Luxembourg (1998): Development Co-operation Review


MigrationDevelopment Co-operation Review 1998: Summary and Conclusions


Increase in the amount of aid

There has been a sharp increase in the amount of Luxembourg's development co-operation budget and its official development assistance (ODA) disbursements. Disbursements have increased by 17 per cent a year in real terms over the last ten years, reaching $95 million in 1997.

In relation to gross national product (GNP), Luxembourg's development aid slightly exceeded the target of 0.35 per cent of GNP in 1995 and rose to 0.55 per cent of GNP in 1997. ODA is expected to amount to 0.59 per cent of GNP in 1998 and there is every reason to believe that the Luxembourg Government will meet its commitment to increase ODA to 0.7 per cent of GNP by 2000.

Thus, Luxembourg stands a very good chance of joining the leading group of DAC member countries within a short time. This advance has been made possible by the unanimous support of both politicians and public opinion. The aim of increasing ODA to 0.7 per cent of GNP in 2000 has the backing of all political parties, while the large number of development-oriented NGOs in Luxembourg reflects the depth of public support for the cause of development.

Strategic framework and institutional developments

Luxembourg's aid programme has made considerable progress since the first review by the Development Assistance Committee (DAC) in 1993. The government has implemented most of the DAC's recommendations following the review. The most important initiatives and measures are as follows:

  • a new law defining the aims of co-operation;

  • an agreement governing relations between the Ministry of Foreign Affairs, Foreign Trade and Co-operation (subsequently referred to as the Ministry) and Lux-Development, the agency responsible for delivering bilateral aid;

  • an increase in the number of staff assigned to the aid programme;
    transformation of the Co-operation Service at the Ministry into a Directorate;
    acceleration of payments;

  • a better division between humanitarian and development aid;
    selection of target countries;

  • more effective co-operation with non-governmental organisations (NGOs).

The new Law, which came into force in January 1996, defines three objectives: first, the sustainable economic and social development of developing countries, especially of the most disadvantaged ones; second, the integration of these countries into the world economy; third, reducing poverty. By concentrating its assistance on reducing poverty, environmental protection and gender equality, Luxembourg is pursuing an aid policy that corresponds to the objectives set out in the 1996 DAC report entitled Shaping the 21st century: the contribution of development co-operation.


Almost 80 per cent of ODA comes under the aegis of the Ministry of Foreign Affairs. Three quarters of bilateral assistance is implemented by Lux-Development, the remainder by NGOs. In order to avoid a partial loss of aid credits at year end, the Ministry transfers about two thirds of its aid appropriations to the Development Co-operation Fund (FCD), enabling projects to be funded over a number of years. The FCD, created in 1985, funds most bilateral activities, including the cofinancing of NGO projects and multi-bi co-operation. The remainder of the Ministry's aid budget is earmarked for Luxembourg's contribution to the European Development Fund (EDF), emergency relief and food aid. The Finance Ministry is responsible for contributions to certain multilateral institutions, especially the World Bank. The other ministries play only a very small part. All Luxembourg aid is provided in grant form and is almost always untied.

Geographical and sectoral breakdown

As the DAC's 1993 review of Luxembourg's co-operation programme considered that there were too many recipient countries, and taking into account its limited management capability, in 1994 the Ministry introduced a target country policy. The initial list of eleven countries was increased to fourteen but has been reduced to twelve from 1999. At the same time, changes have been made in the selection of the countries concerned so as to ensure that aid is better concentrated on the poorest countries. At the present time only a third of the target countries are among the least developed countries, and aid to this group has fallen sharply in percentage terms in comparison with the beginning of the decade, though it is still considerably higher than the DAC average.

As regards the sectoral breakdown of bilateral aid, health tops the list, followed by education. This is in line with government policy, since these two sectors plus integrated rural development are regarded as priority sectors in poverty reduction. Luxembourg complies fully with the 20/20 initiative reaffirmed by the World Summit for Social Development in Copenhagen. Basic social services represent a relatively high proportion of Luxembourg aid compared with other donor countries. Basic health and primary education represented 22 per cent of bilateral grants in 1997. The emphasis on essential needs is likely to increase, since the government henceforth intends to direct aid towards human development rather than infrastructure projects such as hospitals. Another way of fighting poverty is to support the creation of micro-enterprises through micro-financing. Environmental protection and women's rights are also regarded as priority sectors. Luxembourg tries to take these aspects into account in all its projects and programmes, though there are relatively few projects devoted specifically to them.

Humanitarian relief, which represented a quarter to a third of bilateral aid at the beginning of the decade, has fallen to around 10 per cent, though this is still considerably higher than the DAC average. In order to enhance its impact and durability, Luxembourg seeks to integrate such aid into rehabilitation work in stricken areas.

The proportion of multilateral aid has fallen from 40 per cent in 1991-92 to 30 per cent in 1997. Contributions to European programmes account for half the total, the remainder being divided between the International Development Association (IDA) and United Nations agencies.

Non-governmental organisations

NGOs are a particularly dynamic element of civil society and occupy a special place in the Luxembourg aid programme, since a quarter of bilateral aid is channelled through them. In 1998 77 organisations were accredited by the Ministry, of which 46 were members of the NGO circle, but the bulk of cofinancing was allocated to a relatively small number of them. In 1996, five NGOs were allocated over half the cofinancing ($8 million, or 56 per cent); they contributed 60 per cent of all funds raised by NGOs and carried out 44 per cent of cofinanced projects. The ten most important NGOs received three quarters of all cofinancing. Since 1996, the government has been able to fund up to 75 per cent of NGO projects in target countries. For non-target countries, the 75 per cent funding level is limited to two projects per NGO per year. For other projects, the government provides half or two thirds of funds. Some NGOs are allocated a block grant to finance a set of small projects, and the government is envisaging framework agreements with the largest NGOs.

