COMMISSION STAFF WORKING DOCUMENT 2023 Country Report - Luxembourg Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, economic policy, economic recovery, economic reform, energy policy, fiscal policy, green economy, investment, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 616 final  COMMISSION STAFF WORKING DOCUMENT 2023 Country Report - Luxembourg Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg {COM(2023) 616 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Luxembourg’s economy continues 
to grow despite headwinds  

Luxembourg’s  economy  recovered  rapidly 
after  the  COVID-19  crisis,  but  the 
momentum  was  slowed  down  by  a  less 
international  environment, 
supportive 
amid 
inflationary  pressures,  shifting 
monetary  policy  and  uncertainty  about 
the  economic  impact  of  Russia’s  war  in 
Ukraine.  Real  GDP  was  growing  fast  before 
the  COVID-19  crisis, 
registering  average 
annual  growth  of  2.4%  in  the  five  years  to 
2019. Following a mild drop of 0.8% in 2020, 
growth  recovered  to  5.1%  in  2021,  as  the 
restrictive measures related to COVID-19 were 
lifted.  However, lingering disruptions to global 
supply  chains  from  the  COVID-19  pandemic 
continued  to  reduce  growth  and  push  prices 
up, especially for energy and food. 

in 

Ukraine 

economy 

worsened 

The  global  economic  impact  of  Russia’s 
war 
the 
to  which 
international  environment, 
highly 
is 
Luxembourg’s 
sensitive.  As  in  other  euro  area  Member 
States, high inflation has persisted longer than 
expected. In the first half of 2022, Harmonised 
Index of Consumer Prices (HICP) inflation rose 
to  its  highest  level  since  the  1980s,  peaking 
above  10%  in  June  before  gradually  falling, 
thanks to the slowdown in the rise in prices of 
energy  and  services.  Inflationary  pressures 
broadened,  however,  to  food  and  non-energy 
in  slower 
industrial  goods.  A  key  factor 
economic  growth  was 
tightening  of 
monetary policy in the euro area, which lead to 
a  fall  in  investment  and  larger  redemptions 
and  downward  valuations 
the  funds 
industry.  However,  the  situation  was  different 
for banks that are focused on the Luxembourg 
market,  where  the  rise 
interest  rates 
increased their profitability. 

the 

in 

in 

(2023) 

indicated  a  rebound 

In  2022  and  March  2023,  the  government 
reached four agreements with stakeholders, to 
roll-out  measures  to  protect  households  and 
firms  from  rising  energy  prices  and  to  curb 
inflation levels. The fiscal interventions agreed 
with stakeholders in 2022 were set to end on 
31  December  2023.  However,  STATEC 
forecasts 
in 
inflation  in  2024,  leading  stakeholders  to 
request  additional  measures.  An  agreement 
was reached with the government on 7 March 
2023, with new fiscal interventions continuing 
until  31  December  2024.  While 
the 
agreements  helped  to  limit  wage  indexations, 
HICP inflation in Luxembourg was significantly 
lower than the euro area aggregate, with that 
difference  reaching  historical  heights  for  both 
the overall and the underlying inflation (Graph 
1). Close monitoring and communication would 
be  key  to  ensure  these  measures  remain 
temporary  and  targeted  to  the  most  in  need, 
while  supporting  the  transition  toward  clean 
energy consumption. 

Graph 1.1: Luxembourg’s underlying inflation 
(1) differentials against the euro area (year-
on-year percent). 

(1) Total inflation excluding energy and unprocessed 
food. 
Source: Eurostat 

Boosted by fiscal interventions, economic 
growth  will  continue  to  be  driven  by 
private consumption, though slowed down 
by  a 
less  supportive  environment. 
Government  measures  to  mitigate  the  impact 

2 

-3.0-2.0-1.00.01.02.0201220132014201520162017201820192020202120222023LU-EA ServicesLU-EA Processed foodLU-EA Non-energy industrial goodsLU-EA Total excl. energy and unproc. Food 
 
 
  
Box 1: 

Energy policy response in Luxembourg 

 

 

 

Luxembourg  adopted  several  support  measures  to  cushion  the  impact  of  energy  price 
inflation  on  households  and  businesses.  The  Commission’s  2023  spring  forecast  has 
estimated that their costs in 2023 will amount to  1.1%  of GDP (1).  Most measures do 
not preserve the price signal in 2023 and a large share are untargeted. Nevertheless, in 
2022 they did support households’ purchasing power and ensured the competitiveness 
of  the  corporate  sector  by  reducing  how  often  wages  are  increased  by  automatic 
indexation.  The  measures  are  considered  overall  to  be  progressive  and  to  have  had  a 
positive net impact on the purchasing power of lower-income households. The measures 
were extended in March 2023 and are expected to be phased out by the end of 2024. 

The most significant measures in 2023  are aimed at curbing inflation to reduce the risk 
of  a  wage-price  spiral  as  the  result  of  automatic  wage  indexation.  In  this  light,  the 
government  put  a  price  cap  on  gas  (at  +15%  above  the  average  price  level  in 
September  2022)  and  a  freeze  of  electricity  prices  at  their  2022  level.  To  support 
vulnerable  households,  targeted  allowances  and  tax  credits  were  brought  in  to 
compensate  lower  income  households  for  higher  energy  prices.  In  addition,  a  support 
scheme  for  energy-intensive  companies  was  set  up,  in  line  with  the  EU  State  aid 
framework.  Some  measures    provide  grants  to  support  investment  in  the  green 
transition. Measures are financed by the national budget and do not impose restrictions 
on the prices set by companies operating in the market.  

In March 2023, the government presented to Parliament the draft law to apply Council 
Regulation (EU) 2022/1854 (2). On the solidarity contribution, Luxembourg has reported 
to the Commission that it has no companies that fall within the scope of Chapter III of 
Council  Regulation  (EU)  2022/1854  on  an  emergency  intervention  to  address  high 
energy prices.  

  As  regards  the  security  of  energy  supplies,  Luxembourg  has  put  in  place  measures  to 
speed  up  the  roll  out  of  renewable  energy  and  encourage  energy  efficiency  (for 
example,  by  revising  the  aid  scheme  and  introducing  a  '100%  social  top-up').  It  has 
raised awareness of energy consumption through energy saving campaigns (for gas and 
electricity). 

to 

are 

expected 

of  high  energy  prices  and  a  series  of  wage 
indexations 
support 
households’  purchasing  power  and,  therefore, 
consumer spending. By contrast, investment is 
expected  to  remain  subdued  due  to  rising 
interest rates, tighter financing conditions and 
weak  economic  growth,  weighing  on  the 
borrowing demand from firms and households. 
Economic growth slowed to 1.5% in 2022 and 
it  is  expected  to  remain  weak  in  2023. 
According to the Commission’s spring forecast, 
economic growth is expected to reach 1.6% in 
2023 before returning to 2.4% in 2024. 

the 

pandemic-related  measures, 
deficit 
reached  3.4%.  However,  the  costs  of  the 
support  measures  for  high  energy  prices  are 
expected to result in a deficit of 1.7% in 2023, 
while  a  deficit  of  1.5%  is  projected  for  2024. 
The  debt-to-GDP  level  is,  therefore,  expected 
to  increase  from  24.6%  in  2022  to  27.0%  in 
2024.  The  main 
for 
Luxembourg  remains  long-term  sustainability, 
mainly due to the big increase expected in the 
cost  of  pensions,  which  will  weigh  heavily  on 
public finances in the coming decades. 

challenge 

fiscal 

Despite  the  costs  of  the  successive 
measures  adopted  since  the  pandemic, 
Luxembourg’s  public  finances  remain 
sound.  The  deficit  and  debt  levels  generally 
remained below their respective 3% and 60% 
limits,  except  in  2020  when,  due  to  the 

After a decade of very low interest rates, 
the  normalisation  of  monetary  policy  is 

(1)  For 2022, gross budgetary costs of measures amounted 
to 0.5% of GDP. Some of the measures outlined in this 
box were already in place in 2022.  

(2)  EUR-Lex - 32022R1854 - EN - EUR-Lex (europa.eu) 

3 

 
                                                 
 
impact 

financing 
and 

conditions 
households. 

for 
affecting 
businesses 
The 
normalisation  of  monetary  policies  prompted 
by the rise in inflation are  translating into the 
higher  rates  imposed  by  credit  institutions, 
which 
spending  and 
consumer 
companies’ readiness to invest. In addition, as 
an  important  financial  centre,  Luxembourg  is 
relatively  more  exposed  to  volatility  risks  in 
the financial markets (3), which could occur as 
a  result  of  an  unexpected  tightening  of 
financial  conditions,  and  which  could  trigger 
sharp  decreases  in  the  value  of  assets  under 
management of the funds industry and in real 
estate collateralised in mortgage loans. 

into  higher 

The  challenging  macroeconomic  context 
has  contributed  to  the  emergence  of 
vulnerabilities  that  are  assessed  in  the 
In-depth  Review  for  Luxembourg.  (4)  The 
real  estate (5) 
rising  price  of 
residential 
continues  to  feed 
levels  of 
household  debt, 
raising  concerns  about 
potential  problems  arising  with  the  downturn 
of the cycle. Although household debt remains 
moderate  as  a  share  of  GDP  (65%  in  2022), 
the  aggregate  debt  level  is  high  compared  to 
income. After steadily increasing over the last 
two  decades,  the  ratio  of  debt  to  gross 
disposable  income  peaked  at  180%  in  2022, 
one  of  the  highest  levels  in  the  EU.  The  level 
of household debt is largely attributable to the 
strong  growth  in  loans  for  residential  real 
estate.  The  house  price  dynamics  increase 
inequality  and  could  make  the  country  a  less 
attractive  place to  work, which  would become 
a competitive disadvantage. The government’s 
strategy  to  tackle  the  housing  situation  in 
Luxembourg  includes  measures  in  several 
policy  areas  (see  Section  3).  These  concerns 
are  expected  to  slow  down  this  year  in  the 
face  of  the  worsening  economic  outlook  and 

(3)  The potential impact of this risk may be mitigated by 
financial market participants with hedging strategies 
against volatility in the value of financial assets in 
place. 

(4)  European Commission (2023), In-Depth Review for 
Luxembourg, Commission staff working document 
(COM(2023) 638 final). 

(5)  “External Sustainability Analysis: Thematic Note to 
Support In-Depth Review”, European Economy 
Discussion Paper, No. 197, 2023. 

4 

the  tightening  of  financial  conditions  (see 
Annex 22)]. 

While  sequential  indexed  wage  increases 
support  households’  purchasing  power  in 
2022-2023, 
the  government  support 
packages  also  alleviate  the  burden  on 
employers.  Nominal (6)  wages grew  by  5.4% 
in  2022,  while  real  wages  proved  to  be 
relatively  well  protected  and  declined  by  only 
0.2%. Automatic wage indexation of 2.5% took 
place  in  April  2022  and  in  February  and  April 
(postponed  from  July  2022)  2023.  One 
additional indexation is projected to take place 
in  the  last  quarter  of  2023.  Nominal  unit 
labour  costs  are 
to 
increase  significantly  by  7.8%  in  2023,  after 
the already high 7.4% in 2022.  

therefore  expected 

The  labour  market  proved  to  be  resilient 
in  2021-2022,  with  strong  employment 
growth  and  unemployment  falling  to 
record low levels. The employment rate (20-
64) reached 74.1% in 2021 and registered the 
strongest  growth in the EU. Then it decreased 
in  2022 from 75.4% in Q1-2022 to 74.4% in 
Q3-2022,  and  it  is  slightly  below  the  EU 
average in a labour market where around 47% 
of the workforce comes from the neighbouring 
countries.  According  to  the  Commission’s 
spring forecast, the labour market is expected 
to  remain  resilient,  although  it  is  forecast  to 
slow  down  slightly,  in  line  with  the  lower 
economic  activity  growth  in  2022  and  2023. 
The  unemployment  rate  fell  to  4.6% in  2022, 
below  its  pre-pandemic  level,  although  it 
slightly increased  in  the  second  half  of  2022. 
The  unemployment  rate,  while  remaining 
relatively  low  in  Luxembourg,  is  expected  to 
gradually increase to 4.8% in 2023 and 5.0% 
in 2024.  

Poverty indicators in Luxembourg have to 
some  extent  deteriorated  as  a  result  of 
the  COVID-19  crisis  and  the  increase  in 
house  prices.  The  share  of  people  at  risk  of 
poverty  or  social  exclusion  increased  in  2021 
to 21.1%. Non-EU citizens aged 18+ are more 

(6)  Nominal wages are expressed in current prices, without 
taking inflation into account, as opposed to real wages, 
where adjustments are made for price level changes 
over time. 

 
                                                 
                                                 
in 

the 

social 

the  EU.  This 

the  highest 
by 

likely  to  experience  poverty  in  Luxembourg: 
38.7%  were  at  risk  of  poverty  or  social 
exclusion  in  2021  compared  to  13.9%  of 
people  who  are  citizens  of  Luxembourg.  The 
rate  of  in-work  poverty  also  increased  and  is 
among 
is 
highlighted 
scoreboard 
underpinning  the  European  Pillar  of  Social 
Rights  (Annex  12).  Moreover,  persistent  house 
price  inflation  is  a  major  concern  for  people. 
According 
transfers 
(excluding  pensions)  reduced  the  share  of 
people  at  risk  of  poverty  by  34.2%  in  2021, 
compared to 39.4% in 2020. Therefore, social 
transfers, including the social inclusion income 
scheme  (REVIS),  appear  to  have  become  less 
effective in alleviating poverty in Luxembourg. 
Further  action  on  social  policy  would  help 
Luxembourg  reach  the  national  target  of 
having  at  least  4 000  fewer  people  at  risk  of 
poverty by 2030. 

to  Eurostat, 

social 

The  ratio  of  vacancies  over  all  jobs 
reached  historically  high  levels  in  2022. 
Labour  shortages  increased  sharply  since  the 
beginning  of  2021,  especially  in  non-financial 
services. Overall, 72% of companies indicated 
that  the  lack  of  availability  of  labour  was  a 
factor  limiting  production.  In  parallel,  the  job 
vacancy  rate  in  the  private  sector  increased 
from  1.8%  in  2020  to  3.1%  in  2022.  The 
overall  skills mismatch increased  from  22.4% 
in  2020  to  23.8%  in  2021.  Luxembourg’s 
research  and  innovation  system  relies  heavily 
on  its  ability  to  attract  foreign  talents.  The 
innovation  strategy 
national  research  and 
recognises  the  need  to  better  monitor  the 
skills  gap  between  needs  and  supply  and  to 
train  more  people  in  new,  highly  dynamic 
digital skills.  

to  address 

training  among 

Skills development is a very high priority 
on  the  government’s  agenda.  There  have 
been  many  initiatives  in  recent  years  to 
promote  vocational 
job 
seekers, 
the  challenges  of 
digitalisation and to better anticipate the skills 
that are needed, particularly in the framework 
of  the  Skillsdësch.  Nevertheless,  effective 
action  is  still  needed  to  improve  access  to 
lifelong learning for less educated employees, 
people with fewer skills and older workers. The 
project  to  create  individual  learning  accounts 
appears  to  have  stalled  as  negotiations 

between  the  government  and  social  partners 
have  so  far  proven  unsuccessful.  Moreover, 
the specificity of Luxembourg’s labour market, 
in  which  47%  of  the  workforce  are  cross-
border  workers,  makes  it  more  challenging  to 
implement  the  Council  Recommendation  on 
it  implies 
learning  accounts  as 
individual 
bilateral 
neighbouring 
negotiations  with 
countries.  It  is  also  essential  to  implement  the 
Council  Recommendation  to  meet  Luxembourg’s 
national  target  of  at  least  62.5%  of  all  adults 
participating  in  education  and  training  each  year  by 
2030.  

since 

stagnating 

Although  still  one  of  the  highest  in  the 
EU, Luxembourg’s labour productivity has 
the  2000s. 
been 
Luxembourg  has  one  of  the  highest  levels  of 
gross domestic product per hour worked in the 
EU  and  the  OECD.  When  analysing  labour 
productivity  per  hour  worked  in  terms  of 
growth  rates  rather  than  levels,  the  situation 
looks  less  positive.  Graph  A12.1  in  Annex  12 
since  2007,  Luxembourg’s 
shows 
productivity  has  evolved  less  favourably  than 
the average in the euro area and neighbouring 
countries. 
labour  productivity 
decreased by 2.0%. 

In  2022, 

that 

low 

Low  productivity  gains  are  partly 
explained  by 
levels  of  business 
investment,  including  in  R&D.  In  2021, 
business investment represented 8.3% of GDP 
in  Luxembourg,  against  13.5%  in  the  EU.  This 
is amongst the lowest in the EU (7) and in the 
OECD (8).  R&D  expenditure  by  the  business 
sector  has  continued  to  decline  and  fell  to 
0.47%  of  GDP  in  2021,  against  1.5%  in  the 
EU (9) (see Annex 11). 

(SDGs) 

indicators, 

Overall,  Luxembourg  performs  relatively 
well  on  several  sustainable  development 
although 
goals 
challenges  remain  in  certain  areas.  For 
SDGs  on  environmental  sustainability:  the 
country  performs  well  on  Sustainable  cities 
Industry, 
and  communities  (SDG  11)  and 
innovation and infrastructure’ (SDG 9). In some 

(7)  EC, Eurostat, SDG_08_11 

(8)  OECD Economic surveys: Luxembourg 2022, 

17/11/2022 

(9)  EC, Eurostat, RD_E_BERDPFR2  

5 

 
                                                 
cases,  despite  being  below  the  EU  average,  it 
is  improving  on  Affordable  and  clean  energy 
(SDG  7)  and  Responsible  consumption  and 
production  (SDG  12).  Luxembourg  performs 
indicators  related  to 
well  on  some  SDG 
fairness,  such  as  good  health  and  well-being 
(SDG 3), Gender equality (SDG 5) and Reduced 
inequalities  (SDG  10).  As  regards  SDGs  on 
productivity, the country is moving away from 
the target in Quality education (SDG 4) and is 
catching  up  on  Decent  work  and  economic 
growth (SDG 8). Finally, Luxembourg performs 
indicator  16  on 
very  well  on  SDG 
Macroeconomic stability. 

6 

 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

Luxembourg’s  recovery  and  resilience 
plan  (RRP)  aims  to  address  the  key 
challenges  related  to  skills,  climate, 
digitalisation,  health  and  anti-money 
laundering.  It  consists  of  nine  reforms  and 
ten investments that are supported by EUR 83 
million  in  grants,  representing  0.11%  of  GDP 
(see Annex 3 for more details). 

