With development financing needs rising and aid budgets strained, the European Union must find a way to stretch scarce public money further. CGD experts, together with Lion’s Head Global Partners, proposed redesigning the EU's flagship development guarantee program to support more development investment without increasing the budget. The European Commission adopted key recommendations from the CGD-Lion’s Head analysis in its May 2025 reform of the European Fund for Sustainable Development Plus (EFSD+), freeing up €471 million in underused guarantee funds and simplifying the program for its implementing partners.
The challenge
As European aid budgets contract, there is an urgent need to find practical ways to enhance the impact and efficiency of the European Union’s development finance. Financial guarantees are one tool for doing this, helping governments mobilize additional capital without increasing public spending. Financial guarantees can encourage development banks and private investors to back projects by sharing some of the financial risk.
What we did
As part of a broader effort to help improve the EU’s development finance toolkit, CGD experts identified opportunities for improvements in the EU's flagship guarantee program, the European Fund for Sustainable Development Plus (EFSD+). They found that the EFSD+ was not making the best use of the public money behind it. Hundreds of millions of euros were tied up unnecessarily in complex, fragmented arrangements and rigid provisioning rules, limiting the program's ability to catalyze new investment.
CGD partnered with Lion's Head Global Partners to compare the EU's guarantee program to those run by other development finance institutions. Through financial modelling, interviews, and analysis of the program's design, they identified changes that would allow the guarantee to support more investment while making it simpler and more transparent. These included unifying the EFSD+ under a single guarantee framework, consolidating small, fragmented contracts into larger envelopes, reinvesting guarantee fees and repayments to build a self-sustaining collateral pool, and freeing up unused capital for new guarantees.
What we helped achieve
The CGD-Lion’s Head research team took these recommendations directly to the people positioned to act on them. In April 2025, the European Commission invited the team to present to the EFSD+ Strategic Board, and also to brief members of the European Parliament. At the invitation of the chair of the European Parliament Development Committee, the team contributed to an exchange of views with the Committees on Foreign Affairs and Budgets and the European Court of Auditors on the use of guarantees and the EFSD+. The team’s work was subsequently highlighted by the Berne Union (International Union of Credit and Investment Insurers) and extensively cited in an article for the Journal of Industrial and Business Economics. The study was also used as a reference for the OECD Development Co‑operation Peer Reviews: European Union 2025.
The European Commission took several of the CGD-Lion’s Head team’s key recommendations on board in its May 2025 reform of the EFSD+. The changes free up €471 million from underused guarantee funds and simplify the program for partners, saving around €21.5 million over the guarantee’s lifetime. Together, these changes help the EU make better use of limited public money to support more development projects.
What’s next
This work forms part of CGD's wider research on EU concessional finance, spanning guarantees, loans, and budget support. CGD researchers will continue to track implementation of the EFSD+ reforms and look for further opportunities to improve efficiency and leverage across EU development finance instruments. As financing needs keep rising and budgets remain constrained, this research is helping identify practical ways to ensure the EU's limited public resources are deployed where they can have the greatest possible impact.
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