Peer reviews of DAC members

Luxembourg (2003), DAC Peer Review


Main Findings and Recommendations

See Luxembourg's Aid at a Glance

Luxembourg's development co-operation increased significantly throughout the 1990s and continues to do so today. In 2000, Luxembourg joined the group of countries which devote at least 0.7% of their Gross National Income (GNI) to official development assistance (ODA). Since the last DAC review in 1998, Luxembourg's ODA has grown from USD 99 million to USD 143 million in 2001, corresponding to an ODA/GNI increase from 0.65% to 0.82%. This remarkable growth in Luxembourg's ODA - amounting to an annual average increase of volume in real terms of 18% between 1995-96 and 2000-01 - has been possible thanks to sustained economic growth together with solid political and public support for development co-operation. Luxembourg's ODA is made up exclusively of budget resources allocated for development co-operation in accordance with clearly defined development objectives. Since 1989, successive governments have drawn up detailed and binding schedules for the systematic increase of ODA. Given the current government's objective of 1% which it hopes to reach by 2005, the growth in the volume of Luxembourg's ODA looks set to continue.

Recent developments

Luxembourg has made substantial progress in the field of development co-operation since the last DAC review. Efforts have been made to ensure that budget growth has gone hand in hand with a better quality of aid. Important achievements include: i) the adoption of a strategic framework for bilateral planning with the preparation of indicative multi annual co operation programmes for target countries - those countries to which Luxembourg has given priority as regards co-operation; ii) the deployment of Luxembourg officials in the field; iii) improved collaboration with non-governmental organisations (NGOs); iv) and the introduction of a monitoring and evaluation system. In 1999, political responsibility for development co-operation was given to a fully-fledged Minister for co-operation and humanitarian action.

Measures to reduce poverty

Luxembourg has made sustainable development and the fight against poverty the main objectives of its development co-operation policy. Luxembourg's commitment to reducing poverty can be seen first of all by its desire to work with the poorest developing countries. "Target countries" have been selected by reason of their low level of human development; more than half of these belong to the category of least-developed countries. Another demonstration of Luxembourg's policy to reduce poverty is the very clear priority given to social infrastructure and services (82% of total ODA in 2001), in particular, education and basic health as well as water supply and sanitation. Luxembourg should be congratulated for its work in this domain given the obvious links between measures to support basic social sectors and achievement of many of the "Millennium Development Goals."

Geographic selectivity

Geographic concentration is a key element of Luxembourg's policy, and important progress has been achieved in this respect. The number of target countries has been reduced to 10 and are amongst the 12 major recipients of Luxembourg's bilateral ODA. However, the discipline required to achieve geographic concentration is a permanent challenge for Luxembourg: the share of total bilateral ODA given to target countries (43% in 2001) is falling; the existence of a list of "project countries", including some 20 countries and accounting for nearly 25% of bilateral ODA, makes for a certain amount of dispersion. In order to strengthen its presence and its critical mass in a limited number of countries, Luxembourg should endeavour to focus additional resources on its 10 target countries.

As part of its co-operation with Namibia, which is a middle-income country, Luxembourg has adopted an interesting phasing-out approach. Namibia continues to face major inequalities in resource distribution, and Luxembourg has decided not to withdraw too quickly from this country in order to help it consolidate the progress achieved. Luxembourg is concentrating its assistance on the country's least favoured regions, and requires a contribution from the Namibian Government which may be as much as 50% of total project cost.

Multilateral co-operation

Multilateral aid accounts for one quarter of Luxembourg's total ODA. Multilateral co-operation has intensified in recent years and accounts for a growing share of bilateral ODA paid in the form of "multi-bilateral" contributions in target countries (14% of total ODA in 2001). These mostly take the form of the co-funding of projects of United Nations organisations, an approach which may have been an effective way of using part of the sharply increasing aid budget. Luxembourg seems to have used this approach judiciously, looking for complementarity with its own activities. In a number of concrete cases, particularly well-targeted multi-bilateral activities have helped ensure the viability of bilateral activities, notably in the field of health.