The 
implementation  of  Luxembourg’s 
recovery and resilience plan is underway.  
Luxembourg  submitted 
its  first  payment 
request on 28 December 2022, corresponding 
to  26  milestones  and  targets  in  the  Council 
implementing  Decision,  for  the  disbursement 
of  EUR  20  million  under  the  recovery  and 
resilience facility. On 28 April, the Commission 
adopted a preliminary assessment finding that 
all  26  milestones  and 
targets  were 
satisfactorily fulfilled.  

Luxembourg submitted an updated RRP to 
the Commission on 11 November 2022 to 
take into account the downward revision of its 
maximum  financial  contribution  from  €93.4 
million to €82.7 million. Luxembourg proposed 
to remove from its initial plan the digital skills 
training  programme  for  workers  on  partial 
unemployment schemes as it did not meet the 
initial expectations in terms of demand, mainly 
due  to  a  stronger  than  expected  rebound  of 
Luxembourg’s  economy  in  spring  2021.  In  its 
assessment,  the  Commission  considered  that 
limited  modification  put  forward  by 
the 
Luxembourg  did  not  affect 
its  positive 
assessment  of  the  initial  RRP,  as  regards  its 
relevance, 
and 
coherence.  On  this  basis,  it  proposed  that  the 
Council  approve the  updated  RRP.  The  Council 
followed  that  recommendation  and  adopted 
an amended implementing decision, approving 
the updated RRP, on 17 January 2023. 

effectiveness, 

efficiency 

The  milestones  and  targets  positively 
assessed  demonstrate  significant  steps 
in  the  implementation  of  Luxembourg’s 
plan. This includes the entry into force of the 
“Housing Pact 2.0” reform, aimed at increasing 
the  supply  of  affordable  rental  housing 
offered  by  municipalities,  investments  for  the 
digitalisation  of  the  public  sector  and  for  the 
development  of  ultra-secure  communication, 
the upskilling of the workforce with the launch 
of  the  “FutureSkills”  programme,  as  well  as  a  
reform  on  the  procurement  of  clean  vehicles. 
Luxembourg 
submit  a 
REPowerEU  chapter  and  has  already  decided 
to  transfer  128.5  million  EUR  from  the  Brexit 
Adjustment  Reserve  (BAR)  to  the  RRF in  order 
to finance its implementation.  

is  expected 

to 

review  of 
The  following,  more  detailed 
measures being implemented under the RRP in 
no way implies formal Commission approval or 
rejection of any payment requests.  

Luxembourg  submitted  its  first  payment 
request,  for  EUR  24.9  million, on  28 
December  2022 (10).  Luxembourg’s 
first 
payment 
request  covers  milestones  and 
targets  pertaining  to  reforms  in  the  areas  of 
skills, housing, climate, health and anti-money 
laundering.  It  also  includes  investment,  for 
example 
skills  and 
the  areas  of 
digitalisation.  On  28  April,  the  European 
Commission 
positive 
preliminary  assessment  of  Luxembourg’s  first 
payment request). 

endorsed 

has 

in 

a 

Although the digital skills investment has 
been  removed,  the  updated  RRP  still 
contains  digital  measures,  including  on 
upskilling  and  reskilling,  which  help  to 
implement the European Pillar of Social Rights. 
In particular, the FutureSkills programme gives 
jobseekers  soft,  digital,  and  managerial  skills, 
with a particular emphasis on people aged 45 
and  above,  to  help  them  to  get  back  into 

(10)  Gross amount (before deduction of pre-financing) 

7 

 
 
 
                                                 
employment. The Skillsdësch reform (launched 
in  January  2021) 
is  aimed  at  designing 
vocational training programmes (Skillsbridges) 
to  help  workers  and  jobseekers  to  enhance 
their employability during the green and digital 
transitions.  

The RRP will also help reduce the high level of 
emissions  from  transport  by  implementing 
new measures to electrify the public transport 
vehicles  and  through  a  financing  scheme  to 
expand  the  network  of  charging  points  for 
electric vehicles.  

Luxembourg  has  taken  further  steps  in 
the  electrification  of  its  public  transport 
network.  As  required  by  milestone  2A-1  of 
the  RRP,  Luxembourg  has  adopted  a  new 
Grand-Ducal  Regulation  by  which  each 
contracting authority must procure a minimum 
percentage  of  clean  road  vehicles  in  2021-
2025.  At  least  38.5%  of  vehicles  lightweight 
(category  M1  and  N1)  from  2021  to  2025 
must  correspond  to  the  criteria  for  clean 
vehicles. The central government applies more 
ambitious  targets  as  only  electric  cars  are 
purchased for its own car fleet. 

to 

nature 
adopted 

Luxembourg  has  adopted  additional 
and 
measures 
protect 
the  
Luxembourg 
biodiversity. 
Naturpakt  Law  by  which  municipalities  may 
sign  a  Naturpakt  contract  with  the  State  in 
which  they  commit  to  implement  initiatives 
until  2030  to  protect  nature  and  biodiversity. 
Municipalities receive a certification once they 
have  signed  the  contract  and  are  entitled  to 
financial subsidies once they reach a sufficient 
level  of  performance.  This  is  assessed  on  the 
basis  of  their  implementation  of  a  catalogue 
of  measures  adopted  by  each  municipality, 
which are based on the categories of activities 
in a list published by the State. 

In  particular, 

Luxembourg  also  adopted  a  new  law  to 
replace  the  Housing  Pact,  which  aims  to 
increase  the  effectiveness  of  State 
support  to  municipalities  to  provide 
affordable  housing. 
the 
Housing Pact 2.0 aims to increase sustainably 
the  supply  of  affordable  public  housing. 
Natural gas makes up around one third of the 
final  energy  consumption  in  the  residential 
sector.  Luxembourg’s  RRP  is  helping  reduce 
dependency  on  gas  by  installing  photovoltaic 
panels on the Neischmelz housing project, one 
of  the  largest  development  projects  in  the 
country.  

in 

transition 

Furthermore, the updated RRP also keeps 
a number of investments in digitalisation 
and  innovation  that  contribute  to  the 
digital 
the  areas  of 
healthcare  and  public  services,  and  by 
ultra-secure 
an 
developing 
communication 
infrastructure.  Several 
measures  have  been  implemented  already, 
for  public 
including  a  central  platform 
administrations  to  manage  documents  and 
cases  electronically,  and  the  adoption  of 
ADEM’s  (Agence  pour  le  développement  de 
the 
l’emploi)  2025  strategy 
operational  and  digital  challenges  resulting 
from  its  further  digitalisation.    Following  the 
amendment  of  the  plan,  30%  of  the  final 
allocation  will  support  digital  measures  and 
69%  will  support  green  measures,  which  are 
above  the  minimum  levels  of  20%  and  37% 
laid  down 
respectively 
the 
that  are 
the  Recovery  and 
Regulation  setting  up 
Resilience Facility.  

tackle 

to 

in 

R&D 

supporting 

Building on Luxembourg’s commitment to 
the  digital  transition,  the  recovery  and 
resilience  plan  includes  investments  and 
reforms 
and 
technological innovation. The plan allocates 
substantial  support  for  the  development  of 
quantum  communication  infrastructure  and 
LuxQCI  Laboratory,  which  is  expected  to  help 
research  and 
Luxembourg  develop  key 
innovation  capabilities  in  this  field,  while 
providing 
cooperation 
between research labs and the private sector. 

opportunities 

for 

The  RRP  has  a  strong 
focus  on 
environmental and climate challenges. As 
indicated  in  Annex  6,  the RRP  emphasises  the 
green  transition.  The  measures  in  this  area 
include  rolling  out  a  system  to  generate 
renewable energy for a new housing area. The 
Housing  Pact  2.0  reform  included  in  the  RRP 
will encourage investment in energy efficiency 
in  buildings  and  will  incentivise  municipalities 
to  increase  their  stock  of  affordable  housing. 

8 

 
Box 2: 

Key deliverables of the recovery and resilience plan in 2023-2024  

 

Installation of additional 1300 charging points for electric vehicles by the end of 2023 
under the scheme to decarbonise transport 

  At least 70% of municipalities to sign the new Housing Pact 2.0 by the end of 2023 

  At least 30 municipalities to sign the Naturpakt contract by the beginning of 2024 

  Cross-border  demonstration  of  a  quantum  distribution  system  in  late  2024  through  a 

satellite connection under the ultra-secure connectivity measure. 

The  RRP  addresses  vulnerabilities  in  the 
health  sector.  The  COVID-19  pandemic  has 
highlighted  shortages  in  health  professions, 
against the background  of  increasing  demand 
for  healthcare.  Measures  in  the  RRP  aim  to 
make  staff  management  more  efficient  by 
investing  in  telemedicine  and  an  electronic 
register  of  health  professionals.  This  digital 
improve  day-to-day  staff 
register  should 
management and help anticipate shortages of 
doctors  and  nurses.  Policy  action  aims  to 
improve 
health 
professions,  in  particular  by  redefining  the 
skills  demanded  of  healthcare  professionals. 
The  first  reform  –  establishing  a  consultative 
board 
the 
stakeholders 
Gesondheetsdësch  –  is  done  and  will  provide 
input  to  further  reforms  and  investments  and 
to the national health plan. 

attractiveness 

called 

the 

of 

of 

to 

The 

has 

and 

combat 

adopted 

improves 

consist  of 

laundering  and 

several 
Luxembourg 
fight  against  money 
measures 
terrorist 
laundering 
the 
RRP 
financing. 
understanding  of  and  the  legal  measures 
included  strengthen  the  framework  for  anti-
money 
the  financing  of 
terrorism.  Three  milestones  included  in  the 
first  payment 
the 
request 
publication  of  reports  for  a  better  risk 
identification,  assessment  and  understanding 
of anti-money laundering and the financing of 
terrorism.  In  addition,  two  acts  have  entered 
into  force,  reinforcing  the  supervision  and 
sanctioning  powers  of  supervisory  authorities 
and self-regulatory bodies in the field of anti-
the  financing  of 
money 
terrorism.  Another  measure 
the  first 
payment request is a study on the supervisory 
regime  applicable  to  professionals  providing 
trust  and  company  services  with  the  aim  to 
inform a consecutive milestone that envisages 

laundering  and 

in 

reinforce 

the  anti-money 
to 
framework for these professionals. 

laundering 

9 

 
 
FURTHER PRIORITIES AHEAD 

Luxembourg  faces  additional  challenges 
to  those  tackled  in  its  recovery  and 
resilience  plan  (RRP).  These  include:  (i)  the 
long-term  sustainability  of  public  finances, 
mainly stemming from the pension system; (ii) 
that  could  be  used  by 
loopholes 
legal 
multinationals  engaging 
in  aggressive  tax 
planning;  (iii)  vulnerabilities  related  to  high 
house  prices  and  household  debt; 
(iv) 
weaknesses in the education system that add 
to  inequality;  (v)  issues  with  the  transport 
network;  and  (vi)  potential  obstacles  to  the 
transition  from  fossil  fuels.  Addressing  these 
challenges  will  also  help  to  make  further 
progress 
the  SDGs  where 
Luxembourg  currently  shows  room  for  further 
improvement, on Affordable and clean  energy 
(SDG  7),  Responsible 
consumption  and 
production  (SDG  12)  and  Climate  action  (SDG 
13).  Despite  its  performance  above  the  EU 
average on Quality education (SDG 4), the low 
achievement  of  15-years-olds  in  reading  and 
the  number  of  early  leavers  from  education 
and training remain an issue. 

in  achieving 

Strengthening the long-term 
sustainability of public finances 

The general government debt is still very 
low  at  present.  However,  in  the  longer-
term,  the  picture  looks  different.  Public 
debt has been gradually increasing, although it 
remains  at  a  low  level.  It  reached  24.6%  of 
GDP  in  2022.  However,  in  the  long  term 
Luxembourg  faces  the  sharpest  increase  in 
pension-related  spending  of  all  EU  countries. 
The expected impact on public finances is also 
among  the  highest  in  the  EU  and  threatens 
Luxembourg’s long-term fiscal sustainability. 

Indicators  on  the  risk  to  Luxembourg’s 
long-term  fiscal  sustainability  remain 
high.  Luxembourg  faces  high  long-term  risks 

and 

long-term 

the  overall 

based  on 
risk 
classification  by  the  2022  report  on  the 
stability 
programmes 
convergence 
(European  Commission,  2022).  The  risks  are 
entirely  driven  by  the  expected  increase  in 
to  be 
age-related  expenditure 
around  10.4pps  of  GDP  higher  by  2070), 
mainly on pensions (around 8.7pps of GDP). 

(projected 

The  impact  of  demographic  trends  on 
government  spending  will  become  more 
acute  in  the  coming  decades.  This  is 
because the number of pensioners per worker 
is  expected  to  rise  steadily  due  to  the  ageing 
population and the slowdown in net migration 
flows.  In  a  scenario  where  there  is  no  policy 
change, by 2070 Luxembourg will face one of 
in  pension 
the  EU’s  sharpest 
spending,  as  a  share  of  GDP,  which 
is 
projected  to  double  to  around  18%  of  GDP, 
among the highest in the EU. This will lead to a 
significant 
in  government  debt, 
putting 
the  sustainability  of  government 
finances at risk. 

increases 

increase 

The average retirement age is among the 
lowest in the EU. The high level of pensions 
compared  to  wages  and  the  availability  of 
early  retirement  schemes  result  in  an  early 
effective  retirement  age  of  61.3  on  average, 
one  of  the  lowest  in  the  EU.  Similarly,  the 
employment  rate  of  older  workers  (aged  55-
64),  at  46,6%  in  2022,  remains  much  lower 
than  the  EU  average  (62.4%).  No  further 
increase  in  the  statutory  retirement  age  has 
been  laid  down  by  law.  It  is  thus  expected  to 
remain at 65 if no reform is adopted.  

The recovery and resilience plan does not 
address  the  long-term  sustainability  of 
the  pension  system.  Specifically,  the  plan 
does not address the negative effects of early 
retirement schemes and financial incentives to 
leave  the  labour  market  early,  which  explains 
the  low  rate  of  employment  (and  activity) 
among  older  workers.  Some  studies  have 

10 

 
 
 
regards 

estimated  the  long-term  impacts  of  different 
reform  options;  however,  the  results  are 
subject  to  a  high degree of  uncertainty  about 
the  impact  on  the  different  variables  and  are 
the  design  and 
unspecific  as 
implementation  of  the  policy  mix.  The  major 
impact is usually found on broad demographic 
and  economic  variables, 
in  particular  the 
labour  force,  employment,  economic  growth 
and  productivity (11).  In  this  light,  raising  the 
effective  retirement  age  would  have  a  very 
beneficial  macroeconomic  impact,  with  great 
potential  to  reduce  spending  on  pensions. 
Especially  if  this  were  achieved  by  reducing 
the  percentage  of  the  pension  (compared  to 
the  previous  wage)  paid  to  someone  who 
in 
retires  early,  which 
Luxembourg,  one  of  the  highest  in  the  EU. 
Phasing out the early retirement schemes and 
eventually  linking  the  retirement  age  to  life 
expectancy,  in  combination  with  measures  to 
encourage people to keep working, would also 
help achieve a higher rate of older workers in 
employment,  thereby  supporting  economic 
increasing  economic  fairness 
growth  and 
between generations. 

is  around  81% 

The  government  has  commissioned  the 
National  Economic  and  Social  Council 
(CES)  to  discuss  possible  implications  of 
the  ageing  population  for  the  financial 
sustainability  of  the  pension  system  in 
the long run. The CES started working on this 
issue in late autumn 2022 and is expected to 
publish  a  report  with  concrete  proposals.  This 
measure  is  a  first  step  towards  a  national 
debate on pension reform. 

Tackling aggressive tax 
planning 

firms, 

between 

to  prevent  distortions 

It  is  essential  to  tackle  aggressive  tax 
planning 
to 
competition 
ensure 
fairness  for  EU  taxpayers  and  safeguard 
public  finances.  Economic  data  point  to  a 
potentially  greater  risk  of  aggressive  tax 
planning  than  in  most  other  Member  States. 
Some  aspects  of  Luxembourg’s  tax  system, 
such  as  the  absence  of  withholding  taxes  or 
allowing  transfer  pricing  mismatches,  for 
interest 
example  by  deducting  deemed 
payments (12),  can  facilitate  such  practices 
more 
in  other  Member  States. 
Furthermore,  Luxembourg  has  taken  fewer 
steps  to  address  the  issue  than  most  other 
Member States. 

than 

evidence 

suggests 

Economic 
that 
Luxembourg’s  tax  rules  are  used  by 
companies  to  engage  in  aggressive  tax 
planning.  In  2021,  Luxembourg  had the  EU’s 
highest  stock  of 
incoming  and  outgoing 
foreign  direct  investment,  expressed  as  a 
percentage of GDP. Most of the foreign direct 
investment  stock  in  Luxembourg  (85%  of 
inward flows of foreign direct investments and 
79%  of  outward  flows  of  foreign  direct 
investments  in  2020)  is  held  through  special-
purpose 
large 
proportion  of  foreign  direct  investment  stocks 
indication  of 
held  by  SPEs  may  be  an 
aggressive  tax-planning.  Luxembourg 
is  a 
major  conduit  of  capital  flows,  recipient  of 
24% of all dividends received by the EU27 and 
the origin of 28% of all dividends paid by the 
EU27 (2020). It is also the recipient of 36% of 
all  interests  received  by  the  EU27  and  the 
origin of 31% of all interests paid by the EU27 
(2019). These flows are the highest in the EU, 

(SPEs) (13). 

entities 

The 

(11)  IMF Selected Issues, 2019 reports the results of three 
reforms estimated by a calibrated DSGE model and 
concludes that a combination of the three would yield a 
better impact. However, estimates do not seem to take 
into account the implications of a labour market where 
half of workers are non-residents and underlying 
assumptions are only partially made clear. The latest 
report from the national working group on pensions 
(IGSS, 2022) concluded that a reform was not needed 
in 2023-2032. See also European Commission, 2021 
and OECD, 2022.         

(12)  The Commission has identified this possibility as an 

aggressive tax planning indicator; see https://taxation-
customs.ec.europa.eu/system/files/2016-
09/taxation_paper_61.pdf. 

(13)  A special purpose entity is a legal entity that has little 
or no employment, operations, or physical presence in 
the jurisdiction where it is located. It is linked to another 
corporation, often by subsidiarity, typically located in a 
different jurisdiction. 