Ensuring the quality of aid

The sharp rise in the volume of aid makes it important to control and improve the quality of projects and programmes by means of more stringent selection procedures, closer monitoring of projects and systematic ex-ante and ex-post evaluations. Although a number of steps have already been taken, there will have to be others if this aim is to be achieved.

Selection of recipient countries

The policy of selecting target countries has not yet led to the desired level of geographical concentration. Bilateral aid is still scattered between 86 countries, a situation due above all to the NGOs, which have projects in a good fifty countries. This fragmentation of aid is continuing, and changes to the list of target countries do not make it any easier to conduct an effective co-operation policy or to engage in meaningful political dialogue with partner countries. However, focusing on groups of target countries in specific regions should facilitate co-operation in the future.

Local monitoring and co-ordination

Co-ordination with recipient countries and other donors is relatively difficult because Luxembourg lacks local representation. Ministry staff are supposed to visit the main recipient countries at least twice a year, but there are not enough staff to make regular visits. In addition, the Ministry has not yet developed action strategies for most target countries. However, Lux-Development sends project officers on local assignments three or four times a year.

Co-ordination between the Ministry and Lux-Development

The problem of co-ordination between the Ministry and Lux-Development was raised during the audit of Lux-Development in 1995. Since then, the division of tasks seems to have been fairly well established. The Ministry is responsible for multi-year programming, which includes framing the main policy options and guidelines. On the basis of this programming, the Ministry puts forwards ideas for projects which are discussed with Lux-Development twice a year. The Ministry and Lux-Development meet every two months or so to monitor projects. Frequent contacts between Ministry and agency staff also facilitate informal exchanges of information and experience. An agreement setting out the respective roles of the Ministry and Lux-Development is currently being concluded; for the most part, it codifies existing practice. An increase in numbers of staff at both the Ministry and Lux-Development has also facilitated co-ordination and co-operation. In addition, a number of important institutional changes have taken place:

  • at the Ministry, the Co-operation Service has become a Directorate and staff are assigned for longer periods, thus guaranteeing better knowledge of the Directorate's activities. Despite an increase in the number of posts, however, there are still insufficient numbers of staff to handle the workload;

  • at Lux-Development, the legal status of the organisation is about to change. Although it will remain a private company, the government will be the majority shareholder and will appoint half the directors.

But co-operation between the Ministry and Lux-Development is not entirely problem-free. Lux-Development believes that it is not always sufficiently well informed of the Ministry's intentions, though this should improve once all those involved have become accustomed to the new structures.

Co-ordination with NGOs

In 1998, in order to improve co-operation with NGOs, the Ministry set up regular meetings (every six weeks or so) with a representative committee of NGOs in order to formulate opinions and recommendations. Since 1996, it has also had half-yearly meetings with all accredited NGOs so as to enable an exchange of views on the broad thrust of aid policy. However, several problems still remain. In particular, the large number of NGOs means that the Ministry has a heavy workload, and the drawbacks of this situation probably outweigh the advantages. In all events, it is unlikely that Ministry staff can effectively control the quality of some 200 cofinanced projects every year.


The Luxembourg authorities carried out an audit of Lux-Development in 1995 and of five NGOs in 1998. An audit of the Ministry's Co-operation Directorate is also in progress. To date, however, Luxembourg has not developed an overall assessment strategy. Only five projects have been assessed after completion by independent experts, while prior assessment needs to be stepped up in order to ensure the active involvement of target groups and the durability of projects.

Number of staff and training

The number of staff assigned to co-operation at the Ministry is not really sufficient for the workload they face. In addition, there is no methodological training as yet. Lux-Development now has 25 employees, a sharp rise, and the number is expected to increase further in the next few years. This team supervises the activities of a hundred or so experts and consultants, who also need training in order to make them more familiar with Luxembourg's aid policy and DAC directives.


Luxembourg has made considerable progress with its aid programme in recent years. The volume of aid has increased substantially as a result of the government's commitment and the support of Parliament and public opinion. This effort, greatly appreciated by the DAC, should enable Luxembourg to join the exclusive circle of countries whose aid volume amounts to 0.7 per cent of GNP.

The central challenge, acknowledged by the Ministry, is to ensure that the quality of aid increases at the same time. Improvements have been made in several areas in this respect but much still remains to be done. In particular:

  • projects should be selected more stringently, with greater attention being paid to durability and preference being given to projects that develop human resources rather than to infrastructure projects;

  • projects should be monitored more closely and outside assessment on completion should be stepped up; an assessment strategy should be introduced which, amongst other things, would define project selection criteria;

  • the number of target countries should continue to be restricted, while action strategies should be defined and efforts made to ensure closer dialogue with the countries in question;
    there should be closer co-ordination between the Ministry, Lux-Development and the NGOs;

  • cofinancing should be concentrated on experienced NGOs and attempts should be made to find different forms of co-operation with smaller NGOs;

  • the number of staff assigned to co-operation should be increased and training should be stepped up, both for co-operation staff and for consultants helping with the delivery of aid.

Making progress in these areas will be the main challenge over the next few years.



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