> See also Aid at a Glance
> Luxembourg (2008), Full Report (pdf)
Luxembourg is a generous and committed donor. Its aid rose in real terms by almost 12% from 2006 (constant USD 291 million) and 2007 (constant USD 325 million) to 0.90% of its GNI, making Luxembourg the third most generous donor in percentage terms. Every year since 2000 Luxembourg has achieved an aid to national income ratio of at least 0.7%. It has also promoted international efforts to strengthen the quality and increase the volume of aid.
Luxembourg has improved the management of its aid programme, creating a strong foundation for more effective aid. Luxembourg has opened regional offices in five priority countries and is translating its international commitments into practice. Its second generation of multi-year co-operation programmes with ten priority countries makes aid more predictable. Luxembourg’s ambitious programme is coherent and well structured thanks to an efficient use of financial and human resources. Aid allocations are concentrated and aligned to the expressed needs of a few priority countries, which are the world’s least developed. It also works with a small number of multilateral organisations which share Luxembourg’s aid objectives. Its record in implementing humanitarian assistance is exemplary in many respects and follows the lines of internationally agreed principles. Luxembourg’s developing country partners appreciate the open and flexible manner in which it engages in policy dialogue and implements its aid programme.
At the same time, the Grand Duchy faces challenges in implementing the aid effectiveness agenda: it could do more to use partner country administrative systems and could co-operate in new ways with other donors. Ensuring that its staff has the necessary competencies, and that it has access to other needed expertise is a constant challenge. In addition, the Development Co-operation Directorate needs to enhance its capacities to become a learning organisation. Like other donors it will be a challenge for Luxembourg to shore up public and political support for meeting aid effectiveness commitments and taking risks such as engaging in difficult environments, including fragile situations.
Foundations for development co-operation
Solid legal and political orientations anchored in foreign policy
Luxembourgers share a deep and growing sense of international solidarity which is rooted in the vagaries of Luxembourg’s history over the last century and a half. This international solidarity is expressed through the development co-operation programmes of both the State and the NGOs, which have become a visible component of Luxembourg’s foreign policy and help place Luxembourg on the international map.
The 1996 Act on development co-operation gives a mandate and clear overall objectives to the Grand Duchy’s development co-operation policy, which should address the sustainable economic and social development of developing countries, especially the least developed, the fight against poverty, and the gradual integration of developing countries into the world economy. The law also gives broad direction to the sectors which should be financed, and established a Development Co-operation Fund which the Ministry of Foreign Affairs uses to manage 70% of the aid budget.
A clear vision that would benefit from a forward looking policy statement
The Ministry of Foreign Affair’s one page "strategy and principles" statement on development co-operation outlines Luxembourg’s vision and policy framework. It makes explicit reference to the Millennium Development Goals and priority sectors, which cover health, education - including vocational training and integration in the labour market, integrated local area development, microfinance, and humanitarian assistance. This statement stresses Luxembourg’s commitment to concentrate on 10 priority countries, to reach 1%, and to implement the Paris Declaration on Aid Effectiveness. The current vision works well for the Ministry of Foreign Affairs. However, Luxembourg would benefit from a forward-looking statement that looks at the long-term evolution of its development co-operation programme. By preparing the statement in consultation with key actors, Luxembourg can create public awareness of the importance of balancing the short-term need to demonstrate results to shore up public and political support with the need to take risks, engage in difficult environments, including fragile states, and to meet commitments to aid effectiveness.
Luxembourg should complete its operational strategies
Luxembourg has taken a pragmatic approach to strategic planning which is based on its law, the "strategy and principles" statement as well as DAC and EU guidelines on development co-operation. Multi-annual co-operation programmes (PICs) with priority countries and framework agreements with other partners are also used to further define its strategy. At the same time, Luxembourg has become more active in policy dialogue at the country level and is committed to implementing the Paris Declaration. In this new context, staff – at headquarters and in the field – require more strategic guidance. In response, Luxembourg started developing operational strategies for key sectors in 2007. The DAC welcomes this development and encourages Luxembourg to finalise these strategies for all priority sectors as well as for cross-cutting issues. Luxembourg could benefit from drawing on similar policy work conducted by the DAC and other donors.