11 

 
                                                 
                                                 
and  disproportionately  high  compared  to  the 
size  of  the  economy.  Luxembourg  is  a  small 
open  economy,  with  a  large  international 
financial sector, which explains a large part of 
these  financial  flows.  However,  they  also 
reflect  the  significant  presence  of  foreign-
controlled  companies  in  the  country,  which 
carry out intra-group treasury activities. 

The lack of withholding taxes on interest 
and royalty payments to low- or zero-tax 
jurisdictions,  or  measures  with  an 
equivalent  effect,  are  of  particular 
concern.  The  lack  of  withholding  taxes  on 
outbound  payments  of  interest,  and  royalties 
from Luxembourg-based companies to non-EU 
jurisdictions, could lead to little or no taxation 
if these payments are not taxed or taxed at a 
low  level  in  the  recipient  jurisdiction.  In  2021, 
Luxembourg  adopted  a  non-deductibility 
measure  for  interest  and  royalties  paid  to 
jurisdictions  on  the  EU  list  of  non-cooperative 
jurisdictions  for  tax  matters.  However,  the 
scope of this measure is too narrow to address 
aggressive 
to 
outbound payments by Luxembourg. Moreover, 
the  OECD  Pillar  2  rules  on  a  global  minimum 
corporate  tax  rate  are  yet  to  be  implemented 
in  the  EU.  They  will  help  to  address  the 
outbound  payment  issue  in  Luxembourg  but 
will not fully address it because their scope is 
limited to the largest multinationals (threshold 
of  €750  million (14))  and  because  there  are 
certain sectoral exemptions. 

tax  planning 

linked 

risks 

the 

The steps taken by Luxembourg do not go 
beyond 
implementation  of  EU 
legislation  and  Council  conclusions.  While 
being a step in the right direction, the Directive 
on  minimum  effective  taxation  (Pillar  2)  does 
not  fully  address  the  issue  and  has  not  yet 
been  implemented.  Therefore,  currently  no 
system 
Luxembourg’s 
measure 
sufficiently  addresses  the 
issue  of  non-
deductibility of outbound payments of interest 
and royalties. 

tax 

in 

(14)  Article 1.1 of the OECD Model Rules provides that the 
Pillar Two GloBE Rules apply to Constituent Entities in 
an MNE Group that have annual revenue of 750 million 
euros or more in the Consolidated Financial Statements 
of the UPE in at least two of the four Fiscal Years 
preceding the relevant Fiscal Year. 

12 

Addressing the persistent housing  
shortage and rising residential  
real estate prices 

is 

facing 

Luxembourg 
increasing 
vulnerabilities related to high house price 
growth  and  high  household  debt.  House 
in  Luxembourg  have  historically 
prices 
increased  faster  than 
in  the  euro  area, 
sustained  by  strong  migration  inflows,  with 
housing  supply  persistently  lagging  demand, 
leading 
to  a  growing  housing  shortage. 
Between  2010  and  2021,  house  prices 
increased  by  135%  (42%  in  the  euro  area), 
with  86%  of  this  increase  taking  place  over 
the  last  four  years.  Over  the  same  period, 
population  increased  by  around  30%  (5%  in 
the  euro  area),  more  than  7000  households 
per  year.  Meanwhile,  the  production  of  new 
dwellings  was  below  4000  units  per  year, 
resulting  in  a  high  housing  shortage,  which  is 
only  partially  mitigated  by  the  cross-border 
housing market.  

increasing  and 

In  recent  years,  concerns  have  risen,  as 
household  debt  in  terms  of  disposable 
income  continued 
is 
substantially  higher,  compared  to  other 
Member  States.  At  an  aggregate 
level, 
household  debt  reached  180%  of  disposable 
income  in  2022,  61%  above  its  long-term 
average, which is one of the highest deviations 
from  its  historical  average  among  the  EU 
Member  States.  Household  debt  is  largely 
attributable to the strong growth in residential 
real  estate  loans,  as  bank  mortgages  account 
for more than 80% of household debt (146% 
of disposable income). 

A long period of supportive fiscal policies, 
favouring  home  ownership  over  tenancy, 
further  contributed  to  sustain  mortgage 
credit  growth.  As  in  other  Member  States, 
borrowers  benefited  from  historically 
low 
mortgage  rates  and  favourable  financing 
conditions.  However,  high  fiscal  support  to 
home  ownership,  including  deductibility  of 
mortgage  interests,  largely  explain  the  higher 
household  credit  growth  and  debt  stock,  in 
recent  years,  compared  to  other  Member 
the  persistent 
States.  Furthermore,  given 

 
                                                 
housing shortage, tax relief and subsidies have 
been capitalised into higher house prices. 

(2008-2009)  and 

Several  factors can mitigate  the  risks of 
disorderly  corrections  that  could  be 
potentially  triggered  by  the  downturn 
cycle  at  the  current  juncture.  Structural 
demand pressure and supply  constraints have 
been  among  the  main  factors  underlying  the 
strong 
long-lasting  trend  of  house  price 
growth,  including  over  the  global  financial 
crisis 
the  subsequent 
(2010-2012).  They  are 
sovereign  crisis 
expected to support the expansionary phase of 
the  cycle,  but  not  amplify  shocks  during  the 
downturn.  In  particular,  permanent  migration 
inflows  are  expected  to  act  as  a  mitigating 
factor  at  the  current  downturn,  as  they 
continue to support demand for housing when 
prices drop (ESRB, 2019). The risk for banks is 
mitigated  because  a  large  share  of  debt  is 
owed  by  wealthy  households  and  appears  to 
be  well  covered  by  liquid  financial  assets. 
Banks’  buffers,  appear  sufficient  to  absorb 
potential 
the 
residential  real  estate  market  and  mortgage 
debt.  

stemming 

shocks 

from 

an 

for 

Region 

Despite possible price adjustments, in the 
short  term,  sustainably  stabilising  house 
prices  remains  among  the  main  pressing 
challenges  in  Luxembourg  going  forward. 
The  government  is  adopting  measures  aimed 
to curb house price growth. While these risk to 
take  long  to  be  implemented,  there  is  a  need 
improve  policy 
to  step  up  efforts  and 
coordination  with  municipalities  and 
the 
Greater 
effective 
implementation. The "Housing Pact 2.0" (Pacte 
de  logement)  is  a  step  in  the  right  direction. 
The  implementation  of  the  reviewed  spatial 
planning  policy  needs  to  be  accelerated  to 
allow for a more efficient land-use across the 
national 
the 
recurrent  taxation  policy  proposals,  such  as 
those  on  vacant 
land  and  unoccupied 
dwellings, need to be prioritised to discourage 
land 
housing 
and 
development.  Fiscal  instruments  supporting 
homeownership  need  to  be  phased  out, 
interest  deductibility, 
including  mortgage 
which  benefits  more  high-income  households, 
as they are more likely to finance their house 

territory.  Swift  adoption  of 

hoarding 

foster 

with  mortgage  debt,  while  affordability  has 
worsened,  and  home  ownership  rates  have 
declined.  

increased  energy  prices 

High  energy  prices  are  also  making 
housing  less  affordable  in  Luxembourg. 
The 
in  2022 
negatively  affected  household  budgets,  in 
particular  for  low-income  groups.  As  a  result 
of  price  changes  from  November  2021  to 
October 2022 (see Annex 7), the proportion of 
people  living  in  households  that  spend  more 
than  10%  of  their  budget  on  energy  is 
estimated  to  have  increased  by  12.1%.  The 
proportion  of  the  household  budget  spent  on 
electricity  is  estimated  to  have  increased  the 
most for low and lower-middle income groups, 
whereas  residential  domestic  expenditure  on 
gas  increased  the  most  in  the  top  income 
groups.  

Addressing inequality in the  
education system 

Luxembourg’s  rate  of  early  leavers  from 
education  and training  (9.3%)  is  close to 
the  EU-level  target  (below  9%)  but  it  is 
steadily  increasing.  The  share  of  young 
people with work experience aged 20-34 who 
left education and training without completing 
upper  secondary  education  increased  from 
6.3%  in  2018  to  9.3%  in  2021.  Repeating  a 
school  year  is  the  strongest  predictor  for 
dropping  out  of  school:  in  2020-21,  80%  of 
pupils who dropped out had repeated a year at 
least once.  

and 

basic 

skills 

overall 
Pupils’ 
performance  depend 
largely  on  their 
socioeconomic  and  linguistic  background. 
Educational  outcomes  are  strongly  influenced 
by  a  pupil’s  socio-economic  background.  In 
Luxembourg,  average  skills  levels  at  age  15, 
as  measured  by  the  OECD  Programme  for 
International  Student  Assessment  (PISA),  are 
significantly  lower  than  the  EU  average.  The 
gap  between  advantaged  students  and  their 
disadvantaged  peers  is  bigger  in  Luxembourg 
than  any  other  EU  country.  The  language 
spoken  in  the  national  school  system  at 

13 

 
primary  level  is  Luxembourgish,  while  pupils 
learn to read and write in German. All subjects 
(except for French) are taught in German. This 
constitutes  a  very  high  demand  for  language 
skills  in  a  country  where  only  one  in  three 
pupils  speaks  Luxembourgish  as  their  first 
language.  In  September  2022,  Luxembourg 
launched  a  pilot  project 
in  four  primary 
schools,  where  pupils  start  learning  first  in 
French  and  then  in  German.  If  extended  to 
more schools, this pilot could help improve the 
performance of pupils whose first language is 
not  German.  The  number  of  European  public 
schools  –  with  free  access  to  pupils  –  has 
increased  to  six.  Pupils  in  these  schools  can 
choose between English, French or German as 
main tuition language, instead of the trilingual 
system. Only 4% of pupils at pre-primary and 
primary  level  in  Luxembourg  are  currently 
enrolled  in  such  public  international  schools 
and  pupils  with  a  disadvantaged  socio-
economic 
non-German/-French 
background are underrepresented there. If the 
option of teaching through one main language 
were to be extended to cover a larger part of 
the  school  population,  it  could  substantially 
improve their chances to reach better learning 
outcomes. 

or 

a 

invested  heavily 

Luxembourg  has 
in 
access  to  and  the  quality  of  early 
childhood  education  and  care  (ECEC).  In 
September  2017,  national  quality  standards 
were  introduced  in  the  non-formal  education 
sector,  which  all  providers  must  meet  to  be 
eligible  for  the  government’s  childcare  co-
financing  voucher  scheme.  This 
includes 
activities  to  familiarise  children  aged  1  to  4 
with  French  and  Luxembourgish.  Widening 
access  to  early  childhood  education  and  care 
(ECEC)  and  creating  incentives  to  improve  its 
quality  are  positive  steps  likely  to  improve 
children’s learning outcomes at a later stage. 

The green transition and fossil  
energy dependence 

States 

should 

Member 
implement 
REPowerEU  to  ensure  security  of  supply 
and  affordable  energy  prices. 
This 
specifically  entails:  (i)  continuous  efforts  to 

14 

reduce  our  dependence  on  fossil  fuels;  (ii)  by 
taking actions to diversify away  from Russian 
fuels;  (iii)  keep  up  efforts  made  to  reduce 
demand  through  more  structural  measures 
such  as  energy  efficiency  and  deploying 
renewables. 

Luxembourg is highly dependent on fossil 
fuel  imports.  Reducing  Luxemburg’s  reliance 
on fossil fuels is an essential part of ensuring 
security  of  supply.  Luxembourg  imports  more 
than 90% of its energy consumption. In 2021, 
oil accounted for 69% of Luxembourg’s energy 
mix,  natural  gas  18%  and  12%  from 
renewable  energy  sources.  The  high  share  of 
oil reflects the central role of transportation in 
In  2021,  almost 
Luxembourg’s  economy. 
100%  of  the  gas  Luxembourg  consumed  was 
imported  through  pipelines  from  Belgium  and 
Germany.  Luxembourg  does  not  have  any 
fossil  gas  production,  but  it  does  produce 
biogas, which is injected into the network. 

Luxembourg  has  a  good  level  of  security 
of  supply  thanks  to  its  partnership  with 
neighbouring  countries.  Luxembourg 
is 
highly  interconnected  to  its  neighbours  for 
both  power  and  gas.  While  Luxembourg’s 
electricity  and  gas  grids  are  sufficient  for  its 
current  needs,  there  are  plans  to  further 
develop  the  electricity  grid  and  improve  the 
interconnections  with  Germany  by  2040  to 
absorb  the  expected  higher  demand  for 
electricity. In December 2022, the government 
presented  an  updated  risk  plan  for  the 
electricity sector, which indicated no particular 
risks due to a significant reduction in demand 
and increased capacities with Germany.  

considerable 
Luxembourg  has  made 
progress  in  recent  years  on  renewable 
energies  and  the  digitalisation  of  the 
energy  transition.  Its  renewable  energy 
capacity  has  increased  substantially  in  recent 
years.  The  government  has  set  ambitious 
targets in its climate law to meet over a third 
of  the demand  for  electricity  with  renewables 
by  2030  (mostly  solar  photovoltaic  and  wind 
energy),  reduce  greenhouse  gas  emissions  by 
50%  to  55%  by  2030  and  achieve  climate 
this  perspective, 
neutrality  by  2050. 
Luxembourg  has  continued  its  public  support 
renewable  energy, 
schemes 

roll  out 

to 

In 

 
 
including  through  feed-in  tariffs  for  small-
scale installations, market premiums and calls 
for  tender,  though  results  have  been  lower 
than  expected.  The  aid  scheme  promoting 
photovoltaic  energy  has  increasingly  involved 
private  individuals.  Furthermore,  incentives  to 
promote  the  consumption  of  hydrogen  were 
announced  by  the  government  in  September 
2021.  

of 

development 

Some  barriers  continue  to  hamper  the 
further 
renewable 
to 
energy.  The  administrative  procedure 
obtain  authorisation  for  a  renewable  energy 
project  is  long,  caused  to  some  extent  by  a 
lack  of  administrative  staff.  L  taxes  on  fossil 
fuels  provide  little  incentive  to  invest  in 
renewables  and  energy  efficiency.  In  addition, 
fossil  fuel  subsidies  amounted  to  more  than 
EUR 41 million in 2020 and have increased by 
30% since 2015 (15).  Luxembourg has already 
taken  some  action  by  gradually  phasing  out 
subsidies  for  combustion  engine  vehicles, 
which  will  only  apply  to  zero-emission  cars 
from  2025.  However,  some  relevant  issues 
remain,  such  as  excise  tax  refunds  and 
exemptions for diesel used in agriculture, or on 
the  use  of  natural  gas,  and  these  act  as  a 
disincentive to adopting cleaner alternatives. 

The 
residential  sector  accounts  for 
around one third of the total consumption 
of  natural  gas.  Renovation  of  the  building 
stock  and  making  further  energy  savings 
remain  critical  to  reducing  dependency  on  oil 
and natural gas. Around 89% of the residential 
building stock uses fossil fuel heating systems.  
Luxembourg  has  a 
renovation 
strategy  for  energy  renovations  in  buildings, 
with  the  aim  of  reaching  a  3%  per  year 
renovation rate in the residential sector, and of 
renovating  all  existing  houses  to  net  zero 
emissions  by  2050.  While  energy  prices  have 
decreased, uncertainty remains regarding next 
winter,  which  requires  continued  efforts  to 
structurally reduce gas demand. 

long-term 

Transport  is  the  main  cause  of  traffic 
congestion,  air  pollution  and  greenhouse 

(15)  These barriers also drive Luxembourg’s high level of 

vulnerability in the areas 'climate change mitigation and 
adaptation' and the 'sustainable use of resources' of 
the resilience dashboards (Annex 5). 

15 

gas  emissions  in  Luxembourg.  Personal 
transport  creates  traffic  congestion  and  still 
causes  air  pollution  hotspots  despite  the 
overall  good  quality  of  air  in  the  country.  The 
implementation  of  the  2035  national  mobility 
plan  is  expected  to  gradually  overcome  those 
shortcomings  through  direct  investments  in 
infrastructure  and  public  transport  services. 
Incentives  to  foster  multimodal  transport  and 
reduce  the  use  of  individual  vehicles  remain 
rather  unspecific.  Better  coordination  with 
neighbouring Member States would be needed 
to  improve  public  transport  services  in  the 
greater 
to  make 
progress on the CO2 tax by 2030 would allow 
firms  to  plan  the  necessary  adjustments, 
thereby fostering the transition.  

region.  A  commitment 

has 

poverty 

increased 

Energy 
in 
Luxembourg  in  recent  years.  The  share  of 
the  total  population  unable  to  keep  their 
homes adequately warm increased from 0.9% 
in 2015 to 2.5% and energy poverty  affected 
5.1%  of  the  population  at  risk  of  poverty  in 
2021.  The  increase  of  energy  prices  in  2022 
negatively  affected  low-income  households. 
The  proportion  of  people  living  in  households 
spending  more  than  10%  of  their  budget  on 
energy is estimated to have increased by 21.7 
percentage  points  among  the  population  that 
is at risk of poverty.  

to 

help 

reduce 

Luxembourg  took  significant  emergency 
action  to  mitigate  the  impact  of  energy 
price hikes and to support households. On 
11  November  2022,  the  Government  Council 
approved  a  package  of  measures  called  the 
is  principally 
‘Solidaritéitspak  2.0’,  which 
intended 
households' 
dependence  on  fossil  fuels  and  promote  their 
conversion  to  renewable  energies.  It  also 
included measures to cap and stabilise energy 
prices  on  households  and consumers’  bills  for 
electricity  and  natural  gas.  The  Government 
Council  also  approved  a  draft  law  for  a 
temporary change in the ‘Klimabonus Wunnen’ 
financial  aid.  The  measure  will  be  valid  for 
applications made between 1 November 2022 
and  31  December  2023.  The  government 
should  ensure  that  these  measures  are 
they 
temporary  and 
preserve 
the  energy  price  signal.  The 
government  should  also  ensure  that  the 

targeted,  and 

that 

 
                                                 
measures  do  not  hinder  the  green  transition, 
promote  greater  energy  consumption  or 
increase inflation. 

that 

In  the  context  of  the  green  transition,  in 
recent years Luxembourg has experienced 
increased 
in  key 
labour  shortages 
sectors.  These  are  also  linked  to  a  lack  of 
relevant  skills,  and  are  creating  obstacles  in 
the transition to a net-zero economy. In 2022, 
in  seven 
labour  shortages  were  reported 
occupations 
require 
in  Luxembourg 
specific  skills  or  knowledge  for  the  green 
transition, 
including  policy  and  planning 
managers (16).  The  job  vacancy  rate  increased 
across key sectors, such as construction (from 
in  2021)  and 
to  1.2% 
0.6% 
manufacturing (from 0.7% in 2015 to 1.3% in 
2021), with both sectors below the EU average 
of 3.6% and 1.9%, respectively, in 2021 (17). In 
2022, 27% of firms reported labour shortages 
as  a  factor  that  constrained  production (18). 
Upskilling  and 
the  green 
reskilling 
including  for  the  people  most 
transition, 
affected,  and  promoting 
labour 
markets are essential policies to speed up the 
transition  to  net-zero  and  ensure  its  fairness 
(see Annex 8). 

in  2015 

inclusive 

for 

Productivity and business  
investment 

Although  still  one  of  the  highest  in  the 
EU, Luxembourg’s labour productivity has 
stagnated  since  the  2000s.  Hourly  labour 

(16)  Data on shortages is based on the European Labour 

Authority 2023 EURES Report on labour shortages and 
surpluses. National authorities report through a 
questionnaire, based on administrative data and other 
sources as submitted by the EURES National 
Coordination Offices (definitions of shortages differ, 
thus data is not comparable across countries and 
covers a wide variety of sectors). Skills and knowledge 
requirements are based on the ESCO (European Skills 
Competences and Occupations) taxonomy on skills for 
the green transition (for occupations at ISCO 4-digit 
level of which there are 436 in total). Examples are 
identified based on their ESCO ‘greenness’ score and 
relevant sectors. 