Educating public opinion

The Luxembourg Government has just launched for the first time a vast campaign to make the public more aware of the challenges of development. The objective is to better inform the public about the policy conducted by the Government, and to encourage its support for development co-operation. The Government, which plans to continue this type of campaign, could include opinion polls, which for the moment are only carried out on an occasional basis.


a) Luxembourg is encouraged to maintain, if not reinforce, its policy of geographic concentration by allocating additional resources to target countries in order to maximise their impact.

b) Luxembourg is invited to continue and to share with other donors its strategic approach regarding phasing-out in target countries.

c) Given the intensification of multi-bilateral activities, Luxembourg could indicate more clearly its priorities and criteria for allocating resources to different recipient organisations.

d) Luxembourg is encouraged to continue its public information campaign, which implies a better understanding of the level of public support, and therefore the organisation of more regular public opinion polls.

The Luxembourg authorities recognise that the impact of development aid depends largely on the degree of coherence of trade, agricultural, environmental and financial policies. Luxembourg is committed to promote the interests of developing countries in the multilateral trade negotiations in Doha. In this context, Luxembourg has supported a review of the rules of the World Trade Organization (WTO) so as to allow developing countries access to medicines at affordable prices. Luxembourg supported European Union (EU) endeavours to open up its markets to developing countries' exports. A working group has been created to analyse the effects of trade distortions which result from the Common Agricultural Policy and on the agriculture, livelihoods and food security of developing countries. The flight of capital from developing countries and its laundering constitute policy coherence problems of which Luxembourg is mindful. Its efforts to combat the risk of abuse of its financial sector are welcome and Luxembourg's authorities are encouraged to continue the fight against money laundering.

The quest for more coherent development policies could, however, benefit from a more systematic approach aimed at identifying, analysing and following up policy changes and their implications for developing countries. The Ministry of Foreign Affairs could consider enhancing its analytical capability to be in a better position to conduct and influence discussions with the ministries responsible for sectors other than aid. The Inter-Ministerial Development Co-operation Committee could play a useful role, notably when Luxembourg is establishing its position on EU policies in the field of trade and agriculture, in which development objectives may conflict with national interests.


e) Luxembourg should make more effort to analyse the effects of its various policies on developing countries, which requires strengthening the capability of the Ministry of Foreign Affairs to carry out the analytical work required.

f) The mandate of the Inter-Ministerial Committee for Development Co-operation could be extended to give it a more active role in promoting debate on policy coherence for development.

Internal co-ordination

The Ministry of Foreign Affairs has political responsibility for development co-operation and is, at the same time, the principal actor within the government in this field since it administers some 85% of Luxembourg's ODA. The Inter-Ministerial Committee for Development Co-operation ensures co-ordination and exchanges of information on the major orientations of development co-operation policy. Closer co-ordination could be established between the Ministries of Foreign Affairs and of Finance so as to strengthen the links between bilateral and multilateral policies, notably for the preparation of indicative co-operation programmes in target countries and the positions taken by Luxembourg regarding the policies and programmes of international financial institutions. Within the Ministry of Foreign Affairs, co-operation with Central and Eastern European countries is the responsibility of the Directorate for International Economic Relations. Following the experience of other DAC Members, such co-operation could benefit to a greater extent from the lessons learned from co-operation with developing countries through closer links with the Development Co-operation Directorate.

Relations between the Ministry of Foreign Affairs and Lux-Development - the Luxembourg agency responsible for implementing development co-operation - are regulated by an agreement which is currently being reviewed. Responsibility for the formulation and execution of the projects of the Ministry of Foreign Affairs is given to Lux-Development on the basis of mandates which are also being reviewed as part of the work to strengthen the monitoring and evaluation system.

Partnership and local ownership

Luxembourg's development co-operation is based to a great extent on individual projects which so far have often been of a stand alone nature. Their relatively large number raises questions of transaction costs for partners and might make it more difficult to assess their relevance and impact in terms of reducing poverty. Luxembourg supports the principle of partnership and local ownership, and endeavours to transfer responsibility for administering the projects it finances to partner countries. Luxembourg's aid is untied, and Luxembourg has also made an effort to associate partner countries in the procurement process.