High public support but low awareness
There is high political and public support for development co-operation in Luxembourg where there is a consensus for attaining Luxembourg’s 1% aid target and about one NGO per 5 000 inhabitants. However, this is accompanied by low public awareness of Luxembourg’s development policies and programmes. The DAC commends the Ministry of Foreign Affairs for its comprehensive development education strategy which is backed by a dedicated budget line and aims to strengthen public awareness of global development challenges. Such a strategic approach could also be taken for the Ministry’s communication about Luxembourg’s aid programme, which has yet to address the less visible, and more complex, aspects of development co operation such as aid effectiveness and development results.
Promoting policy coherence for development: can it be more systematic?
The consensual nature of Luxembourg’s society seems to translate into "natural" policy coherence within government, although this is also facilitated by the small size of the public administration, informal dialogue and good cross government awareness of Luxembourg’s various policies, including development co- operation. Thus, Luxembourg states that "there are probably little or no points of friction between national policies and Luxembourg's development co operation policy". There are many advantages in having such a consensus based culture which is conducive to a flexible and pragmatic approach; however it may also inhibit risk taking.
Luxembourg played a key role in promoting policy coherence for development within the European Union in 2005 when it held the Presidency of the European Council. In particular, Luxembourg is to be congratulated for having co-ordinated agreement between member states on 12 sectors relevant for policy coherence for development. The important leadership and direction that the EU provides on policy coherence may explain why Luxembourg has not prepared its own formal position on this issue. Having such a position would be useful for national level discussions about policy coherence for development. It would also assist the Ministry of Foreign Affairs in promoting policy coherence across government and raising awareness and public support for policy coherence on a long term basis. The Inter Ministerial Committee for Development Co-operation is meant to serve as an interface on policy coherence within government. While the Committee serves Luxembourg well as a body to ensure a coherent development policy it does not discuss how important national policies may promote or work against the development of poor countries. Consequently, the Committee should have a clear mandate in this respect, accepted throughout government.
Luxembourg would benefit from a forward-looking policy statement that addresses how it will implement the aid effectiveness agenda, including how it will engage in riskier development co-operation such as new aid modalities and co-operation in fragile states. This should be done in a consultative manner to build transparency and generate greater ownership of the policy.
Completing its operational strategies would help Luxembourg to ensure that the implementation of second generation PICs and other projects are consistent with the development policy.
Luxembourg needs a communication strategy on aid effectiveness that demonstrates the improved development results donors achieve by working together; this would help build public support for a programme that takes more risks.
Within the Interministerial Committee, Luxembourg should define appropriate methods that will promote, monitor and evaluate policy coherence, including for development, in a systematic manner so as to arbitrate between policies.
Managing aid volume, channels and allocations: highly strategic and concentrated
The DAC welcomes Luxembourg’s commitment to reach an aid to national income ratio of 1%. In 2007, Luxembourg’s aid budget was 0.90% of gross national income (USD 325 million). This assistance is provided through untied grants. The share of multilateral aid has increased since 2003 to reach 30% of total aid in 2006 and is increasingly channelled in a more strategic and appropriate manner, thanks to multi- annual framework agreements with four UN agencies and the integration of multi-bi co-operation in PICs with priority countries. Luxembourg can be congratulated for increasing and strengthening its multilateral co-operation and should sustain this effort. Luxembourg is among the most generous DAC countries when it comes to allocations to NGOs which over the period since the last review averaged 12% of the total aid budget. While support to NGOs will contribute to Luxembourg’s international visibility, the efficiency and impact of small and scattered NGO projects may be limited.
Luxembourg’s commitment to the poorest countries especially countries that rank lowest on the human development index – and its efforts to concentrate on a few priority countries are evident from bilateral aid allocations. Fifty four per cent of Luxembourg’s bilateral assistance went to least developed countries in 2006 compared to the DAC average of 26%. Sixty three per cent of bilateral aid was allocated to Luxembourg’s top 10 aid recipients in 2005-06, of which two are fragile states (Niger and Laos). In addition, most priority countries received a significant increase in bilateral assistance in the second generation PICs, launched in 2006-07 and the number of "project" countries has decreased from 20 (2003) to 12 (2006). This demonstrates Luxembourg’s strong commitment to geographical concentration.