(17)  Eurostat (JVS_A_RATE_R2). 

(18)  European Business and Consumer Survey. 

16 

productivity  hardly  changed  between  2000 
and 2019, registering +0.7% increase over the 
whole  period.  Productivity  has  evolved  less 
favourably than in the euro area average and 
neighbouring  countries,  especially  since  the 
global financial crisis (Annex 12). In 2021 and 
2022,  annual  labour  productivity  per  hour 
worked fell by 2.3% and 2.0%, respectively.  

in 

these  years. 

Structural  change  in  Luxembourg  has 
provided  marginal  support  to 
labour 
productivity  growth  since  2000  and 
the  main 
negative  after  2008.  As 
contributor to GDP growth, the financial sector 
is also the main driver of productivity per hour 
worked,  where  three  distinct  periods  were 
In  2000-2007 
observed 
productivity  gains  within  this  sector  reached 
record  heights,  close  to  3%  per  year,  which 
contributed  significantly  to  the  aggregate 
productivity  growth. However,  from  the  global 
financial crisis to 2019 productivity in financial 
services  fell  markedly,  while 
the  sector 
maintained a high contribution to GDP growth, 
thanks to increases in relative prices compared 
with  other  sectors’  output.  In  contrast,  more 
productive sectors, such as manufacturing and 
transportation  were  relatively  downsized,  with 
labour  reallocating  to  less  productive  sectors, 
which  also  contributed 
the 
aggregate  productivity.  Since  the  pandemic, 
internal 
financial 
productivity  gains,  although  this  improvement 
was more than offset by a decrease in relative 
prices  and  negative 
reallocation  effects. 
Losses within information and communication, 
technical  services  and 
professional  and 
construction 
the 
further  brought  down 
aggregate productivity in 2021 and 2022. 

to  decrease 

achieved 

services 

for 

low 

business 

Low  productivity  gains  are  partly 
explained  by 
levels  of  business 
investment,  including  in  R&D,  with  public 
support 
innovation 
remaining  at  very  low  levels.  In  2021, 
business  investment  in  Luxembourg  (at  8.3% 
of  GDP)  was  amongst  the  lowest  in  the  EU. 
Business expenditure on R&D has continued to 
decline  and  fell  to  0.47%  in  2021,  against 
1.5%  in  the  EU.  Although  Luxembourg  has 
taken  steps  to  foster  business  innovation, 
public  support  for  business  innovation  is  still 
marginal  (Annex  11).  Luxembourg  does  not 

 
 
                                                 
provide indirect support to R&D in the form of 
tax  credits,  unlike  most  OECD  and  EU 
countries. Only 6% of business R&D is funded 
by government (19). 

The lack of skilled staff is the most cited 
long-term  barrier  to 
investment  by 
Luxembourg’s  firms (20).  Despite  the  high 
proportion  of  cross-border  workers  (around 
46%  of  the  country’s  workforce), 
labour 
shortages  are  significant,  particularly  in  ICT, 
construction  and  industry  (Annex  14).  The 
share of businesses reporting difficulties filling 
vacancies for jobs requiring ICT specialist skills 
is well above the EU  average (Annex  10). The 
shortage  of  skilled  labour,  particularly  people 
with  digital  skills,  harms  SMEs  to  become 
greener and more digital. 

(19)  OECD Economic Surveys: Luxembourg 2022 | READ 

online (oecd-ilibrary.org). 

(20)  EIB Investment Survey 2022, 11/2022, based on 

interviews carried out between April and July 2022. 

17 

 
                                                 
country for workers, which is an obstacle to 
investment  and  growth  in  the  medium 
term,  and  may  become  a  competitive 
disadvantage for the economy; 

  tackling growing traffic congestion, a major 
challenge  in  Luxembourg  with  economic, 
social and environmental consequences; 

transition, 

  reducing  reliance  on  fossil  fuels  and 
accelerating 
in 
the  green 
particular  by  promoting  the  skills  needed 
for 
in 
renewable  energy,  and  promoting  energy 
efficiency,  especially 
in  buildings  and 
transport; 

the  green 

transition, 

investing 

  boosting 
business 
research and innovation; 

productivity 
investment, 

by 

supporting 
in 

in  particular 

  reducing  the  impact  of  inequalities  on 
pupils’  performance  and  promoting  equal 
opportunities  for  all  students 
the 
educational system. 

in 

KEY FINDINGS 

Luxembourg’s  RRP  includes  measures  to 
address a  series  of  structural challenges 
through: 

  a reform that will help increase the supply 

of affordable housing; 

  vocational  training  programmes  aimed  at 
addressing  the  skills  mismatch  in  the  job 
market and at promoting inclusive growth; 

  measures  to  help  decarbonise  transport, 
the  electrification  of  the  public  transport 
fleet and a financing scheme to expand the 
network  of  charging  points  for  electric 
vehicles;  

  digitalisation  of  the  public  administration, 
including  online  solutions  for  citizens  and 
businesses,  as  well  as  the  digitalisation  of 
the health sector. 

implementation  of 

  Luxembourg  should  proceed  with 

the 
steady 
revised 
recovery  and  resilience  plan  and  swiftly 
finalise the REPowerEU chapter with a view 
to rapidly starting its implementation. 

its 

Beyond  the  reforms  and  investment  in 
the RRP, Luxembourg would benefit from: 

  improving  the  long-term  sustainability  of 
the  pension  system  to  maintain  sound 
public  finances  and  fairness,  in  particular 
by increasing the participation rate of older 
workers; 

  strengthening  action  to  effectively  tackle 
aggressive 
tax-planning,  which  would 
prevent distortions of competition between 
firms, 
taxpayers  fairly  and 
treat  EU 
safeguard public finances; 

  addressing 

the  persistent  shortage  of 
housing,  which  will  help  reduce  inequality 
and  improve  the  attractiveness  of  the 

18 

 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Cross-cutting indicators 

A1.  Sustainable Development Goals 

A2.  Progress in the implementation of country-specific recommendations 

A3.  Recovery and resilience plan - overview 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy security and affordability 

A8.  Fair transition to climate neutrality 

Productivity 

A9.  Resource productivity, efficiency and circularity 

A10.  Digital transformation 

A11.  Innovation 

A12.  Industry and single market 

A13.  Public administration 

Fairness 

A14.  Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

A15.  Education and training 

A16.  Health and health systems 

A17.  Economic and social performance at regional level 

Macroeconomic stability 

A18.  Key financial sector developments 

A19.  Taxation 

A20.  Table with economic and financial indicators 

A21.  Debt sustainability analysis 

A22.  Macroeconomic imbalance procedure assessment matrix 

21 

24 

24 

26 

29 

31 

33 

34 

34 

39 

42 

44 

44 

46 

48 

50 

54 

56 

56 

58 

60 

62 

64 

64 

67 

70 

71 

74 

 
 
 
LIST OF TABLES 

A2.1. 
Summary table on 2019-2022 CSRs 
A3.1. 
Key elements of Luxembourg's RRP 
A5.1. 
Resilience indices summarising the situation across RDB dimensions and areas 
A6.1. 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
A7.1. 
Key energy indicators 
A8.1. 
Key indicators for a fair transition in Luxembourg 
A9.1. 
Overall and systemic indicators on circularity 
A10.1.  Key Digital Decade targets monitored by DESI indicators 
A11.1.  Key innovation indicators 
A12.1. 
Industry and the Single Market 
A13.1.  Public administration indicators 
A14.1.  Social Scoreboard for Luxembourg 
A14.2.  Situation of Luxembourg on 2030 employment, skills and poverty reduction targets 
A15.1.  EU-level targets and other contextual indicators under the European Education Area strategic framework 
A16.1.  Key health indicators 
A17.1.  Selected indicators in Luxembourg 
A18.1.  Financial soundness indicators 
A19.1.  Taxation indicators 
A20.1.  Key economic and financial indicators 
A21.1.  Debt sustainability analysis - Luxembourg 
A21.2.  Heat map of fiscal sustainability risks - Luxembourg 
A22.1.  Assessment of macroeconomic imbalances matrix 

LIST OF GRAPHS 

Progress towards the SDGs in Luxembourg in the last 5 years 
Luxembourg’s progress on the 2019-2022 CSRs (2023 European Semester) 
Share of RRF funds contribution to each policy pillar 
Total grants disbursed under the RRF 
Cohesion policy funds 2021-2027 in Luxembourg: budget by fund 
Synergies between cohesion policy funds and the RRF with its six pillars in Luxembourg 
Cohesion policy funds contribution to the SDGs in 2014-2020 and 2021-2027 in Luxembourg 
Thematic – greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2021 
Thematic - energy mix (top) and electricity mix (bottom), 2021 
Thematic – environmental investment needs and current investment, p.a. 2014-2020 
Share of gas consumption per sector, 2021 
Luxembourg´s retail energy prices for industry (top) and households (bottom) 
Fair transition challenges in Luxembourg 
Distributional impacts of energy prices due to rising energy expenditure (2021-2023) 
Trend in material use 
Treatment of municipal waste 

A1.1. 
A2.1. 
A3.1. 
A3.2. 
A4.1. 
A4.2. 
A4.3. 
A6.1. 
A6.2. 
A6.3. 
A7.1. 
A7.2. 
A8.1. 
A8.2. 
A9.1. 
A9.2. 
A11.1.  Business expenditure on R&D as % of GDP, 2011-2021 
A12.1.  Evolution of labour productivity, whole economy (index, 100=07Q4) 
A12.2.  Business environment and competitiveness drivers 
A13.1.  Luxemburg. Public administration. Share of women and men in senior positions. 2022 data 
A13.2.  Luxembourg. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post evaluation of legislation 
A15.1.  Changes in writing comprehension in German in year 3 of primary school, depending on socio-economic status between 

2018 and 2020 

A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2019-2070 
A18.1.  Size of the financial intermediaries and of the debt securities market in Luxembourg, end-2021 
A19.1.  Tax wedge for single and second earners as a % of total labour costs, 2022 
A19.2.  Financial activity risk in Luxembourg: dividend and interest flows, and the use of special purpose entities (SPEs) for foreign 

direct investment (FDI) 

27 
29 
33 
34 
39 
42 
45 
46 
48 
50 
55 
56 
57 
58 
60 
63 
64 
66 
69 
71 
72 
73 

25 
26 
29 
30 
31 
31 
32 
35 
35 
37 
39 
40 
42 
43 
44 
44 
48 
50 
51 
54 
55 

58 
60 
60 
64 
67 

68 

22 

 
 
 
23 

 
 
 
 
CROSS-CUTTING INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

the 

This  Annex  assesses  Luxembourg’s  progress 
on  the  Sustainable  Development  Goals 
(SDGs)  along 
four  dimensions  of 
competitive  sustainability.  The  17  SDGs  and 
their related indicators provide a policy framework 
under  the  UN’s  2030  Agenda  for  Sustainable 
Development.  The  aim  is  to  end  all  forms  of 
inequalities  and  tackle  climate 
poverty,  fight 
change  and 
the  environmental  crisis,  while 
ensuring that no one is left behind. The EU and its 
Member  States  are  committed  to  this  historic 
global  framework  agreement  and  to  playing  an 
active  role  in  maximising  progress  on  the  SDGs. 
The graph below is based on the EU SDG indicator 
set developed to monitor progress on the SDGs in 
an EU context.  

related 

While  Luxembourg  is  improving  on  the  SDG 
environmental 
indicators 
sustainability (SDGs 2, 7, 12, 13), it performs 
well only on SDGs 11 (Sustainable cities and 
(Industry, 
communities) 

SDG 

and 

to 

9 

21.8%),  whereas 

innovation  and  infrastructure).  Luxembourg 
has made progress in particular on the area under 
organic  farming  as  a  percentage  of  utilised 
agricultural  land,  which  edged  up  from  3.5%  in 
2016 to 5.2% in 2021, but remains below the EU 
average  of  9.1%  (SDG  2).  On  SDG  7  (Affordable 
and clean energy), the share of renewable energy 
in  gross  final  energy  consumption  more  than 
doubled (from 5.4% in 2016 to 11.7% in 2021, EU 
average 
import 
dependency  as  a  percentage  of  imports  in  gross 
available  energy  decreased  (from  96.3%  in  2016 
to  92.5%  in  2021)  but  remains  above  the  EU 
average of 55.5%. Average CO2 emissions per km 
from  new  passenger  cars  (SDG  12)  improved, 
dropping  from  126.1  g  CO2  per  km  in  2016  to 
123.8  g  in  2021  (still  above  the  EU  average  of 
116.3  g). 
recorded  an 
improvement  in  net  greenhouse  gas  emissions 
(SDG 13), decreasing from 19.2 tonnes per capita 
in 2016 to 16.9 tonnes in 2021, but it is still above 
the  EU  average  (7.4  tonnes).  The  country  further 
improved  its  performance  on  the  recycling  of 

Luxembourg  also 

energy 

Graph A1.1: Progress towards the SDGs in Luxembourg in the last 5 years 

For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable development in the European Union’; for 
details on extensive country-specific data on the short-term progress of Member States: Key findings – Sustainable development 
indicators – Eurostat (europa.eu). The status of each SDG in a country is the aggregation of all indicators for the specific goal 
compared to the EU average. A high status does not mean that a country is close to reaching a specific SDG, but signals that it is 
doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5 
years. The calculation does not take into account any target values as most EU policy targets are only valid for the aggregate EU 
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country. 
Source: Eurostat,  latest update of early April 2023, except for the EU Labour Force Survey (LFS) indicators released on 27 April 
2023. Data mainly refer to 2016-2021 or 2017-2022. 

24 

 
 
 
 
 
 
municipal  waste  as  a  percentage  of  total  waste 
generated (SDG 11) from 49.2% in 2016 to 55.3% 
in  2021,  well  above  the  EU  average  (49.6%). 
Luxembourg’s  recovery  and  resilience  plan  (RRP) 
has  the  highest  percentage  of  green  measures 
(68.8%)  of  the  22  RRPs  approved  in  2021,  which 
will help decarbonise transport in particular. 

promote  a  data-based  economy  and 
the 
It  also 
digitalisation  of  public  administration. 
includes  measures  on  improving  skills,  upskilling 
and  reskilling  to  help  people  join  the  labour 
market.  As  part  of  the  RRP,  training  under  Future 
Skills  targeted  jobseekers,  with  special  attention 
for those aged 45 and above. 

in 

While  Luxembourg  performs  well  on  some 
SDG indicators related to fairness (SDGs 3, 4, 
5,  10),  it  is  improving on  others  (SDGs 7,  8). 
The  percentage  of  people with  good  or very  good 
self-perceived  health  aged  16  or  over  increased 
from  69.2%  in  2016  to  76.5%  in  2021  (EU 
average  69.0%).  On  SDG  4  (Quality  education), 
tertiary educational attainment as a percentage of 
the population aged 25-64 jumped from 51.3% in 
2017  to  61.0%  in  2022,  well  above  the  EU 
average of 42.0%, and the percentage of the adult 
population 
learning  in  the  past  4  weeks 
improved  from  17.2%  in  2017  to  18.1%  in  2022 
(EU  average  11.9%).  On  the  other  hand,  the 
percentage  of  young  people  not  in  education, 
employment  or  training  has  slightly  increased 
from 6.6% of the population aged 15-29 to 6.8%, 
but  remains  below  the  EU  average  (11.7%).  On 
SDG  5  (Gender  equality),  Luxembourg  improved 
both in its gender employment gap (from 7.9% of 
those  aged  20-64  in  2017  to  6.5%  in  2022,  EU 
average  10.7%)  and  in  seats  held  by  women  in 
national  parliaments  and  government,  which 
increased from 28.3% in 2017 to 35.0% in 2022, 
and  is  now  above  the  EU  average  of  32.5%.  The 
RRP includes measures to strengthen the resilience 
of  the  health  system, including  by  digitalising  the 
sector.  

Luxembourg 

productivity, 

Regarding 
is 
moving away from SDG 4, improving on SDG 
9  and  needs  to  catch  up  on  SDG  8.  Gross 
domestic  expenditure  on  R&D  (SDG  9)  dropped 
from  1.27%  of  GDP  in  2016  to  1.02%  in  2021, 
while  the  EU  average  increased  to  2.26%.  The 
number  of  early  leavers  from  education  and 
training (SDG 4) as a percentage of the population 
aged 18-24 increased from 7.3% in 2017 to 8.2% 
in  2022,  edging  closer  to  the  EU  average  (9.6%). 
On  SDG  8,  despite  real  GDP  per  capita  remaining 
the highest in the EU with a small drop from EUR 
84 020  per  capita  in  2017  to  EUR  83 940  in 
20212  (EU  average  EUR  28 820),  the  in  work  at-
risk-of-poverty  rate  as  a  percentage  of  the 
population went up from 10.9% in 2016 to 13.5% 
in  2021,  above  the  EU  average  of  8.9%.  The  RRP 
envisages  several  reforms  and  investments  to 

the 

Luxembourg  performs  very  well  on  SDG  16 
stability, 
to  macroeconomic 
related 
improving on SDG 8, but is moving away from 
SDG 17. General government gross debt (SDG 17) 
increased from 21.8% of GDP in 2017 to 24.6% in 
2022,  but  remains  very  low  compared  to  the  EU 
average of 84.0%. On SDG 8, the employment rate 
of the population aged 20-64 went from 71.5% in 
2017 to 74.8% in 2022 (EU average 74.6%), and 
the long-term unemployment rate as a percentage 
of  the  active  population  dropped  from  2.1%  in 
2017 to 1.3% in 2022 (EU average 2.4%). On the 
investment  share  of  GDP 
other  hand, 
decreased from 17.3% in 2016 to 16.6% in 2021, 
well  below  the  EU  average  at  23.2%.  The 
perceived independence of the justice system (very 
good and fairly good)  increased from 72% of the 
population in  2017  to  77%  in  2022, much  higher 
than  the  EU  average  of  53%.  Luxembourg’s  RRP 
includes  measures  to  promote  a  transparent  and 
fair economy. This includes making the anti-money 
laundering  supervision  of  professionals 
that 
provide 
trust  and  company  services  more 
effective. Another measure to increase the quality 
and transparency of the business register will help 
the  authorities  better 
the  ultimate 
beneficiaries  of  legal  entities.  This  would  deter 
criminals from using these entities to launder illicit 
money. 

identify 

As the SDGs form an overarching framework, any 
links  to  relevant  SDGs  are  either  explained  or 
depicted with icons in the other Annexes. 

