Innovative Financing for Development - Options for the EU

Especially since the last economic crisis of 2008 discussions about innovative financing for development have gathered pace. In the 2011 Agenda for Change, the European Commission recognises that government and donor funds are largely insufficient to cover the substantial investments required to improve living conditions in developing and transition countries. This paper analyses key initiatives influencing the current reasoning behind financing of EU external aid measures, and presents options to pursue innovative financing for development by the EU.

We discuss the importance for the EU to anchor its actions in developing and implementing innovative financing instruments for development in the latest EU and international policy framework. The most concrete agreement on innovative financing is the Addis Agenda, whose policy recommendations constitute operational commitments aimed at governments, international organisations, the business sector, civil society and philanthropists. However, it should also be recognized that innovative financing for development is not a new concept. In developing and implementing innovative financing instruments for development, it will therefore be out most importance to draw the lessons of EU experience (especially EU blending mechanisms), as well as the innovative instruments used by other donors which are numerous and far reaching. Finally, innovative financing instruments cannot be considered as “one size fits all” products and it will be crucial for the EU to adopt a differentiated sector and geographical approach in developing and implementing innovative finance products and instruments.

Download paper