Furthermore, the number of projects being implemented by Lux-Development has not increased significantly despite greater aid volumes. This implies that projects are not proliferating and resources are concentrated in bigger projects. Luxembourg is encouraged to sustain efforts in increasing the size of its projects as it evolves to programme-based approaches. The Development Co-operation Fund and the indicative five-year budget envelope for each PIC give greater aid predictability for partners (in two cases annual allocations are made), although none of it is provided as budget support. Still, Luxembourg needs to manage its budget carefully to ensure that annual disbursements are made to meet aid targets.
Luxembourg also performs well on sector concentration. The bulk (53% in 2005 06) of Luxembourg’s bilateral aid goes to social infrastructure and services: health, education – including vocational training and professional integration, integrated local area development, and water and sanitation. Ten percent falls under multi-sector support. Luxembourg’s support to cross-cutting issues is more evident in operations than in statistics. Luxembourg would benefit from more strategic guidance and statistical reporting on these issues. Reporting on ODA statistics, in general, remains a challenge for Luxembourg.
In the light of the many NGOs eligible for official aid and the strong support they receive, Luxembourg should consider how the effectiveness of this aid could be strengthened through incentives other than geographical focus.
Some improvements have been made in the statistical data provided to the DAC by Luxembourg. To achieve further needed improvements, the Ministry’s statistical reporting capacity should be strengthened.
Organisation and management
Clarity of structures and responsibilities
Luxembourg’s structures for managing development co-operation are well organised and leave little room for confusion between different actors. The Ministry of Foreign Affairs takes the lead for development co-operation policy and programming while the Ministry of Finance manages relations with the international financial institutions. The executing agency, Lux-Development, receives project mandates from the MFA and is accountable for the projects’ effective implementation. The Ministry of Foreign Affairs and Lux-Development are co-located with clear responsibilities at the country level: the MFA engages in policy dialogue and Lux-Development in project management. It was evident in Burkina Faso that dialogue between the two entities is open and informal. The Development Co-operation Fund and multi-annual framework agreements with priority partners, multilateral organisations and NGOs also contribute to clarity of objectives, financial support and reporting.
Luxembourg can be congratulated for having opened country offices in five out of ten priority countries. This has facilitated deeper consultation with partner countries and donors and the identification of priorities for the second generation PICs. Luxembourg should capitalise on this presence to achieve ownership and alignment and to promote its priorities, including microfinance and disaster risk reduction, in policy dialogue at the country level. The stronger country presence also provides a basis to consider whether further decentralisation of aid management to the field level would be appropriate.
Becoming a learning organisation with the right competencies
Human resources remain a challenge for Luxembourg’s Development Co-operation Directorate (DCD) where many officers are responsible for at least two aspects of the programme. Yet upon the recommendation of a 2006 audit of the directorate three new staff were hired. The key challenge for the MFA is to have access to appropriate competencies when it needs them – something that may become more crucial as Luxembourg adapts to division of labour between donors. To ensure both continuity within the Directorate and sufficient access to expertise, Luxembourg should continue to have a core cadre of people within the DCD with expertise in development. Other staff within the Ministry could also be exposed to development by spending part of their career on this issue. If the Ministry cannot recruit, then it should be an intelligent buyer of external expertise from a variety of sources. Pragmatic ways of addressing the latter include mobilising external competencies (primarily from Lux-Development but also from external consultants) and establishing partnerships with other actors (donors and NGOs).
Evaluation has improved since the last peer review although more progress is required. External evaluations require particular attention since they do not follow DAC guidelines and in order to ensure that the lessons they offer are effectively taken into account. The Ministry also needs to spell out the general guidelines that it intends to adopt and apply to external evaluations. These guidelines should incorporate various aspects of the programme, including the executing agency, different modalities and the involvement of partner countries in the process. More systematic evaluation along with better dissemination of the findings and recommendations will contribute to organisational learning and greater accountability. Furthermore, Luxembourg’s monitoring and evaluation will have to adapt to new aid modalities as it moves to sector and programme approaches.
The Ministry of Foreign Affairs should take steps to ensure that it maintains the expertise it has built-up over the years, that it gives attention to developing institutional memory, and secures access to expertise in specific sectors, cross-cutting issues and to support new modalities.
Luxembourg should give systematic priority to external evaluations carried out according to DAC principles and procedures including the dissemination of the findings and recommendations.