25 

 
 
 
ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 

The Commission has assessed the 2019-2022 
country-specific  recommendations  (CSRs) (21) 
addressed  to  Luxembourg  as  part  of  the 
European  Semester.  These  recommendations 
concern  a  wide  range  of  policy  areas  that  are 
related  to  9  of  the  17  Sustainable  Development 
Goals  (see  Annexes  1  and  3). The  assessment 
considers  the  policy  action  taken  by  Luxembourg 
to  date (22)  and  the  commitments  in  its  recovery 
and resilience plan (RRP) (23).  At this stage of RRP 
implementation,  71%  of  the  CSRs  focusing  on 
structural  issues  from  2019-2022  have  recorded 
at  least  ‘some  progress’,  while  18%  recorded 
‘limited  progress’  (see  Graph  A2.1).  As  the  RRP  is 
implemented  further,  considerable  progress  in 
addressing structural CSRs is expected in the years 
to come. 

Graph A2.1: Luxembourg’s progress on the 2019-
2022 CSRs (2023 European Semester) 

Source: European Commission 

(21)  2022 CSRs: EUR-Lex - 32022H0901(16) - EN - EUR-Lex 

(europa.eu) 
2021 CSRs: EUR-Lex - 32021H0729(16) - EN - EUR-Lex 
(europa.eu) 
2020 CSRs: EUR-Lex - 32020H0826(16) - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(16) - EN - EUR-Lex 
(europa.eu) 

(22)  Including policy action reported in the national reform 

programme and in Recovery and Resilience Facility (RRF) 
reporting (twice a year reporting on progress in implementing 
milestones and targets and resulting from the payment 
requests assessment). 

(23)  Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here considers the 
degree of implementation of the measures included in the 
RRP and of those carried out outside of the RRP at the time 
of assessment. Measures laid down in the Annex of the 
adopted Council Implementing Decision on approving the 
assessment of the RRP, which are not yet adopted or 
implemented but considered credibly announced, in line with 
the CSR assessment methodology, warrant ‘limited progress’. 
Once implemented, these measures can lead to 
‘some/substantial progress or full implementation’, 
depending on their relevance. 

26 

No progress11%Limited progress18%Some progress53%Substantial progress5%Full implementation13% 
 
                                                 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A2.1: Summary table on 2019-2022 CSRs 

(Continued on the next page) 

27 

LuxembourgAssessment in May 2023*RRP coverage of CSRs until 2026**Relevant SDGs2019 CSR 1Limited progressIncrease the employment rate of older workers by enhancing their employment opportunities and employability.Limited ProgressRelevant RRP measures implemented as of 2021.SDG 8Improvethelong-termsustainabilityofthepensionsystem,includingby further limiting early retirement.No ProgressSDG 82019 CSR 2Limited progressReduce barriers to competition in regulated professional business services.Limited ProgressSDG 92019 CSR 3Some progressFocus economic policy related to investment on fostering digitalisation Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2024.SDG 9and innovation,Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2024.SDG 9stimulating skills development,Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022.SDG 4improving sustainable transport,Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2025.SDG 11and increasing housing supply, including by increasing incentives and lifting barriers to build.Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 82019 CSR 4Limited progressAddress features of the tax system that may facilitate aggressive tax planning, in particular by means of outbound payments.Limited ProgressSDG 8, 162020 CSR 1Some progressTakeallnecessarymeasures,inlinewiththegeneralescapeclauseoftheStabilityandGrowthPact,toeffectivelyaddresstheCOVID-19pandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuring debt sustainability, while enhancing investment. Not relevant anymoreNot applicableSDG 8, 16Improvetheresilienceofthehealthsystembyensuringappropriateavailability of health workers.Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022 and 2025.SDG 3 Accelerate reforms to improve the governance of the health system and e-health. Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022 and 2025.SDG 32020 CSR 2Substantial progressMitigate the employment impact of the COVID-19 crisis, with special consideration for people in a difficult labour market position.Substantial ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022.SDG 82020 CSR 3Some progressEnsure effective implementation of measures supporting the liquidity of businesses, in particular SMEs and the selfemployed. Full ImplementationSDG 8, 9Front-loadmaturepublicinvestmentprojects[tofostertheeconomicrecovery] Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2024.SDG 8, 16and promote private investment to foster the economic recovery. Limited ProgressSDG 8, 9Focusinvestmentonthegreenanddigitaltransition,inparticularonsustainable transport Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2025.SDG 11and buildings, Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 7, 8cleanandefficientproductionanduseofenergy,contributingtoaprogressive decarbonisation of the economy. Some ProgressRelevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 7, 9, 13Foster innovation [in particular in the business sector] Some ProgressRelevant RRP measures being planned as of 2022 and 2023.SDG 9and digitalisation, in particular in the business sector. Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2024.SDG 92020 CSR 4Limited progressEnsureeffectivesupervisionandenforcementoftheanti-moneylaunderingframeworkasregardsprofessionalsprovidingtrustandcompany services, and investment services. Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2023.SDG 8, 16Step up action to address features of the tax system that facilitate aggressive tax planning, in particular by means of outbound payments. Limited ProgressSDG 8, 16 
 
 
  
 
Table (continued) 

Note:  
* See footnote (22).  
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the 
RRP are necessary to fully implement CSRs and address their underlying challenges. Measures indicated as 'being implemented' 
are only those included in the RRF payment requests submitted and positively assessed by the European Commission.  
Source: European Commission. 

28 

2021 CSR 1Some progressIn2022,pursueasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Full ImplementationNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Full ImplementationNot applicableSDG 8, 16At the same time, enhance investment to boost growth potential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Substantial ProgressNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Limited ProgressNot applicableSDG 8, 162022 CSR 1Limited progressIn2023,ensurethatthegrowthofnationallyfinancedprimarycurrentexpenditureisinlinewithanoverallneutralpolicystance,takingintoaccountcontinuedtemporaryandtargetedsupporttohouseholdsandfirmsmostvulnerabletoenergypricehikesandtopeoplefleeingUkraine.Standreadytoadjustcurrentspendingtotheevolving situation.No ProgressNot applicableSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Full ImplementationNot applicableSDG 8, 16Fortheperiodbeyond2023,pursueafiscalpolicyaimedatachieving prudent medium-term fiscal positions.Full ImplementationNot applicableSDG 8, 16Improvethelong-termsustainabilityofthepensionsystem,inparticularbylimitingearlyretirementandbyincreasingtheemployment rate of older workers.No ProgressSDG 8Takeactiontoeffectivelytackleaggressivetaxplanning,includingbyensuringsufficienttaxationofoutboundpaymentsofinterestsand royalties to zero and low-tax jurisdictions.Limited ProgressSDG 8, 162022 CSR 2Proceedwiththeimplementationofitsrecoveryandresilienceplan,inlinewiththemilestonesandtargetsincludedintheCouncilImplementing Decision of 13 July 2021.Submitthe2021-2027cohesionpolicyprogrammingdocumentswithaviewtofinalisingtheirnegotiationswiththeCommissionandsubsequently starting their implementation.2022 CSR 3Limited progressReducetheimpactofinequalitiesonpupils’performanceandpromoteequalopportunitiesforallstudentsintheeducationalsystem.Limited ProgressSDG 4, 8, 102022 CSR 4Some progressReduce overall reliance on fossil fuelsSome ProgressRelevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 7, 9, 13by accelerating the deployment of renewables,Some ProgressRelevant RRP measures being planned as of 2022, 2023, 2024 and 2025.SDG 7, 9, 13electricity transmission capacity,Some ProgressSDG 7, 9, 13andinvestmentinenergyefficiencyinboththeresidentialandnon-residential sectors.Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022 and 2023.SDG 7Supportmunicipalitiesindevelopingdetailedlocalplansforthedeploymentofrenewableenergy,includingwindpowerandphotovoltaics, and for district heating and cooling systems.Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022 and 2023.SDG 7, 9, 10, 11, 13Furtherpromoteelectrificationoftransportandinvestinpublictransport networks and infrastructures.Some ProgressRelevant RRP measures being implemented as of 2021.Relevant RRP measures being planned as of 2022, 2023 and 2025.SDG 11RRP implementation is monitored by assessing RRP payment requests and analysing reports published twice a year on the achievement of the milestones and targets. These are to be reflected in the country reports. Progress on the cohesion policy programming documents is monitored under the EU cohesion policy. 
 
 
 
 
  
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN - OVERVIEW 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the centrepiece of the EU’s efforts to help it 
recover  from  the  COVID-19  pandemic,  speed 
up  the  twin  transition  and  strengthen 
resilience  against  future  shocks.  The  RRF 
also  contributes  to  implementation  of  the 
SDGs  and  helps  to  address  the  Country 
Specific  Recommendations 
(see  Annex 2). 
Luxembourg  submitted  its  initial  recovery  and 
(RRP)  on  30 April 2021.  The 
resilience  plan 
on 
Commission’s 
positive 
18 June 2021 
on 
and 
Council’s 
the  way  for  disbursing 
13 July 2021  paved 
EUR 93.4  billion  in  grants  under  the  RRF  over  the 
2021-2026 period.   

assessment 

approval 

Table A3.1: Key elements of Luxembourg's RRP 

Source: RRF Scoreboard  

Since  the  entry 
into  force  of  the  RRF 
Regulation  and  the  assessment  of  the 
national  recovery  and  resilience  plans, 
geopolitical  and  economic  developments 
have caused major disruptions across the EU. 
In  order  to  effectively  address  these  disruptions, 
the  (adjusted)  RRF  Regulation  allows  Member 
States to amend their recovery and resilience plan 
for  a  variety  of  reasons.  In  line  with  article  11(2) 
of the RRF, the maximum financial contribution for 
Luxembourg  was  moreover  updated  on  30  June 
2022 to an amount of EUR 82.7 billion in grants. 

In  this  context,  Luxembourg  submitted  an 
amended  RRP  to  the  Commission  on  11 
November  2022  to  take  account  of  its  revised 
maximum financial contribution, in line with Article 
18  of  the  RRF  Regulation.  Given  its  reduced 
financial  contribution,  Luxembourg  proposed  to 
remove  from  this  revised  plan  the  digital  skills 
training  program  targeting  workers  on  short-time 

working  schemes,  explaining  that  it  did  not  meet 
initial  expectations  in  terms  of  demand.  This  is 
mainly  explained  by  a  stronger  than  expected 
rebound of the Luxembourg economy in the spring 
of  2021,  with  a  large  number  of  beneficiaries 
than 
returning 
expected.  The  revised  RRP  was  approved  by  the 
Commission on 12 December 2022 and Council on 
17 January 2023.  

to  full-time  contracts  earlier 

is  published 

Luxembourg’s  progress  in  implementing  its 
plan 
in  the  Recovery  and 
Resilience  Scoreboard (24).  The  Scoreboard  also 
gives  an  overview  of  the  progress  made  in 
implementing the RRF as a whole, in a transparent 
manner. The graphs in this Annex show the current 
state of play as reflected on the Scoreboard.  

EUR 12.1 million has so far been disbursed to 
Luxembourg  under  the  RRF.  The  Commission 
disbursed  this  amount  in  pre-financing  on  3 
August  2021,  equivalent  to  13%  of  the  financial 
allocation.  

In December 2022, Luxembourg submitted its 
first payment request for an amount of EUR 
20.2  million.  The  Commission  published 
its 
positive preliminary assessment on 28 April 2023. 
The  payment  request  is  now  discussed  in  the 
Council. 

(24)  https://ec.europa.eu/economy_finance/recovery-and-

resilience-scoreboard/country_overview.html 

29 

Current RRPScope Revised plan (article 18)CID adoption date 17 January 2023Total allocation EUR 83 million in grants (0.11% of 2021 GDP)Investments and reforms 12 investments and 10 reforms Total number of milestones and targets60 
 
 
  
 
                                                 
 
Graph A3.1: Share of RRF funds contribution to each policy pillar 

Note: Each measure contributes towards two policy areas of the six pillars, therefore the total contribution to all pillars displayed 
on this chart amounts to 200% of the estimated cost of the RRP. The bottom part represents the amount of the primary pillar, the 
top part the amount of the secondary pillar. 
Source: RRF Scoreboard  

Graph A3.2: Total grants disbursed under the RRF 

Note: This graph displays the amount of grants disbursed so 
far under the RRF. Grants are non-repayable financial 
contributions. The total amount of grants given to each 
Member State is determined by an allocation key and the 
total estimated cost of the respective RRP. 
Source: RRF Scoreboard  

30 

€ 12.14million0%10%20%30%40%50%60%70%80%Green transitionDigitaltransformationSmart, sustainableand inclusivegrowthSocial and territorialcohesionHealth, andeconomic, socialand institutionalresilience 
 
   
 
 
 
   
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The  EU  budget  of  over  EUR  1.2  trillion  for 
2021-2027  is  geared  towards  implementing 
the  EU’s  main  priorities.  Cohesion  policy 
investment amounts to EUR 392 billion across the 
EU and represents almost a third of the overall EU 
budget, including around EUR 48 billion invested in 
line with REPowerEU objectives. 

Graph A4.1: Cohesion policy funds 2021-2027 in 
Luxembourg: budget by fund 

(1) million EUR in current prices, % of total; (total amount 
including EU and national co-financing) 
Source: European Commission, Cohesion Open Data 

in  Luxembourg,  cohesion 
In  2021-2027, 
policy funds (25) will invest EUR 8.5 million in 
the  green  transition  and  EUR  0.5  million  in 
the  digital  transformation  as  part  of  the 
country’s  total  allocation  of  EUR  90  million. 
In  particular,  the  European  Regional  Development 
Fund  (ERDF) will  boost  research  and  innovation, 
digitalisation and energy efficiency. SMEs lie at the 
heart of ERDF support to companies, and financial 
instruments  will  be  deployed  widely  to  improve 
their  access  to  finance.  Over  16 000  households 
will improve energy performance of their dwellings 
and  20 000  will  get  high-capacity 
internet 
connection. The Just Transition Fund  will  facilitate 
the  green  transition  and  foster  job  creation  in 
regions  with  emission-intensive  industries.  The 
European  Social  Fund  Plus  (ESF+)  is  key  to 
supporting  investment  in  people  and  reforms  in 
the  areas  of  employment,  education  and  training, 
and  social  inclusion.  Luxembourg  allocated  EUR 
7.2  million  to  employment  and  life-long  learning, 
of  which  66%  target  the  development  of  digital 
skills  and  jobs.  EUR  3.8  million  will  support 
integrated 
disadvantaged 
pathways to work. 

through 

groups 

(25)  European Regional Development Fund (ERDF), European 
Social Fund+ (ESF+), Just Transition Fund (JTF) excluding 
Interreg programmes. Total amount includes national and EU 
contributions. Data source: Cohesion Open Data.  

31 

in 

invested 

Of the investments mentioned above, EUR 10 
line  with 
million  will  be 
REPowerEU objectives. This is on top of the EUR 
5.8  million  dedicated  to  REPowerEU  under  the 
2014-2020  budget.  EUR  5  million  (2021-2027) 
and  EUR  [4]  million  (2014-2020)  is  for  improving 
energy efficiency; EUR [5] million (2021-2027) and 
EUR  [1.8]  million  (2014-2020)  is  for  renewable 
energy and low-carbon R&I. 

Graph A4.2: Synergies between cohesion policy 
funds and the RRF with its six pillars in 
Luxembourg 

(1) million EUR in current prices (total amount, including EU 
and national co-financing)   
Source: European Commission  

182.5 

In  2014-2020,  cohesion  policy  funds  made 
EUR 
to 
million 
Luxembourg (26)  with  an  absorption  of  79% (27). 
Including  national  financing,  the  total  investment 
amounts  to  EUR  231.4  million  -  around  0.1%  of 
GDP for 2014-2020.  

available 

to 

flexibility 

to  benefit  from 
Luxembourg  continues 
cohesion  policy 
support 
recovery,  step  up  convergence  and  provide 
vital support to regions following the COVID-
19  pandemic.  The  Recovery  Assistance  for 
Cohesion and the Territories of Europe instrument 
(REACT-EU) (28)  under  NextGenerationEU  provides 
EUR  144  million  on  top  of  the  2014-2020 
cohesion policy allocation for Luxembourg. REACT-
EU  financed close to 2 million COVID-19 vaccines 
and  other  medical  supplies.  Close  to  5 500  SMEs 
received  loans  to  overcome  from  the  lockdown 
period  and  450 000  workers  were  supported 

(26)  Cohesion policy funds include the ERDF and ESF. ETC 

programmes are excluded here. According to the ‘N+3 rule’, 
the funds committed for 2014-2020 must be spent by 
2023. REACT-EU is included in all figures. The total amount 
includes EU and national co-financing. Data source: Cohesion 
Open Data. 

(27)  2014-2020 Cohesion policy EU payments by MS is updated 

daily on Cohesion Open Data.   

(28)  REACT-EU allocation on Cohesion Open Data. 

35,30039%36,35340%18,52921%ERDFESF+JTF56 2 23 109 37 24 9 11 38 2 020406080100120Green transitionDigital transformationSmart, sustainableand inclusive growthSocial and territorialcohesionHealth, economic,social andinstitutional resiliencePolicies for the nextgenerationEU CP 2014-2020 (million EUR)EU CP 2021-2027 (million EUR) 
 
  
                                                 
   
                                                 
 
 
through  short-time  work  and  similar  schemes. 
With  SAFE  (Supporting  Affordable  Energy),  the 
2014-2020  cohesion  policy  funds  may  also  be 
mobilised  by  Luxembourg  to  support  vulnerable 
households, 
jobs  and  companies  particularly 
affected by high energy prices. 

