This discussion paper analyses the European Fund for Sustainable Development (EFSD) by reviewing its main features, outlining key debates surrounding its establishment and exploring the fund’s prospects at the country level with illustrations from Ghana and Senegal. The paper builds on desk-based analysis and interviews with stakeholders involved in the negotiations leading to the fund’s creation.

As an example of a blended finance approach, a key goal of the EFSD is to use official development assistance (ODA) resources to stimulate lending and facilitate increased public and private investment. A core innovative element of the EFSD is the guarantee mechanism at its heart. The guarantee is expected to enable counterpart organisations to mobilise investment in riskier areas, in particular in fragile and low-income settings where EU blended finance has, to date, had limited reach. The European Commission estimates that an initial EU contribution to the EFSD of EUR 3.35 billion will generate additional public and private investment on the order of EUR 44 billion. However, the novelty of the guarantee facility also means that it is untested, leaving uncertainty about its consequences for resource mobilisation. Against the backdrop of high expectations for the fund, the paper reviews assessments of previous EU blending efforts, outlines the novel elements of the EFSD and discusses areas of contention in the process leading to the fund’s creation.

The European Fund for Sustainable Development: Changing the Game?

The European Fund for Sustainable Development: Changing the Game?

German Development Institute (DIE)