Luxembourg has begun preparing indicative co-operation programmes with target countries, reflecting a desire to change from an approach based on individual projects to a more programmatic and strategic one. The action taken by Luxembourg is based on country-led poverty reduction strategies, but like other donors, Luxembourg must ensure that such strategies are integrated properly within its own programme. Efforts are made to ensure that each project is incorporated within the sectoral policies and programmes of partner countries in such a way as to support their development strategies. Since Luxembourg is active in almost all its priority sectors in each target country, the indicative co-operation programmes could help ensure a more selective sectoral targeting. Furthermore, it could be useful to prepare strategic orientation notes for the priority education and health sectors so that the objectives pursued and the indicators to measure results can be defined more clearly. Lastly, Luxembourg should think about engaging in sector approaches in collaboration with other donors, in a selective fashion and when circumstances are favourable.

Representation in the field and staff

Luxembourg has begun to establish field representation in order to be closer to local situations and to be able to participate better in policy dialogue and co-ordination. In 2001, the Ministry of Foreign Affairs opened a co-operation office in Senegal with regional jurisdiction for West Africa, and a co ordination office in Cape Verde. The establishment of field representation in Asia and Central America is planned for 2003-04. Lux-Development is also thinking about decentralising its activities in a number of countries. Such a development inevitably raises questions as to the division, between the two institutions, of roles and responsibilities in the field.

Numbers of staff in the Development Co-operation Directorate of the Ministry of Foreign Affairs and in Lux-Development have increased sharply. At present, there are 27 individuals (including five in the field) working for the Development Co-operation Directorate, whereas some 50 persons (including seven in the field) work for Lux-Development. Nevertheless, given the rapid growth in ODA, the question of whether staff numbers are adequate remains open. Moreover, Luxembourg does not for the moment possess sectoral and thematic expertise, which could be useful in dealing with the many challenges posed by development co-operation, including policy coherence for development.

Monitoring and evaluation

The efforts being made by the Ministry of Foreign Affairs to set up a system of monitoring and evaluation are welcomed. As conceived, this system aims to integrate evaluation more fully throughout the project cycle, endeavouring to improve ex ante the quality of co-operation activities through a better preparation and initial assessment of projects. The system has the merit of covering the projects and programmes of Luxembourg NGOs cofinanced by the government. Given the increased volume of multilateral co-operation, Luxembourg could participate more actively, in collaboration with other donors, in evaluating the performance of international organisations.

One of the first evaluation reports available shows that because of the lack of a preliminary analysis of poverty reduction and gender equality, satisfactory results were not obtained despite the fact that these were the objectives of Luxembourg's development co-operation. In the absence of performance indicators, it is difficult to measure the impact of Luxembourg's co-operation, hence the need to make improvements at this level, particularly in priority sectors.

g) The strengthening of the co-ordination in the field between the Ministry of Foreign Affairs and Lux Development should take account of the strategies being adopted in developing countries, notably poverty reduction strategy papers and sector approaches, which aim at promoting partnership and local ownership.

h) As part of the preparation of its annual co-operation programmes, Luxembourg should envisage consolidating its sectoral selectivity in each target country, or even limiting its involvement to one sector per country, and review the number of projects in light of transaction costs, managerial efficiency and likely impact.

i) Luxembourg could better align its projects with partner country strategies and envisage participating, selectively, in sectoral approaches in collaboration with other donors.

j) Luxembourg is encouraged to continue its endeavours to increase its representation in target countries, while at the same time seeking an optimum allocation of activities in the field between the Ministry of Foreign Affairs and Lux Development and to match this to the volume of work involved.

k) The Ministry of Foreign Affairs should continue to pay particular attention to needs in terms of staff and the nature of expertise required, notably with regard to priority sectors for Luxembourg's development co-operation.

l) The Ministry of Foreign Affairs is encouraged to continue its endeavours to strengthen the follow-up and evaluation system. Follow-up could be enhanced so as to ensure that the objectives of poverty reduction and gender are properly taken into account throughout the project cycle.

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