In both 2014-2020 and 2021-2027, cohesion 
policy  funds  have  contributed  substantially 
to 
the  Sustainable  Development  Goals 
(SDGs).  These  funds  support  11  of  the  17  SDGs, 
notably SDG 8 ‘decent work and economic growth’ 
and SDG 7 ‘affordable and clean energy’ (29).  

Graph A4.3: Cohesion policy funds contribution to 
the SDGs in 2014-2020 and 2021-2027 in 
Luxembourg 

(1) 5 largest contributions to SDGs in million (EUR) current 
prices 
Source: European Commission  

two  CAP  Funds 

Other  EU  funds  make  significant  resources 
available  for  Luxembourg.  The  common 
agricultural  policy  (CAP)  made  available  EUR  0.4 
billion in 2014-2022, and will continue to support 
Luxembourg  with  EUR  0.2  billion  in  2023-2027. 
The 
(European  Agricultural 
Guarantee  Fund  and  European  Agricultural  Fund 
for Rural Development), contribute to the European 
Green Deal while ensuring long-term food security. 
They promote social, environmental and economic 
sustainability  and  innovation  in  agriculture  and 
rural areas, in coordination with other EU funds.  

Luxembourg  also  benefits  from  other  EU 
programmes,  notably  the  Connecting  Europe 
Facility,  which  under  CEF  2  (2021-2027)  has  so 
far  allocated  EU  funding  of  EUR  4.23  million  to 

(29)  Other EU funds contribute to the implementation of the 
SDGs. In 2014-2022, this includes both the European 
Agricultural Fund for Rural Development (EARDF) and the 
European Maritime and Fisheries Fund (EMFF). 

three  specific  projects  on  strategic  transport 
networks.  Similarly,  Horizon  Europe  has  so  far 
allocated  nearly  EUR  46  million  to  R&I  actors, 
while in the previous programming period, Horizon 
2020  earmarked  EUR  201  million.  The  Public 
Sector  Loan  Facility  established  under  the  Just 
Transition  Mechanism  makes  EUR  0.7  million  of 
grant  support  from  the  Commission  available  for 
projects  located  in  Luxembourg  for  2021-2027, 
which will be combined with loans from the EIB to 
support  investments  by  public  sector  entities  in 
just transition regions. 

the 

improve 

Instrument 

(TSI) 
The  Technical  Support 
in  designing  and 
supports  Luxembourg 
implementing  growth-enhancing 
reforms. 
Luxembourg has received significant support since 
2018.  Examples  include:  (i)  developing  a  strategy 
to 
take-up  of 
vocational    education  and  training  (VET);  (ii) 
modernising  the  production  and  dissemination  of 
official statistics by supporting open standards for 
data  exchange;  (iii)  assisting  with  the  adoption  of 
an  accrual  accounting 
system  based  on 
international standards; and (iv) implementing the 
European Child Guarantee (30). 

relevance  and 

(30)  Country factsheets on reform support are available here. 

32 

1011486025161514020406080100120SDG 8 Decent work andeconomic growthSDG 7 Affordable andclean energySDG 1 No povertySDG 9 Industry,innovation,infrastructureEU CP 2014-2020 (millions EUR)EU CP 2021-2027 (millions EUR) 
     
                                                 
                                                 
Luxembourg 

indicators. 
resilience 
It  has  medium-high 
capacities  in  the  social  and  economic  and  digital 
dimensions,  and  high  capacities  in  the  green  and 
geopolitical  dimensions. 
shows 
stronger  capacities  than  the  EU  average  in  all 
in 
areas  of  the  green  dimension,  but  also 
‘cybersecurity’,  ‘raw  material  and  energy  supply’, 
‘financial 
‘value 
and 
improving 
is 
globalisation’.  There 
capacities  compared  to  the  EU  in  ‘economic  and 
financial 
and 
and 
‘digitalisation for industry’.   

sustainability’ 

and 
for 

stability 

chains 

trade’ 

room 

Table A5.1: Resilience indices summarising the 
situation across RDB dimensions and areas 

Data are for 2021, and EU-27 refers to the value for the EU 
as a whole. Data underlying EU-27 vulnerabilities in the area 
‘value chains and trade’ are not available as they comprise 
partner concentration measures that are not comparable with 
Member States’ level values. 
Source: JRC Resilience Dashboards - European Commission 

ANNEX 5: RESILIENCE 

This  Annex  illustrates  Luxembourg’s  relative 
resilience capacities and vulnerabilities using 
the  Commission’s 
resilience  dashboards 
(RDB) (31).  Comprising  a  set  of  124  quantitative 
indicators,  the  RDB  provide  broad  indications  of 
Member  States’  ability  to  make  progress  across 
four interrelated dimensions: social and economic, 
green, digital, and geopolitical. The indicators show 
vulnerabilities (32)  and  capacities (33)  that  can 
become  increasingly  relevant,  both  to  navigate 
ongoing  transitions  and  to  cope  with  potential 
future shocks. To this end, the RDB help to identify 
areas  that  need  further  efforts  to  build  stronger 
and  more  resilient  economies  and  societies.  They 
in  Table  A5.1  as  synthetic 
are  summarised 
resilience 
illustrate  the  overall 
relative  situation  for  each  of  the  four  dimensions 
and their underlying areas for Luxembourg and the 
EU-27 (34). 

indices,  which 

According  to  the  set  of  resilience  indicators 
under 
the  RDB,  Luxembourg  generally 
displays  a  similar  level  of  vulnerabilities 
compared  to  the  EU  average.  Luxembourg 
shows medium-low vulnerabilities in the social and 
economic  and  the  digital  dimensions  of  the  RDB 
but faces medium-high and high vulnerabilities in 
the  geopolitical  and  green  dimensions.  It  has 
higher  vulnerabilities  than  the  EU  average  in  all 
areas  of  the  green  dimension  as  well  as  in 
‘cybersecurity’,  ‘raw  material  and  energy  supply’ 
and  ‘security  and  demography’.  Luxembourg  has 
relatively  low  vulnerabilities  in  relation  to  ‘health, 
education  and  work’,  ‘economic  and  financial 
stability  and  sustainability’,  and  ‘digitalisation  of 
the public and personal space’. 

Compared  to  the  EU  average,  Luxembourg 
shows  an  overall  similar  but  somewhat 
higher  level  of  capacities  across  all  RDB 

(31)  For details see https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en; see also 2020 Strategic 
Foresight Report (COM(2020) 493). 

(32)  Vulnerabilities describe features that can exacerbate the 

negative impact of crises and transitions, or obstacles that 
may hinder the achievement of long-term strategic goals. 

(33)  Capacities refer to enablers or abilities to cope with crises 
and structural changes and to manage the transitions.  

(34)  This Annex is linked to Annex 1 on SDGs, Annex 6 on the 
green deal, Annex 8 on the fair transition to climate 
neutrality, Annex 9 on resource productivity, efficiency and 
circularity, Annex 10 on the digital transition and Annex 14 
on the European pillar of social rights. 

33 

LUEU-27LUEU-27Vulnerabilities IndexHighMedium-highMediumMedium-lowLowNot availableCapacities IndexHighMedium-highMediumMedium-lowLowNot availableDimension/AreaVulnerabilitiesCapacitiesSocial and economicHealth, education and workInequalities and social impact of the transitionsGreenEconomic & financial stability and sustainabilitySustainable use of resourcesClimate change mitigation & adaptationDigitalEcosystems, biodiversity, sustainable agricultureDigital for industryDigital for personal spaceCybersecurityDigital for public spaceRaw material and energy supplyGeopoliticalValue chains and tradeFinancial globalisationSecurity and demography 
 
                                                 
 
  
 
 
 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

transition 

Luxembourg’s  green 
requires 
continued action on several aspects including 
sustainable  transport,  energy  efficiency  and 
the 
renewable  energy. 
European Green Deal is underway in Luxembourg; 
this  Annex  provides  a  snapshot  of  the  key  areas 
involved (35).  

Implementation  of 

Luxembourg  is  projected  to  reach  its  2030 
climate  policy  target  for  the  effort  sharing 
sectors, if it implements additional measures 
tabled (36).  Data  for  2021  on  Luxembourg’s 
greenhouse  gas  emissions  in  these  sectors  are 
expected to show the country generated less than 
its annual emission allocations (37). Current policies 
in  Luxembourg  are  projected  to  reduce  these 
emissions by 14% relative to 2005 levels in 2030, 
which would miss the effort sharing target by far, 
let  alone  the  new  target  set  in  line  with  the  EU’s 
55%  objective.  However,  adopting  the  additional 
measures 
the  emission 
reductions  to  53%,  exceeding  the  new  target  of 
50 % (38). In its recovery and resilience plan (RRP), 
Luxembourg  has  allocated  69 %  of  its  Recovery 
and  Resilience  Facility  grants  to  key  reforms  and 

tabled  would  bring 

(35)  The overview in this Annex is complemented by Annex 7 on 
energy security and affordability, Annex 8 on the fair 
transition to climate neutrality and environmental 
sustainability, Annex 9 on resource productivity, efficiency 
and circularity, Annex 11 on innovation, and Annex 19 on 
taxation. 

(36)  Member States’ greenhouse gas emission targets for 2030 
(‘effort sharing targets’) were increased by Regulation (EU) 
2023/857 (the Effort Sharing Regulation) amending 
Regulation (EU) 2018/842, aligning the action in the 
concerned sectors with the objective to reach EU-level, 
economy-wide greenhouse gas emission reductions of at 
least 55% relative to 1990 levels. The Regulation sets 
national targets for sectors outside the current EU Emissions 
Trading System, notably: buildings (heating and cooling), road 
transport, agriculture, waste, and small industry. Emissions 
covered by the EU ETS and the Effort Sharing Regulation are 
complemented by net removals in the land use sector, 
regulated by Regulation (EU) 2018/841 (the Land Use, Land 
Use Change and Forestry (LULUCF) Regulation) amended by 
Regulation (EU) 2023/839. 

(37)  Luxembourg's annual emission allocations for 2021 were 
some 8.4 Mt CO2eq, and its approximated 2021 emissions 
were 8.1 Mt (see European Commission, Accelerating the 
transition to climate neutrality for Europe’s security and 
prosperity: EU Climate Action Progress Report 2022, 
SWD(2022)343). 

(38)  See the information on the distance to the 2030 climate 

policy target in Table A6.1. Existing and additional measures 
as of 15 March 2021.  

investments  to  attain  climate  objectives (39). 
Luxembourg’s  climate  law  of  2020  obliges  the 
country  to  reduce  greenhouse  gas  emissions  in 
the  effort  sharing  sectors  by  55%  compared  to 
2005  levels  by  2030  and  sets  the  objective  to 
achieve climate neutrality by 2050 (40). 

(39)  For example, a support scheme to extend the network of 

charging points for electric vehicles across the country and a 
new housing district built on a former industrial site with heat 
and electricity produced from renewables. The RRP also 
includes a reform to electrify the fleet of contracting 
authorities. Luxembourg adopted a Grand-Duchy Regulation 
in November 2022 setting a minimum percentage of clean 
vehicles of the vehicles purchased through public contracts 
for all contracting authorities and entities to achieve over the 
period 2021-2025.  

(40)  The law also establishes the legal framework for the 
implementation of Luxembourg’s national energy and 
climate plan (NECP). The plan was adopted on 20 May 2020. 
An update, mandated by Regulation (EU) 2018/1999 (the 
Governance Regulation), is underway. 

34 

 
 
 
                                                 
                                                 
 
 
Graph A6.1: Thematic – greenhouse gas emissions 
from the effort sharing sectors in Mt CO2eq, 
2005-2021 

Graph A6.2: Thematic - energy mix (top) and 
electricity mix (bottom), 2021 

Source: European Environmental Agency. 

removals 

Luxembourg is on track to meet its 2030 net 
carbon  removals  value  for  its  land  use 
sector. Luxembourg delivers net carbon removals 
through  land  use  thanks  to  forest  management. 
and 
by 
Carbon 
afforestation  are  negligible,  as  are  the  emissions 
generated  by  deforestation.  Net  removals  were 
605 kt CO2eq  in  2021.  For  2030,  Luxembourg’s 
target  for  the  land  use,  land  use  change  and 
forestry  sector  (LULUCF)  implies  to  achieve  net 
removals of 403 ktCO2eq (see Table A6.1) (41). 

re-forestation 

Fossil  fuels  still  play  a  strong  role  in 
Luxembourg’s energy mix. In 2021, oil provided 
69% of Luxembourg’s energy mix, and natural gas 
18%,  while  12%  came  from  renewable  energy 
sources.  Luxembourg’s  target  of  25%  of  share  of 
energy  from  renewable  sources  in  gross  final 
energy consumption by 2030 included in the NECP 
ambitious. 
was 
Luxembourg  will  need  to  increase  its  renewable 
energy target in the updated NECP to reflect  the 
more  ambitious  EU  climate  and  energy  targets  in 
the Fit for 55 Package and in the REPowerEU Plan . 

sufficiently 

considered 

(41)  This value is indicative and will be updated in 2025 (as 

mandated by Regulation (EU) 2023/839).  

35 

The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste.  
Source: Eurostat. 

for 

feed-in 

Luxembourg  has  continued 
to  support 
renewable  energy  nationally,  but  also 
through  cooperation  agreements  with  other 
Member  States.  It  continued  its  public  support 
schemes  to  roll  out  renewable  energy,  including 
through 
small-scale 
tariffs 
installations,  market  premiums  and  calls  for 
tender.  Luxembourg  also  continues  to  roll  out  its 
public  tendering  scheme,  which  is  expected  to 
bring  in  55-65  MW  of  new  capacity  per  year. 
However, the 2021 tender resulted in an increase 
of  only  14  MW  (of  the  55  MW  tendered). 
Luxembourg  also  chose 
to  use  cooperation 
mechanisms  on  renewables,  by  signing  a  binding 
commitment  to  participate  as  a  contributing 
country  in  the  first  cross-border  tender  under  the 
European  renewable  energy  financing  mechanism 
and  concluding  a  cooperation  agreement  with 
Denmark  to  invest  in  new  projects,  such  as  the 
financing of energy islands in the North Sea. 

02468101220052021Domestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste8%92%GasRenewables1%18%69%12%Solid fossil fuels, peatand oil shaleGasOilRenewables 
     
                                                 
       
Natural  gas  makes  up  around  half  of  the 
final  energy  consumption  in  the  residential 
sector,  showing  the  need  to  renovate  the 
building  stock  and  prioritise  energy  savings. 
target  for  final  energy 
Luxembourg’s  NECP 
consumption (FEC) was considered sufficient in the 
2020  Commission  assessment.  Based  on  the 
energy  consumption  trajectory  for  2018-2021, 
Luxembourg is expected to be on track to meet its 
2030  target  for  primary  energy  consumption  and 
is expected to be on track to meet its 2030 target 
for  FEC,  as  these  were  notified  in  its  NECP (42). 
Luxembourg  plans  to  reduce  energy  consumption 
by modernisation measures and energy efficiency 
improvements  to  the  public-sector  and  private-
sector  building  stock,  energy  efficiency  support 
measures  and  demonstration  projects  in  SMEs,  in 
large  companies  and  electric  transport.  Planned 
investments in energy efficiency also aim to tackle 
and  reduce  energy  poverty.  Luxembourg  has  a 
energy 
long-term 
renovations in  buildings, with the  aim  of  reaching 
a  3%  renovation  rate  in  the  residential  sector, 
which is approximatively 4500 dwellings per year. 
The  aim  is  to  renovate  all  existing  houses  to  net 
zero  emissions  by  2050.  The  recovery  and 
includes  measures  on 
resilience  plan 
renewable  energy 
instance 
(for 
installing  solar  energy  on  the  roof  of  the 
rehabilitated  structure  of  the  Neischmelz  project) 
and  renovating  public  buildings.  For  residential 
buildings,  around  89%  of  the  residential  building 
stock uses fossil fuel heating systems (heating oil 
and natural gas). 

in  buildings 

renovation 

strategy 

(RRP) 

for 

Transport  generates  the  highest  share  of 
greenhouse  gas  emissions 
in  the  effort 
sharing  sectors  in  Luxembourg.  The  country 
has  some  measures  to  promote  sustainable 
transport,  and  others  tabled  in  the  recovery  and 
resilience  plan. 
It  has  the  highest  share  of 
electrified railway kilometres in the EU. The market 
maturity  for  zero-emission  passenger  vehicles  is 
close  to  the  EU  average,  and  the  number  of 
electric  cars  is  growing  fast.  However,  individual 
transport  has  increased  congestion.  Emissions  of 
key  air  pollutants 
(PM2.5,  NOx)  have  fallen 
significantly lately (43). Overall,  air  quality  is  good, 

(42)  After the conclusion of the negotiations for a recast EED, the 
ambition of both the EU and national targets as well as of 
the national measures for energy efficiency to meet these 
targets is expected to increase.    

(43)  In 2017, the Commission sent a letter of formal notice to 
Luxembourg for NO2 exceedances in several air-quality 

36 

it 

promotes 

sustainable 

but  road  traffic  causes  air  pollution  hotspots. 
public 
Though 
transport (44),  Luxembourg  does  not  sufficiently 
tackle  the  issue  of  pollution  from  individual  cars 
and  congestion.  Luxembourg  has  the  potential  to 
rely  more  on  environmental  taxes  to  further 
internalise the costs of air pollution (45). It has one 
of  the  lowest  shares  of  environmental  taxes 
among the EU Members, notably on pollution (see 
Annex  19),  and  the  share has  decreased between 
2016  and  2021  (from  4,7%  to  3,8%  of  total 
taxation). 

Luxembourg  would  benefit  from  investing 
more in environmental protection, in tackling 
in  promoting  the  circular 
pollution  and 
the 
economy.  Between  2014  and  2020, 
needs (46)  were 
environmental 
investment 
estimated  to  be  at  least  EUR  627.7  million,  while 
investment was about EUR 362.5 million, leaving a 
gap  of  at  least  EUR  265.1  million  per  year  (see 
Graph  A6.4) (47).  A  large  investment  gap  remains 
and slows down performances in circular economy 
(see  Annex  9).  Despite  good  water  infrastructure, 
there is  still  an  investment  gap  in  the  sector  (see 
Graph  A6.3).  Luxembourg 
invests  significant 
resources  in  biodiversity  and  in  protecting  its 
ecosystems.  It  has  the  largest  share  of  land 
protected areas (Natura 2000 and other nationally 
designated zones) in the EU, covering 51.5% of its 
land (48). Restoring habitats and reducing pressure 
on  ecosystems  from  pollution,  agriculture  and 
urban  sprawl 
to  counter 
biodiversity losses. All surface waters and a major 
share of Luxembourg’s groundwater bodies fail to 

remain  priorities 

zones in the city of Luxembourg. Since then, the authorities 
have taken measures that have achieved some progress. 

