Amid mounting pressure on European development budgets, the EU must maximise the effectiveness and impact of its development finance toolkit. Although the European Commission is among the world’s largest providers of budget support, its allocations are not systematically aligned with partner countries’ creditworthiness or debt vulnerabilities. This misalignment undermines efficiency, with grants often concentrated in countries that retain market access rather than those facing constrained fiscal space. The framework is further limited by uneven regional distribution, a bias toward lower-risk environments, and fragmented engagement beyond the EU Neighbourhood.
Drawing on a comparative assessment of international best practices and financial modelling of alternative grant–loan configurations, this report explores how EU budget support can be strengthened to expand financing capacity, enhance development impact, and increase leverage in the run-up to the 2028–2034 Multiannual Financial Framework. It outlines options for optimising the grant–loan mix and estimates the potential gains from a more strategically calibrated financial toolkit.