During its EU Presidency, Luxembourg was an important force behind international efforts to improve the quality and impact of development assistance. It played a prominent role co-ordinating EU member states preparing for the Paris High-Level Forum on Aid Effectiveness. Luxembourg should use this experience to lever domestic support for effective implementation of the Paris Declaration in partner countries and continue to drive for aid effectiveness in its own programmes.
Implementing aid effectively
Luxembourg started to prepare its own operational action plan for implementing the aid effectiveness agenda in 2007 when it commissioned a study on Luxembourg’s Obligations towards International Political Commitment, including the Paris Declaration. The recommendations from the study will feed into Luxembourg’s aid effectiveness action plan. The study also stresses that Luxembourg will have to undergo fundamental structural and human resource reforms to be in a position to meet the Paris Declaration targets. Winning the necessary political will and momentum will be crucial to successfully implement the reforms.
Applying the principles of the Paris Declaration in the field
It was evident in Burkina Faso that Luxembourg has skillfully used second generation PICs to align with partners’ development strategies and to co-ordinate with donors. And the participatory approaches used by the Ministry and Lux-Development to formulate and manage projects are conducive to ownership by partners, including local government. At the same time, Luxembourg’s predominant implementation of projects according to Lux-Development's own procedures could hamper greater alignment to country systems, donor harmonisation and national ownership. The new PIC shows that there may be some entry points for Luxembourg to harmonise around a sector approach, to support basket arrangements and, in response to demands from their partner countries, to start preparing the ground for providing direct budget support. Luxembourg should examine the PICs to identify such opportunities. It is evident that part of the groundwork will also have to be done in Luxembourg. The mandates, roles and responsibilities of both the MFA and Lux-Development should be clarified with a view to conforming to the Paris Declaration. For example, clarity is required on which institution should take the lead in donor co-ordination and results-based management including accountability for results. Further decentralisation of aid management to the country level should be considered in this context.
Nevertheless, Luxembourg is ready to move on other aspects of the aid effectiveness agenda. It is the lead donor for vocational education in Cape Verde and is open to taking on this responsibility in other sectors in priority countries. Some moves have been made towards joint work with donors including the use of joint donor analysis for the PICs, delegated co-operation with Belgium in Ecuador, and conducting joint evaluations. Luxembourg is commended for its willingness to be a lead donor. It should seek opportunities for taking on this responsibility in other priority countries as part of its efforts towards donor harmonisation.
Learning from experience on priority topics
Luxembourg, like other donors, believes that capacity development is an essential element for development in general and that it is primarily the responsibility of partner countries. The MFA talks about three phases of capacity development (i) training (general and professional); (ii) strengthening existing capacities (professional training); (ii) and building institutional support (management). While Luxembourg does not yet have an operational strategy for capacity development it is a recurrent objective in Lux-Development’s project documents albeit in a more traditional way. Capacity development rarely goes beyond the immediate capacity needs of the project and the capacity of local partners to own and run the project once Luxembourg has handed it over to partners. Furthermore, Lux-Development should be able to delegate project implementation fully to the project’s country director enabling Lux-Development to play a more advisory and supportive role to local managers.
Luxembourg could support more systematically capacity development in the public administrations of priority countries because many of them are among the least developed with strong capacity constraints. In addition, having its own operational strategy on capacity development – which builds on emerging good practice by other donors – will help Luxembourg to prepare the ground for using new aid modalities in these countries.
The rationale and motivation for Luxembourg’s inclusive financial sectors and microfinance policy is founded on Luxembourg’s domestic scene: it is home to an international financial centre and has solid experience in development co-operation. Luxembourg aims to use its aid as a catalyst to strengthen microfinance and inclusive financial sectors. At the level of international policy making, Luxembourg chairs the UN Advisors Group on Inclusive Financial Sectors. It also ensured that microfinance found its place in the European Consensus on Development. Luxembourg has also provided seed money to Luxembourg based-support structures that promote increased investment in quality microfinance institutions. In 2008, Luxembourg launched a multi-million Euro (EUR 18.8 million*) regional microfinance project in collaboration with the Central Bank for West African States. In many ways, Luxembourg follows internationally recognised good practice in terms of using development assistance for microfinance. It reinforces the capacities of microfinance institutions; develops the capacity of the sector; and facilitates private investment.
