Should a Simplified, Flexible and Interest-Driven Budget Define the Future of EU Development Cooperation?

The discussions on the European Union’s (EU) next seven-year budget—the Multiannual Financial Framework (MFF) 2028-2034—were officially launched yesterday with the publication of a European Commission document outlining its overarching goals and priorities. In reality, the discussions are already in full swing with positions and red lines being set by some Member States as well as the different European Commission directorates. Why such a frenzy?  The MFF process determines how much money the EU will have and how it will be raised; what it should be spent on and how it should be deployed.

The EU’s external spending is covered in the MFF under Heading 6: “Neighbourhood and the World.” The budget for this in the current MFF is around EUR100 billion over seven years. It is not only the world’s third largest aid pool in volume terms (after the US and Germany), but arguably the most stable one, in a volatile world where several major donors are turning away from aid and development.

In this blog, we focus on the EU’s primary instrument for development cooperation—the “Neighbourhood, Development and International Cooperation Instrument (NDICI)-Global Europe" explore emerging positions on future development financing; and caution against an over-simplified, overly flexible and an interest-driven budget.   

NDICI-Global Europe in the current MFF (2021 – 2027)

NDICI-Global Europe, worth EUR79.5 billion, is the EU’s primary development instrument. The budget is split into three parts:

1. Earmarked funds for sub-Saharan Africa and the Neighbourhood region. This accounts for around three quarters of the total spend.
2. Funding support to human rights and democracy, civil society, stability and peace, and global challenges (including migration), accounting for 8 percent of total spend.
3. Flexible, unprogrammed funding for emerging challenges and rapid response actions accounting for around 16 percent of the total amount.

While the focus on geographic spending over thematic priorities was intended to ensure alignment with the objectives and needs of partner countries, in reality, it has meant that global challenges have been neglected. Programming has become more and more EU interest-driven, diluting the premium placed on partnership and ownership of development priorities. This is illustrated by the Global Gateway, the EU’s international infrastructure investment strategy, launched in 2021. The Global Gateway is perfectly aligned with the strategic priorities of EU, including securing access to critical minerals for the green and digital transitions, but it is difficult to reconcile these investments with the Sustainable Development Goals, or the development needs of partner countries. This despite the abundantly clear treaty obligation stating that EU development cooperation should have the reduction and, in the long term, eradication of poverty as its primary aim.

NDICI-Global Europe is made even more complicated by a plethora of spending targets: 30 percent of the entire instrument for climate objectives; 10 percent of the thematic budget for migration management; 20 percent for human development; and at least 85 percent of all actions to have gender equality as a principal objective. There is also a requirement for 93 percent of EU development assistance to qualify as Official Development Assistance (ODA). While ringfencing spending for certain purposes can demonstrate a commitment to an issue and increase the predictability of resources in the medium- and long-term, an excessive number of targets can incentivise a reduction in quality to achieve quantity driven goals.

The NDICI-Global Europe regulation also establishes a streamlined investment framework for external action financed from the geographic pillar. It consists of the European Fund for Sustainable Development Plus (EFSD+) and an External Action Guarantee (EAG) which guarantees operations of up to EUR 53.4 billion. Although this has enhanced the ability of (mainly) European development finance institutions and banks to invest at scale, a number of challenges have emerged including: lengthy design and contracting which has resulted in long delays; low risk appetite on the part of the implementing partners disincentivising investment in high development impact interventions at the riskier and more innovative end of the spectrum; and a lack of clarity in strategic orientation.

Emerging positions on external financing for the next MFF

There are no official documents, but rumours and “non-papers” continue to circulate about the overhaul that is expected with the next EU budget. There are three obvious drivers: a “Europe-first” agenda; simplification of the funding mechanisms; and the need for greater flexibility of spending.

According to the President of the Commission’s statements, documents prepared by the services and a mandate letter for the International Partnerships Commissioner, scaling up the Global Gateway will become the focus of EU development cooperation. The Commission intends to amplify the shift made since 2021 towards a transactional and geostrategic approach to cooperation through the Global Gateway, with an emphasis on the promotion of European industry, thereby reinforcing development cooperation as a tool for European industrial policy.

Various proposals have suggested merging financing instruments, compartmentalising within instruments, and amalgamating geographical allocations into a single financial envelope, all in an attempt to simplify administration and enhance flexibility. One proposal on the table is to merge the Instrument for Pre-Accession Assistance (IPA), the Humanitarian Aid Instrument (HUMA) and NDICI-Global Europe into a single streamlined mega-instrument, despite their distinct purposes and objectives, legal bases, and governance arrangements of each instrument. Another proposal suggests reorganising NDICI-Global Europe into three different spending categories: one for investment partnerships, enabling the scaling-up of the Global Gateway, one for more traditional development cooperation particularly with more fragile countries, and one for cooperation on migration with Mediterranean countries. A different proposal suggests overhauling the current system of country programming and allocation and instead, instituting large regional funding envelopes.

So, where next for EU development cooperation?

Will a "Europe-first agenda” deliver a more prosperous, safer and more just world?

The world has changed drastically since the NDICI-Global Europe came into force. There is no doubt that the EU's future development financing toolbox will need to respond not only to the EU’s own geopolitical and economic interests, but also the development objectives of its partner countries if it wants to have global influence. The EU’s ambitions for its own citizens—for prosperity, peace and environmental sustainability—cannot be divorced from its global responsibilities and opportunities.

Will simplification bring the necessary balance between more efficient and effective spending of EU development funds?

While some simplification of the complex web of EU financing is warranted, it should not come at the expense of effectiveness and impact. There are multiple and competing purposes of EU external action, and they require different approaches and financing mechanisms. Preparing countries like Ukraine, Moldova and the Western Balkans to accede to the bloc is a very different proposition to cooperating with countries on development issues. Conflation of the two will lead to even more complexity and obscurity, increasing distrust among European taxpayers and could unravel the EU’s already precarious credibility with its partner countries.

Will increasing flexibility deliver better responsiveness?

Flexibility is essential for addressing rapidly evolving global crises, but without safeguards, it risks undermining the predictability that has been a hallmark of EU development spending. However, there is a balance to be struck: ensuring sufficient adaptability to meet urgent needs while maintaining predictability and consistency that fosters trust and confidence among partner countries and investors.