This peer review analyses the performance and coherence of Luxembourg's development co-operation system against its objectives. It highlights successes and challenges and provides recommendations for the future. The report was prepared by reviewers from the Netherlands and Estonia with the support of the OECD Secretariat.
Poverty reduction is at the heart of Luxembourg's development co-operation, thanks to its strong commitment of official development assistance (ODA). Luxembourg's general development co-operation strategy, The Road to 2030, gives particular priority to least developed countries (LDCs). It focuses on the most vulnerable groups and populations, and at the same time confirms the country's commitment to fragile contexts and crisis situations. Accordingly, Luxembourg has stepped up its support for Ukraine in the military, security, humanitarian and development co-operation fields. The latter two areas are central pillars of Luxembourg's foreign policy, and there is a broad political and public consensus in favour of devoting 1% of the country’s gross national income (GNI) to ODA. However, rather than being taken for granted, this support for ODA highlights the importance of sustained efforts to raise awareness and educate the public on development. Climate financing and refugee hosting costs are not counted as ODA. This separate accounting, which was voted in by parliament for the duration of the legislature (until 2028), guarantees the predictability of Luxembourg's co-operation and sets a good example for other DAC members.
Although a sustainability check is now used to assess legislation, accountability for and debate on policy coherence remain limited. Luxembourg’s policy coherence efforts were bolstered by the introduction of a mandatory sustainability check (“Nohaltegkeetscheck”) in 2023 to assess the extent to which new draft laws contribute to sustainable development. However, responsibility for policy coherence remains unclear and there is little discussion of the issues in the two interministerial committees. Establishing clear lines of responsibility for resolving any policy inconsistencies, taking into consideration the mandates of existing interministerial bodies, and drawing on Luxembourg’s active civil society and rich social and economic fabric, would be important to highlight and address any potential policy inconsistencies affecting developing countries, including those related to the financial sector.
As a reliable partner, Luxembourg could exert greater influence through better co-ordination among the various stakeholders and ministries. Luxembourg is acknowledged for its reliability, with its flexible, predictable, multi-year funding and ongoing dialogue particularly appreciated by NGOs and multilateral partners. It could, however, do more to bring all the actors and funding and programming channels to the table, as it is already doing in the areas of climate, energy and sustainable finance. Greater cross-government co-ordination involving the Ministries of Foreign Affairs (MAE), Finance, and the Environment, for example, would make it possible to adopt a more consistent approach to multilateral bodies, including in partner countries. In addition, systematic participation by Lux-Development (LuxDev) in embassy discussions on future multilateral programming in partner countries would help to create stronger synergies between Luxembourg's bilateral and multilateral programming, and more readily support the reform initiatives of partners.
Luxembourg's bilateral co-operation is based on long-term partnerships that focus on the most vulnerable groups and populations. The four current multi-annual Indicative Co-operation Programmes (ICPs), anchored in long-term partnerships with a small number of partner countries, encourage continuity of action and ensure lasting impact. Luxembourg was one of the first countries to promote the gender, environment, and climate nexus in its strategic objectives, and has succeeded in translating this into concrete measures in partner countries, where it uses the nexus approach to target the most vulnerable. As Luxembourg explores the possibility of extending its co-operation to new countries and sectors, it could rely more on the ICPs to define its medium- and long-term commitment, including approaches to mobilise the private sector that fit the local context, and a risk analysis to help choose the right co-operation arrangements among delegated assistance, sector budget support or direct implementation. While the technical experts embedded in partner governments' ministries and agencies are very much appreciated, it would also be advisable for Luxembourg to think about how LuxDev's support could evolve to strengthen national capacity in a sustainable way, while preparing for a possible and progressive withdrawal.
Luxembourg should consider how LuxDev could diversify its funding base beyond government funds as the agency seeks to achieve greater efficiency and protect current strengths. LuxDev serves the interests of the poorest countries and succeeds in attracting and retaining top-level experts. As the country does not have a development finance institution, the assessment of LuxDev under Pillar 6 allowing it to implement EU funds would enable it to manage new financial instruments that could broaden its portfolio of interventions as well as the geographical scope of its activities. While this diversification presents opportunities, it would also generate opportunity costs, and would require institutional reforms to strengthen LuxDev’s operational efficiency, as well as a continued development and strengthening of internal expertise to support the strategic evolution of its mandate.
Luxembourg is seeking to maximise the impact of its co-operation while improving the effectiveness of its evaluations. The new partner country strategies are based on a theory of change and a common results framework, and LuxDev seeks to measure the "evaluability" of programmes in partnership with research institutes and national statistical offices in the partner countries. Given that each project and programme is systematically evaluated, Luxembourg could reflect on a better balance between the number of evaluations it carries out and its learning objectives. To this end, LuxDev revised its Knowledge Management Strategy in 2024 to adapt to the growing complexity of co-operation projects and programmes. The country could also benefit from greater involvement of experts and research centres located in partner countries and could strengthen their evaluation capacity.
Luxembourg would benefit from a global, whole-of-government vision of private sector involvement that reflects its growing ambitions, without relaxing its efforts to support local development. Luxembourg gives clear priority to the development of the local private sector in its partner countries by promoting responsible and ethical partnerships. Its leadership in sustainable finance, notably through green, social, and sustainable bonds, is a major asset. Luxembourg should continue to promote strategic partnerships aimed at mobilising additional resources, including with its own domestic private sector, in its areas of expertise. However, economic objectives, such as seeking greater private sector involvement, should not overshadow Luxembourg's commitment to the most vulnerable groups.
As a result of the political decision to suspend operations in Burkina Faso, Mali and Niger, Luxembourg must now redirect 30% of its bilateral commitments currently allocated to the central Sahel and withdraw responsibly. Luxembourg's experience in the Sahel demonstrates its ability to adapt its co-operation mechanisms. Although the government has taken the decision to suspend its programmes in these countries, it has worked to adjust its priorities and maintain existing partnerships. Luxembourg should ensure that mechanisms are in place to learn from the withdrawal from development partners, and promote transparent communication, clear timetables, and pragmatic transition plans.
A comprehensive approach to fragility should be systematised across the bilateral portfolio. Faced with the need to refocus its bilateral programme, Luxembourg is exploring new partnerships with countries such as Benin, Togo and Rwanda, which offer promising partnership prospects. For any expansion of its bilateral engagement, Luxembourg should review its entire portfolio through a fragility lens, in order to anticipate and better respond to changing contexts and uphold the principle of long-term partnerships involving diverse modalities and partners, including local civil society.