(44)  Public transport is free in Luxembourg (since 1 March 2020). 

(45)  European Commission, 2021, Green taxation and other 

economic instruments – Internalising environmental costs to 
make the polluter pay, Ensuring that polluters pay.  

(46)  Environmental objectives include pollution prevention and 

control, water management and industries, circular economy 
and waste, biodiversity and ecosystems (European 
Commission, 2022, Environmental Implementation Review, 
country report Luxembourg). 

(47)  When also accounting for needs estimated at EU-level only 

(e.g., water protection, higher circularity, biodiversity 
strategy).  

(48)  In 2021, Luxembourg had 55.8% terrestrial protected areas 
(Natura 2000 and nationally designated areas), against the 
EU average of 26.4% (European Environment Agency, 2023, 
Natura 2000 Barometer). 

 
                                                 
                                                                              
achieve good chemical status (49). High agricultural 
pressure in some areas causes eutrophication, and 
the  country  needs  to  act  on  nitrate  pollution.  The 
recovery  and  resilience  plan  contains  municipal 
investment  on  nature  and  biodiversity  under  the 
‘Naturpakt’.  

Graph A6.3: Thematic – environmental investment 
needs and current investment, p.a. 2014-2020 

Source: European Commission. 

Climate change is affecting many sectors, (50) 
and  vulnerability  to  climate  disasters  is 
expected to rise (51). The sectors affected include 
housing,  water  management,  agriculture,  and 
forestry.  Extreme  weather  events 
(tornados, 
torrential rainfall, flooding, extended drought) have 
in  recent  years (52).  Droughts, 
been  frequent 
heatwaves,  and  the  spread  of  bark  beetle, 
exacerbated  by  climate  change,  has  caused  the 
damage  or  destruction  of  over  60%  of  forests  in 
Luxembourg (53). Municipalities will get support for 
climate  adaptation  under 
recovery  and 
resilience  plan.  Luxembourg  has  adopted  a 
strategy and an action plan for climate adaptation, 

the 

(49)  Environmental Implementation Review 2022 – country report 

Luxembourg. 

(50)  Government of Luxembourg (2018), Strategy and action plan 

for adaptation to the effects of climate change in 
Luxembourg 2018-2023. 

(51)  The European Commission Disaster Risk Management 
Knowledge Centre (DRMKC) Risk Data Hub (europa.eu). 

(52)  In addition to the historical vulnerability to winter floods, the 
2016 and 2021 extreme flooding events in spring and 
summer show that the traditional weather patterns in the 
country have changed.  

(53)  Government of Luxembourg (2022), The results of the 2022 
phytosanitary inventory of forests - Nature and Forest 
Administration 

but it has not yet created an adaptation portal to 
provide easier access to information. 

initial  assessment, 

Luxembourg  provides  sector-specific  fossil 
fuel  and  other  environmentally  harmful 
subsidies  that  could  be  considered  for 
reform,  while  ensuring  food  and  energy 
security  and  mitigating  social  effects. 
Environmentally  harmful  subsidies  have  been 
identified,  via  an 
in  the 
agriculture,  forestry  and  fishing,  electricity,  gas, 
steam  and  air  conditioning,  transportation  and 
storage  and  services  sectors.  Luxembourg’s  fossil 
fuel  subsidies  were  more  than  EUR  41  million  in 
2020,  putting 
low  carbon  alternatives  to  a 
disadvantage.  Examples  of  such  subsidies  include 
the  flat  rate  taxation  of  privately  used  company 
cars,  the  excise tax  refund  for  diesel  fuel  used in 
agriculture, the excise tax exemption on the use of 
natural gas, the excise duty exemption for natural 
gas  used  as  motor  fuel  or  the  reduced  CO2  tax 
rate on diesel used in agriculture (54). A mapping of 
all 
by 
Luxembourg  would  help  prioritise  candidates  for 
reform. 

environmentally 

subsidies 

harmful 

(54)  Fossil fuel figures in EUR of 2021 from the 2022 State of 

the Energy Union report. Initial assessment of 
environmentally harmful subsidies done by the Commission 
in the 2022 toolbox for reforming environmentally harmful 
subsidies in Europe, using OECD definitions, and based on the 
following datasets: OECD Agriculture Policy Monitoring and 
Evaluations; OECD Policy Instruments for the Environment 
(PINE) Database; OECD Statistical Database for Fossil Fuels 
Support; IMF country-level energy subsidy estimates. Annex 4 
of the toolbox contains detailed examples of subsidies on 
the candidates for reform. 

37 

425422721111827618929160,050,0100,0150,0200,0250,0300,0Pollutionprevention andcontrolWater (industries,excl. protection)Circular economy(incl. waste)Biodiversity andecosystemsR&I&D and otherEUR million (at current prices)Current investmentTotal need 
       
                                                 
                                                 
Table A6.1: Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Sources: (1) Historical and projected emissions, as well as Member States’ climate policy targets and 2005 base year emissions 
under the Effort Sharing Decision (for 2020) are measured in global warming potential (GWP) values from the 4th Assessment 
Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ climate policy targets and 2005 base 
year emissions under the Effort Sharing Regulation (for 2030) are in GWP values from the 5th Assessment Report (AR5). The 
table above shows the base year emissions 2005 under the Effort Sharing Decision, using AR4 GWP values. Emissions for 2017-
2021 are expressed in percentage change from 2005 base year emissions, with AR4 GWP values. 2021 data are preliminary. The 
table shows the 2030 target under Regulation (EU) 2023/857 that aligns it with the EU’s 55% objective, in percentage change 
from 2005 base year emissions (AR5 GWP). Distance to target is the gap between Member States’ 2030 target (with AR5 GWP 
values) and projected emissions with existing measures (WEM) and with additional measures (WAM) (with AR4 GWP values), in 
percentage change from the 2005 base year emissions. Due to the difference in global warming potential values, the distance to 
target is only illustrative. The measures included reflect the state of play as of 15 March 2021.  
(2) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2023 
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839 
amending Regulation (EU) 2018/841 (LULUCF Regulation) – Annex IIa, kilotons of CO2 equivalent, based on 2020 submissions. 
(3) Renewable energy and energy efficiency targets and national contributions are in line with the methodology established under 
Regulation (EU) 2018/1999 (Governance Regulation).  
(4) Percentage of total revenue from taxes and social contributions (excluding imputed social contributions). Revenue from the EU 
Emissions Trading System is included in environmental tax revenue.  
(5) Expenditure on gross fixed capital formation for the production of environmental protection services (abatement and 
prevention of pollution) covering government, industry, and specialised providers.  
(6) European Commission, Study on energy subsidies and other government interventions in the European Union, 2022 edition.  
(7) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters. This 
indicator is based on modelling of the current risk from floods, wildfires and windstorms as well as earthquakes, and an 
estimation of the current insurance penetration rate. The indicator does not provide information on the split between the 
private/public costs of climate-related disasters. A score of 0 means no protection gap, while a score of 4 corresponds to a very 
high gap (EIOPA, 2022).  
(8) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided by GDP).  
(9) Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV). 

38 

2030200520172018201920202021target/valueWEMWAMGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq; %; pp10,1-14%-11%-9%-24%--50,0%-363Net carbon removals from LULUCF (2)kt CO2eq-566-379-241-364-448-605-403n/an/a200520172018201920202021Share of energy from renewable sources in gross final consumption of energy (3)%1%6%9%7%12%12%25%Energy efficiency: primary energy consumption (3)Mtoe4,84,34,54,53,94,2n/aEnergy efficiency: final energy consumption (3)Mtoe4,54,24,34,43,84,13,1201620172018201920202021201920202021Environmental taxes (% of GDP)% of GDP1,71,61,71,81,41,52,42,22,2Environmental taxes (% of total taxation) (4)% of taxation 4,74,54,34,43,63,85,95,65,5Government expenditure on environmental protection% of total exp.1,82,02,12,12,22,21,71,61,6Investment in environmental protection (5) % of GDP0,30,30,40,4--0,40,40,4Fossil fuel subsidies (6)EUR2021bn0,00,00,00,00,0-53,050,0-Climate protection gap (7) score 1-41,61,01,5Net greenhouse gas emissions1990 = 10078,091,095,096,083,086,076,069,072,0Greenhouse gas emission intensity of the economykg/EUR'100,200,200,200,200,19-0,310,300,26Energy intensity of the economykgoe/EUR'100,080,090,090,090,08-0,110,11-Final energy consumption (FEC)2015=100101,2104,7109,0110,095,5101,8102,994,6-FEC in residential building sector2015=100103,2105,298,391,097,994,3101,3101,3106,8FEC in services building sector2015=100100,8113,2116,1130,9125,0140,6100,194,4100,7Smog-precursor emission intensity (to GDP) (8)tonne/EUR'100,600,590,580,630,57-0,930,86-Years of life lost due to air pollution by PM2.5per 100.000 inh.370,9303,1290,2176,6129,5-581,6544,5-Years of life lost due to air pollution by NO2per 100.000 inh.163,3151,9155,5125,389,3-309,6218,8-Nitrates in ground watermg NO3/litre------21,020,8-Land protected areas% of total40,451,4-51,451,455,826,226,426,4Marine protected areas% of total------10,7-12,1Organic farming% of total utilised agricultural area3,54,24,44,44,65,28,59,1-201720182019202020212022202020212022Share of zero-emission vehicles (9)% in new registrations0,70,91,85,610,415,05,48,910,7Number of AC/DC recharging points (AFIR categorisation)---107910461990188626330028432518Share of electrified railways%95,395,391,091,091,091,056,6n/a56,6Hours of congestion per commuting driver per year36,936,636,135,6n/an/a28,7n/an/aMobility'Fit for 55'DistanceProgress to policy targetsNational contribution to 2030 EU targetLuxembourgEUFiscal and financialindicatorsEnergyPollutionBiodiversityClimate 
 
   
 
ANNEX 7: ENERGY SECURITY AND AFFORDABILITY 

Luxembourg has limited exposure to Russian 
gas and oil. However, it is quite dependent on 
imported  fossil  fuels  and  electricity 
in 
general. This makes its economy particularly 
sensitive  to  global  price  developments, 
requiring  it  to  step  up efforts  on  the  energy 
transition. This Annex (55) sets out actions carried 
out  by  Luxembourg  to  achieve  the  REPowerEU 
objectives,  including  through  the  implementation 
of  its  recovery  and  resilience  plan,  in  order  to 
improve  energy  security  and  affordability  while 
accelerating  the  clean  energy  transition,  and 
contributing to enhancing the EU’s competitiveness 
in the clean energy sector (56).   

information  campaign  by  means  of  an  official 
website on energy savings and building renovation. 
Implementation  of  such  measures  led  to  a  gas 
demand reduction of 26% over the period August 
2022-  March  2023  when  compared  to  the 
previous 5-years average (57) 

Graph A7.1: Share of gas consumption per sector, 
2021 

represents  almost  one 

It  also  consumes  gas  delivered 

Gas 
fifth  of 
Luxembourg’s  energy  mix,  but  the  country 
does not rely heavily on Russian gas. Most of 
the  gas  it  consumes  comes  by  pipeline  from 
Norway and the Netherlands and transits through 
Belgium. 
in 
liquified  form  –  liquefied  natural  gas  –  at  the 
Belgian port of Zeebrugge. In 2021, nearly  100% 
of  the  gas  Luxembourg  consumed  was  imported 
by  pipelines 
from  Belgium  and  Germany. 
Luxembourg  does  not  have  any  gas  production, 
but  it  does  produce  biogas,  injected  into  the 
network (around 0.01 billion cubic metres (bcm) in 
2021).  

of 

level 

electricity 

Luxembourg  has  a  good  level  of  security  of 
supply.  In  December  2022,  the  updated  risk 
preparedness  plan  for  the  electricity  sector  was 
adopted and  published. A new tool to monitor the 
national 
the 
‘StroumMonitor’,  has  also  been  set  up  to  indicate 
peak  consumption  times  and  alert  the  population 
in  the  event  of  a  power  shortage  in  an  efficient 
and comprehensible way. As of 27 January 2023, 
no  particular  risks  are  expected due  to  significant 
demand  reduction  and  increased  capacities  in 
Germany.  Luxembourg  has  adopted  a  number  of 
measures to reduce gas demand. These include an 

supply, 

(55)  It is complemented by Annex 6 as the European Green Deal 
focuses on the clean energy transition, by Annex 8 on the 
actions taken to mitigate energy poverty and protect the 
most vulnerable ones, and by Annex 9 as the transition to a 
circular economy will unlock significant energy and resource 
savings, further strengthening energy security and 
affordability , and by Annex 12 on industry and single market 
complementing ongoing efforts under the European Green 
Deal and REPowerEU . 

(56)  In line with the Green Deal Industrial Plan COM(2023) 62 
final, and the proposed Net-Zero Industry Act COM(2023) 
161 final 

39 

Source: Eurostat 

Luxembourg is highly interconnected in terms 
of  both  power  and  gas  and 
is  highly 
dependent  on  its  neighbours  to  meet  its 
energy  needs.  Luxembourg’s  electricity  and  gas 
grids  are  sufficient  for  its  current  needs.  In 
anticipation  of  growing  renewable  generation  and 
power  demand,  the  grid  operator  is  planning  to 
further develop the high voltage grid and improve 
in  particular, 
interconnections,  with  Germany 
between now and 2040. 

Luxembourg continues to have a low level of 
energy  poverty,  with  2.6%  of  people  unable 
to keep their homes warm in 2021, compared 
to  the  EU  average  of  6.9%.  To  reduce  the 
impact of high energy prices, Luxembourg has put 
a number of measures in place, such as subsidies 
for  natural  gas  and  fuel  oil  for  residential 
customers,  subsidies  for  electricity  prices  for 
households with an annual electricity consumption 
of  25 000  kWh,  a  VAT  reduction,  limiting  the  gas 
price increase to 15%, and adapting the minimum 
social  wage.  It  has  also  put  in  place  an  extensive 
information campaign on energy savings. 

(57)  EU countries agreed to reduce their gas demand by 15% 

compared to their average consumption in the past 5 years, 
between 1 August 2022 and 31 March 2023, with measures 
of their own choice. 

9.2%36.1%0.0%18.8%35.9%0.0%EnergyIndustryTransportServices and public sectorHouseholdsAgriculture, forestry andfishery 
 
                                                 
      
                                                 
 
 
resulted in only 14 MW (of the 55 MW tendered). 
The  aid  scheme  promoting  solar  photovoltaic 
energy  has,  since  2019,  increasingly  involved 
private  individuals.  Luxembourg  has  announced  a 
hydrogen strategy to make steel more sustainable 
through renewable hydrogen use. 

Luxembourg  has  made  good  progress  in 
building  renovation.  As part  of  its  recovery  and 
resilience  plan,  it  will  develop  a  national  strategy 
with  targeted  investments  to  renovate  public 
housing  in  order  to  improve  their  sustainability 
(the  Housing  Pact  2.0).  It  will  also  produce  solar 
energy on the roof of the rehabilitated structure of 
the  Neischmelz  project.  As  regards  residential 
buildings, around 89% of residential building stock 
uses  heating  systems  based  on  fossil  fuels 
(heating  oil  and  natural  gas).  Luxembourg  is  not 
carrying  out  checks  on  products  covered  by 
ecodesing  and  energy  labelling.  This  generates 
serious  concerns  with  respect  to  the  level  playing 
field  among  economic  operators  and  uncertainty 
as  to  the  compliance  levels  of  the  concerned 
products,  and  therefore  possible  missed  energy 
and CO2 savings. (59) 

In  publication  terms,  Luxembourg  was  in 
2018  the  top  global  performer  with  32%  of 
scientific  publications  on  clean  energy 
technology,  among  the  top  10%  most  cited. 
Venture  capital  investments  in  climate  tech start-
ups and scale-ups were EUR 60 Mln in 2019. 

Graph A7.2: Luxembourg´s retail energy prices for 
industry (top) and households (bottom) 

(1) On electricity, the band consumption is DC for households 
and ID for industry 
(2) On gas, the band consumption is D2 for households and I4 
for industry 
Source: Eurostat 

targets, 

Luxembourg has made considerable progress 
in  recent  years  on  renewable  energies  and 
the  digitisation  of  the  energy  transition. 
Renewable  energy  capacity  reached  572  MW  in 
2022 (58).  The  government programme  makes the 
energy  transition  a  key  priority,  with  ambitious 
energy  sector 
including  a  50-55% 
in  greenhouse  gas  emissions  and 
reduction 
covering  over  a  third  of  2030  electricity  demand 
with  renewables  (mostly  solar  PV  and  wind 
energy) by 2030. Luxembourg’s renewable energy 
share  for  2021  is  expected  to  be  above  its  2020 
baseline.  Luxembourg  has  provided 
the  EU 
renewable  energy  financing  mechanism  with 
financing  to  reach  its  renewable  energy  targets. 
Luxembourg  has  kept  in  place  its  public  support 
including 
schemes  for  deploying 
through 
small-scale 
tariffs 
installations,  market  premiums  and  calls  for 
tenders. 
little 
incentive  to  invest  in  renewables  and  energy 
efficiency. It is also continuing to roll out its public 
tendering scheme, expected to bring in 55-65 MW 
of renewables per year. However, the 2021 tender 

low  energy  taxes  provide 

renewables, 
for 

feed-in 

Its 

(58)  IRENA, Renewable capacity statistics 2023. 

(59)  The internet-supported information and communication 
system for the pan-European market surveillance 

40 

050100150200250€/MWhGas LuxemburgGas EUElectricity LuxemburgElectricity EU050100150200250300€/MWhGas LuxemburgGas EUElectricity LuxemburgElectricity EU 
      
                                                 
                                                 
Table A7.1: Key energy indicators 

(1) The ranking of the main suppliers is based on the latest available figures (for 2021) 
(2) FSRU included 
(3) Venture Capital investments include Venture Capital deals (all stages) and Private Equity Growth/Expansion deals (for 
companies that have previously been part of the portfolio of a VC investment firm). 

