkey between 2021 and 2023. It is likely that the margin will continue to be used to fund the Facility for the remainder of the current MFF until 2027, leaving little room for any other use.

Alongside the geographic and thematic programmes sits the flexibility cushion which makes up 16 percent of the NDICI-Global Europe. However, faced with multiple and protracted crises and a miniscule budget for global challenges, the cushion became severely overstretched with 80 percent of its budget deployed in the first three years of the MFF, to fund Ukraine and the supply of COVID-19 vaccines to developing countries.  It was also used to top up the thematic programmes, and to provide funding for programmable initiatives (for example, Syrian refugees in Turkey), defeating the original rationale for the cushion. It was intended to be deployed rapidly in the face of crises, rather than being raided for thematic shortages, leaving only scraps available for the remainder of the MFF. 

Beyond Heading 6, other flexible crisis response instruments include the merged EU Solidarity Fund (for emergencies in Member States and accession countries) with the Emergency Aid Reserve (for unforeseen events and major humanitarian crises in non-EU countries) into the Solidarity and Emergency Aid Reserve (SEAR) with a budget of EUR 1.2 billion per year, divided equally between EU/accession countries and non-EU countries; and the Flexibility Instrument used to finance unforeseen threats and challenges with a maximum budget of EUR 915 million per year. Both were pretty much depleted by the time of the mid-term review of the budget this year. And so, the Member States agreed to top up the instruments to the tune of EUR 1.5 billion for the SEAR and EUR 2 billion for the Flexibility Instrument. At the same time, however, they effectively de-merged the SEAR, creating two financial instruments—one for internal and the other for external deployment—and divided the EUR 1.5 billion top up into two-thirds for internal and one-third for external. In essence, this means that the Emergency Aid Reserve’s budget has been cut for the remainder of the MFF from EUR 615 million to EUR 508 per year.

The Flexibility Instrument and the Single Margin Instrument allow for unallocated resources to be used to replenish budget headings. Between 2021-2024, EUR 1.73 billion from the Flexibility Instrument and EUR 317.2 million from the Single Margin Instrument were used to top-up Heading 6, particularly for migration management, food security, humanitarian aid and for the Southern Neighbourhood.

The verdict

The EU’s lack of foresight and strategic preparedness has been an obstacle to early corrective action. There is no doubt that the massive and unfinished development agenda in less developed parts of the world combined with burning issues and crises will continue to plague the world. Unforeseeable events can, and often do, intrude dramatically to alter the course of history, as we have learned all too well with COVID-19. But constrained by its budget, the European Commission found itself scrambling for money, reliant on whatever meagre (relative to need) resources were available. Taking the necessary steps to prepare for and invest in possible futures is paramount.

Underfunding NDICI-Global Europe has undermined the EU’s credibility and ties with partners on the global stage. Trust is being damaged by the disconnect between European declarations and the failure of resources to meet rehetoric, by broken promises on funding, by double standards and bifurcated approaches. Cutting the EU’s development budget signals to its partners that it has abdicated its role and responsibility on the world stage.

Prioritising geographical spending has paved the way for cooperation that is better aligned with the objectives and needs of partner countries. Geographical ring-fencing is important to protect against the siphoning of resources. At the same time, the broadening array of global challenges necessitates a growth in resources commensurate with the scale of the global challenges faced, without having to raid geographic resources. While the European Commission has lamented the lack of flexibility, the real problem has been the insufficient funding, particularly for global challenges.

The flexibility mechanisms have proven useful additions to the EU’s toolbox, but they have also been used as a cookie jar for depleted programmes. The European Commission’s criteria for the use of the flexibility cushion are broad and vague: unforeseen events, new needs and emerging challenges, new EU-led international priorities or initiatives, and rapid response. This gives carte blanche to use the money for pretty much everything. Rather, drawing on the lessons from the current MFF, their size should be increased and their use restricted. To avoid the problem of flexibility instruments “running dry”, the next MFF should explicitly include the ability to replenish them. Creating new revenue streams through initiatives such as a financial transaction tax and reforming own resources will be a vital part of the mix.

The new European Commission's arrival will mark the start of a long journey of negotiations on the EU’s next MFF 2028-2034. While its international cooperation orientations are still in the making, there will undoubtedly be fierce competition for pieces of the increasingly finite pie. Economic security, strategic autonomy, border security and support to Ukraine all feature at the top of an ever-growing list of priorities. But in an age of great power competition and proliferating global challenges, the EU’s development cooperation is itself, its greatest soft power asset.

The authors are grateful for comments and input from Kasia Lemanska, Valentina Barbagallo and Anita Käppeli.