Internationally, Luxembourg is a successful ambassador for inclusive financial sectors and microfinance and should consider how it can best play this role in priority countries. It can achieve this by systematically integrating microfinance in its PICs and promoting it in policy dialogue with the partner government and donor partners. Luxembourg should also capitalise on its new project in the West African Region by ensuring that staff at country level participate in the steering group and take messages to national level policy dialogue.
Luxembourg is encouraged to finalise an aid effectiveness action plan in line with the Paris Declaration commitments. The results of the Paris Declaration monitoring exercise and emerging good practices in the preparation of the Accra High level Forum can be a useful resource. Luxembourg may also wish to update the Convention signed between the Ministry of Foreign Affairs and Lux-Development to clarify mandates, roles and responsibilities for managing aid more effectively.
Luxembourg will continue to finance programmes and projects that will, for the most part, be executed by Lux-Development over the medium term. Luxembourg should therefore ensure that the programmes and projects conform to the objectives of the Paris Declaration, and that they are well integrated within sector programmes. Luxembourg should also make greater use of new aid modalities in line with aid effectiveness principles.
Luxembourg should prepare a capacity development strategy that gives specific guidelines and outlines the principles and practical modalities for operationalising capacity development across its co operation programmes.
The Committee encourages Luxembourg to strengthen the integration of inclusive financial sectors and microfinance in PICs. It should also capitalise on the lessons from the microfinance project in the West African region to promote this issue in priority countries.
Luxembourg was one of the seventeen original endorsees of the Principles and Good Practice of Humanitarian Donorship, which aimed to improve the collective performance of donor action in the humanitarian domain. In general, Luxembourg has lived up to commitments made under the Good Humanitarian Donorship (GHD) initiative and, in some areas, may be regarded as exemplary. Publishing a sectoral strategy for humanitarian action and strengthening evaluation and learning functions will serve to further improve the impact and transparency of Luxembourg’s humanitarian action programme.
The regular annual budget for humanitarian aid has steadily increased in recent years to EUR 29 million in 2008*. Appropriations have been augmented by supplementary budget allocations (notably in response to the Indian Ocean tsunami). In addition, humanitarian actions have been financed from the Development Co-operation Fund (principally for disaster prevention, mitigation and preparedness activities). As a consequence, Luxembourg’s gross disbursements for humanitarian action have attained a level of EUR 31- 32 million per annum in recent years. These disbursements provide Luxembourg with a functional profile in international fora that outweighs the modest budget. According to DAC figures approximately 14% of gross ODA was allocated to humanitarian assistance in 2006 which is well above the average for DAC members of 8% and does not reflect all disbursements made by Luxembourg to humanitarian assistance. Furthermore, Luxembourg has demonstrated a capacity for providing leadership in the context of the EU response to the Indian Ocean tsunami during the term of its Presidency. Luxembourg therefore appears well positioned to project domestic achievements into the international arena, including guidance to new member states on adoption of the EU Consensus on Humanitarian Aid.
Humanitarian aid allocations are widely dispersed and often targeted towards so called "forgotten crises". A key characteristic of Luxembourg’s humanitarian action are strategic partnership agreements, which provide for bilateral dialogue and multi year funding commitments in the case of multilateral agencies or annual funding commitments in the case of Luxembourg’s NGOs. In both cases, the high level of predictability and flexibility coupled with low levels of earmarking that these arrangements provide to implementing partners, is widely welcomed. However, Luxembourg could do more to promote a culture of disaster risk reduction within the framework of PICs with priority partner countries.
Notwithstanding these positive impressions, evaluation and learning processes appear rather weak and it is likely that critical learning opportunities may be overlooked. Rather than conducting its own evaluations, participation in joint donor evaluations would be less taxing on the human resources of the humanitarian aid unit and would provide useful forums to exchange lessons with peers.
The Committee commends Luxembourg for the strong track record in implementing GHD commitments. The Committee encourages Luxembourg to disseminate the good practices it has developed amongst the broader donor community, including new member states of the EU.
The Committee recommends that Luxembourg’s commitment to humanitarian action be formalised within a sectoral strategy and that the approach to crisis prevention, mitigation and preparedness be made more explicit – particularly within the context of PICs.
More systematic evaluation and learning processes would ensure that the overall impact of Luxembourg’s humanitarian action is documented and critical lessons are captured.
* Source for figures in euros : Luxembourg.
List of Peer Reviews of DAC Members
Luxembourg (2003), DAC Peer Review
The Paris Declaration