Source: Eurostat, Gas Infrastructure Europe (Storage and LNG Transparency Platform), JRC SETIS (2022), JRC elaboration based 
on PitchBook data (06/2022) 

41 

20182019202020212018201920202021Import Dependency [%] 95%95%92%92%58%60%57%56%of Solid fossil fuels 101%93%112%98%44%43%36%37%of Oil and petroleum products 100%100%100%100%95%97%97%92%of Natural Gas 100%100%100%100%83%90%84%83%Dependency from Russian Fossil Fuels [%]of Hard Coal8%7%7%6%40%44%49%47%of Crude Oil n.an.an.an.a30%27%26%25%of Natural Gas 27%27%27%11%40%40%41%41%20152016201720182019202020212022Gross Electricity Production (GWh)2,7662,1982,2352,2001,9082,2342,211-Combustible Fuels1,030468470490547628632-Nuclear0000000-Hydro1,5311,5281,4221,3379491,0941,085-Wind102101235255281351314-Solar 104100108119130161180-Geothermal 0000000-Other Sources0000000-Net Imports of Electricity (GWh)5,5996,2996,1786,1615,8795,4655,721-   As a % of electricity available for final consumption 90%99%97%95%92%89%89% -Electricity Interconnection (%)---58.44%58.2%55.2%168.4%163.5%20152016201720182019202020212022Gas Consumption (in bcm)0.90.80.80.80.80.70.80.6Gas Imports - by type (in bcm)0.90.80.80.80.80.70.8-Gas imports - pipeline0.90.80.80.80.80.70.8-Gas imports - LNG0.00.00.00.00.00.00.0-Gas Imports - by main source supplier (in bcm)* (1)Netherlands0.00.00.00.00.00.00.3-Norway0.60.50.30.30.30.30.2-Russia0.20.20.20.20.20.10.1-Belgium0.00.00.00.00.00.10.1-Others0.10.10.30.30.30.20.1-2019202020212022LNG TerminalsNumber of LNG Terminals (2)LNG Storage capacity (m3 LNG)Underground StorageNumber of storage facilities0000Operational Storage Capacity (bcm)00002019202020212022VC investments in climate tech start-ups and scale-ups (EUR Mln) (3)60.00.00.0n.a.as a % of total VC investments in Luxembourg50.6%0.0%0.0%n.a.Research & Innovation spending in Energy Union R&i priorites (2)Public R&I (EUR mln)n.a.n.a.n.a.n.a.Public R&I (% GDP)n.a.n.a.n.a.n.a.Private R&I (EUR mln)105.1n.a.n.a.n.a.Private R&I (% GDP)0.17%n.a.n.a.n.a.CLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIESELECTRICITYLuxembourgEUENERGY DEPENDENCE 
 
 
 
     
 
 
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

in 

the 

line 

with 

This  Annex  monitors  Luxembourg’s  progress 
in ensuring a fair transition towards climate 
neutrality  and  environmental  sustainability, 
notably  for  workers  and  households 
in 
vulnerable  situations.  To  ensure  a  fair  green 
transition 
Council 
Recommendation (60),  Luxembourg  has  increased 
its efforts to upskill and reskill workers in declining 
and  transforming  sectors.  Yet  labour  shortages 
persist, notably posing a potential bottleneck in the 
green  transition  and  for  the  implementation  of 
REPowerEU.  The  reforms  and  investments  under 
the recovery and resilience plan (RRP) contribute to 
a  fair  green  transition (61),  complementing  the 
territorial 
transition  plans  and  actions 
supported  by  the  European  Social  Fund  Plus 
(ESF+). 

just 

in 

Table A8.1). 

Employment 

Whilst  Luxembourg’s  green  economy 
is 
expanding,  workers  in  declining  activities 
need active support. The greenhouse gas (GHG) 
emissions intensity of Luxembourg’s workforce fell 
from  21.1  to  17.6  tonnes  per  worker  between 
2015  and  2021,  while  remaining  above  the  EU 
average  of  13.7  tonnes  in  2021  (see  Graph A8.1 
and 
the 
Luxembourgish  energy-intensive  industries  (EII) 
represented  a  stable  share  of  1.8%  of  total 
employment  in  2021  (in  2020:  1.8%  vs  3.0%  in 
the EU). Against the long-term decline of coal and 
lignite  mining  in  Luxembourg,  employment  in 
mining  and  quarrying  increased  by  3.7%  since 
2015  (less  than  300  workers).  Total  jobs  in  the 
environmental  goods  and  services  sector  grew  by 
84.1% in 2015-2019 (EU: 3.1% in 2019), reaching 
4.6% of total  employment, above the EU average 
of 2.2% (see Annex 9 for circular jobs specifically). 
The  job  vacancy  rate  in  the  construction  sector  is 
relatively  low  (1.4%  in  2021  vs  4.0%  in  the 
EU) (62).  

Upskilling  and  reskilling  in  declining  and 
transforming  sectors  increased  slightly  but 
risks  of  skills  mismatches  persist,  whilst 
labour  shortages  are  growing.  In  energy-
in 
intensive 

industries,  workers’  participation 

(60)  Council Recommendation of 16 June 2022 on ensuring a fair 
transition towards climate neutrality (2022/C 243/04) covers 
employment, skills, tax-benefit and social protection 
systems, essential services and housing. 

(61)  See 2022 Country Report (Annex 6) and Annex 3 for an 

overview. 

(62)  Eurostat (JVS_A_RATE_R2)   

42 

education and training was 22.6% in 2018 (above 
the EU average of 9.3%). In Luxembourg, 24% of 
citizens  believe  they  do  not  have  the  necessary 
skills  to  contribute  to  the  green  transition  (EU: 
38%) (63).  Under  the  RRP,  an  action  plan  to 
promote  continuing  vocational  training  aims  to 
help  workers  and  jobseekers  to  improve  their 
employability  during 
the  green  and  digital 
transition.  Specific  investments  under  the  Just 
Transition Fund (JTF) provide training to help reskill 
workers  in  regions  affected  by  the  transition.  The 
JTF  supports  measures  to  provide  the  craft 
workforce with ‘new skills for sectors instrumental 
in  the  green  transition  notably  in  the  field  of 
electro-mobility 
and 
sustainable renovation, in particular the health and 
energy  efficiency  aspects  of  renovation.  Of  ESF+ 
funding,  16.5%  will  contribute  to  green  skills  and 
jobs  with  training  measures  for  jobseekers  and 
workers,  but  will  also  fund  projects  aimed  at 
helping  pupils  and  students  discover  green  jobs 
and acquire relevant new skills.  

construction 

and 

in 

Graph A8.1: Fair transition challenges in 
Luxembourg 

Source: Eurostat, EMPL-JRC GD-AMEDI/AMEDI+ projects and 
World Inequality Database (see Table A8.1).           

Energy  poverty 
indicators  have  slightly 
worsened  in  recent  years,  even  before  the 
spike  in  energy  prices  that  can  be  expected 
to  aggravate  the  situation.  The  share  of  the 
total  population  unable  to  keep  their  homes 
adequately warm increased from 0.9% in 2015 to 
2.5%  in  2021,  still  well  below  the  EU  average  of 
6.9% (64).  In  particular,  5.1%  of  the  population  at 
risk  of  poverty  (AROP)  (EU:  16.4%  in  2021)  and 

(63)  Special Eurobarometer 527. Fairness perceptions of the 

green transition (May – June 2022). 

(64)  Energy poverty is a multi-dimensional concept. The indicator 
used focuses on an outcome of energy poverty. Further 
indicators are available at the Energy Poverty Advisory Hub. 

00.511.522.5GHG per workerEmployment EIIEducation &training EIIEnergy povertyTransportpoverty(proxy)CarboninequalityEU LatestLU Latest (vs EU Latest)LU 2015 (vs EU Latest) 
 
                                                 
  
                                                 
 
Table A8.1: Key indicators for a fair transition in Luxembourg 

Source: Eurostat (env_ac_ainah_r2, nama_10_a64_e, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-
JRC GD-AMEDI/AMEDI+ projects and World Inequality Database (WID).      

at-risk-of-poverty 

1.6%  of  lower  middle-income  households  (in 
deciles  4-5)  were  affected  in  2021  (EU:  8.2%). 
Before the energy price hikes, an estimated 10.2% 
of  the  total  population  and  29.5%  of  the 
(expenditure-based) 
(AROP) 
population  had  residential  expenditure  budget 
shares on electricity, gas and other fuels (65) above 
10%  of  their  household  budget  (compared  with 
the  estimated  EU  average  of  26.9%  and  48.2%, 
respectively).  According 
recent  national 
forecasts,  3.2%  of  households  could  have  fallen 
into  or  close  to  energy  poverty  n  2022  (without 
considering recent measures such as the limitation 
of energy prices) (66). 

to 

the 

The  increased  energy  prices  in  2021-2023 
negatively  affected  households’  budgets,  in 
particular  for  low-income  groups.  As  a  result 
of energy price changes during the August 2021 to 
January  2023  period  relative  to  the  18  months 
prior (cf. Annex 7), in the absence of policy support 
fraction  of 
responses, 
and  behavioural 
individuals  living  in  households  spending  more 
than  10%  of  their  budget  on  energy  would  have 
increased  by  12.8  percentage  points (pps)  for  the 
whole  population  and  by  24.8 pps  among  the 
(expenditure-based) AROP population (EU: 16.4 pps 
and  19.1 pps, 
the 
expenditure  shares  of 
lower-middle 
income groups would have increased the most (in 
line  with  EU-wide  effects),  whereas  residential 
expenditure for electricity changed only minimally 
across groups, as shown in Graph A8.2. Among the 
(expenditure-based) AROP population, the share of 
individuals living in households with budget shares 
for  private  transport  fuels (68)  above  6%  would 

respectively) (67).  For  gas, 
low  and 

(65)  Products defined according to the European Classification of 

Individual Consumption according to Purpose (ECOICOP): CP045. 

(66)  Statec, Rapport Travail et Cohésion Sociale 2022, p.142 

https://statistiques.public.lu/fr/publications/series/analyses/20
22/analyses-05-22.html 

(67)  EMPL-JRC GD-AMEDI/AMEDI+ ; see details in the related 

technical brief.  

(68)  CP0722; cf. footnote (21). 

43 

have 
increased  more  than  the  EU  average 
(11.6 pps  vs  5.3 pps),  reaching  29.8%  in  January 
2023 (EU: 37.1%) due to the increase in transport 
fuel prices. 

Graph A8.2: Distributional impacts of energy prices 
due to rising energy expenditure (2021-2023) 

Mean change of energy expenditure as a percentage (%) of 
total expenditure per income decile (D) due to observed price 
changes (August 2021 – January 2023 relative to the 18 
months prior), excl. policy support and behavioural responses. 
Source: EMPL-JRC GD-AMEDI/AMEDI+ projects, based on 
Household Budget Survey 2015 and Eurostat inflation data 
for CP0451 and CP0452. 

Access to public transport displays a limited 
urban-rural divide, while carbon inequality is 
the  highest  in  the  EU.  Citizens  in  Luxembourg 
perceive public transport to be relatively available 
(76% vs 55% in the EU), very affordable (92% vs 
54% in the EU) and of good quality (82% vs 60% 
in  the  EU).  As  regards  these  perceptions,  rural 
areas  in  Luxembourg  perform  slightly  worse  than 
urban  areas,  yet  perceptions  are  still  significantly 
better  compared  to  rural  areas 
in  the  EU 
overall (69).  The  average  carbon  footprint  of  the 
top  10%  of  emitters  among  the  population  in 
Luxembourg is about 7.1 times higher than that of 
the  bottom  50%  (see  Graph  A8.1),  i.e.  more 
pronounced than the EU average (5.0 times). 

(69)  EU (rural): 46%, 48%, 56% respectively. Special 

Eurobarometer 527. 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%ElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasD1D2D3D4D5D6D7D8D9D10LU GasLU ElectricityEU GasEU ElectricityIndicatorDescriptionLU 2015LU LatestEU LatestGHG per workerGreenhouse gas emissions per worker - CO2 equivalent tonnes21.117.6 (2021)13.7 (2021)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24), automotive (C29) - %21.8 (2020)3 (2020)Education & training EIIAdult participation in education and training (last 4 weeks) in energy-intensive industries - %22.6 (2018)10.4 (2022)Energy povertyShare of the total population living in a household unable to keep its home adequately warm - %0.92.5 (2021)6.9 (2021)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport - %18.229.8 (2023)37.1 (2023)Carbon inequalityAverage emissions per capita of top 10% of emitters vs bottom 50% of emitters7.57.1 (2020)5 (2020) 
                                                 
   
                                                 
 
  
 
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The  circular  economy  transition  is  key  to 
climate  and 
delivering  on 
the  EU’s 
environmental  goals  and  provides 
large 
socio-economic  benefits. It  spurs  job  growth, 
innovation  and  competitiveness  and 
fosters 
resilience  and  resource  security.  The  circularity 
transition  of  industry,  the  built  environment  and 
agri-food  can  generate  significant  environmental 
improvements (see Annex 6), as they rank among 
the most resource-intensive systems. 

Luxembourg’s  circular  economy  transition  is 
insufficient  and  needs  accelerating  to  meet 
the  EU’s  circular  economy  goals.  The  EU’s 
2020 circular economy action plan (CEAP) aims at 
doubling  the  circular  material  use  rate  between 
2020 and 2030 while significantly decreasing the 
EU’s  material  footprint.  Luxembourg’s  circular  use 
of material dropped significantly in 2021 to 3.8% 
(far  below  the  EU  average  of  11.7%)  and  its 
material footprint in 2020 was among the highest, 
well  above  the  EU-27  average  (28.6  against  13.7 
tonnes  per  head).  This  indicator  has  slightly 
decreased since 2016, but Luxembourg still relies 
on 
its 
to  support 
economic growth and satisfy material needs.  

raw  materials  extraction 

is  room  to  shift  more  municipal  reusable  and 
recyclable  waste  away  from  incineration  (40.7% 
incinerated in 2021). 

Graph A9.1: Trend in material use 

Source: Eurostat 

Graph A9.2: Treatment of municipal waste 

the 

Luxembourg recently adopted new policies to 
address  circular  economy  challenges,  but 
more  measures  are  needed.  In  February  2021, 
it  adopted 
’Circular  Economy  Strategy 
Luxembourg‘,  targeting  products’  entire  life  cycle 
and including specific actions on construction. The 
plan proposes three frameworks to encourage the 
circular  economy:  (1)  a  regulatory  framework 
providing  mandatory  actions  and  guidance;  (2)  a 
financial  framework  using  positive  and  negative 
incentives; and (3) a knowledge framework setting 
actions for research and innovation, education, and 
awareness-raising. 
2018, 
Luxembourg  adopted  a  new  national  waste  and 
resource management plan. 

Moreover, 

in 

Source: Eurostat 

Luxembourg 
in  waste 
performs  well 
management  but generates  too much  waste. 
The  country  over-produces  municipal  waste 
(793 kg  vs  530  kg  per  person  as  the  EU-27 
average  in  2021).  However,  it  met  the  EU  2020 
target of 50% of municipal waste recycled and is 
on  track  to  meet  the  EU  2025  targets  for  the 
recycling  of  municipal  and  packaging  waste.  Only 
4%  of  municipal  waste  was  landfilled  in  2021 
(below  the  EU  average  of  22.8%).  However,  there 

44 

0.020.040.060.080.0100.0120.00.05.010.015.020.025.030.035.0201620172018201920202021kg/capitatonnes/capitaMaterial footprint Luxembourg (tonnes/capita)Material footprint EU-27 (tonnes/capita)Trade in recyclable raw materials Luxembourg (imports extra EU, kg/capita)Trade in recyclable raw materials EU-27 (imports extra EU, kg/capita)8157988037917907930100200300400500600700800900201620172018201920202021Kg per capita Difference waste generated/treatmentLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27 
 
 
           
 
          
 
 
textiles 

The industrial system is increasingly circular. 
However, the country has no sectoral strategies on 
plastics  and 
in  place.  Luxembourg’s 
economy, particularly industry, is efficient at using 
materials to produce added-value (with a resource 
productivity of 3.5 purchasing power standard per 
kilogramme  vs  the  EU  average  of  2.3  in  2021), 
which 
increases  the  country’s  resilience  (see 
Annex 5).  However,  Luxembourg’s  economy  relies 
heavily  on  material  extraction  and  importation 
(91.4% of material import dependency in 2021).  

The  built  environment  system  provides  an 
opportunity  to  increase  resource  efficiency. 
The  recovery  rate  of  construction  and  demolition 
waste  is  above  the  EU  average  (99%  vs  89%  in 
2020)  and  has  remained  stable  since  2016. 
However,  soil  sealing  progressed  between  2015 
and  2018  at  a  faster  rate  than  the  EU  average. 
There  is  scope  for  renovating  existing  buildings 
and  improving  their  use  rather  than  building  new 
ones.  The  ‘Neischmelz’  project,  supported  by  the 
Recovery  and  Resilience  Facility,  provides  a 
promising  example  of  the  transformation  of  old 
industrial  sites  into  sustainable  housing,  limiting 
the land take rate. 

The  agri-food 
still  generates 
system 
significant food waste in Luxembourg. On the 
one hand, the composting and anaerobic digestion 
per  head  has  increased  since  2016  and  remains 
far  above  the  EU  average  in  2021  (200  kg  per 

head vs 100 kg). On the other hand, Luxembourg’s 
food waste generation in 2020 was above the EU 
average  (147  kg  per  head  vs  131  kg  per  head). 
Despite some measures already taken to decrease 
general  food  waste  production,  it  is  a  priority  to 
tackle the issue. Luxembourg has room to increase 
separate 
anaerobic  digestion  by 
biowaste 
a 
composting  quality  management  system.  Even 
though  Luxembourg’s  CAP  strategic  plan  finances 
some measures to limit diffuse nitrate pollution, it 
is essential to reduce it further where agricultural 
pressure is significant. 

implementing 

improving 

collection 

and 

There remains a financing gap in the circular 
economy, 
including  waste  management.  
Additional  investments  will  be  required  to 
address  growing  needs.  The  financing  gap  was 
estimated  at  EUR  167  million  per  year  between 
2014  and  2020.  Over  this  period,  investment 
needs  were  estimated  to  be  at  least  EUR  189 
million  per  year,  while  investment  baselines  were 
EUR 22 million per year (see Annex 6).  Investing in 
the  circular  economy  is  key  to  achieving  the 
transition, notably in eco-design, repair, reuse and 
remanufacturing,  and  uptake  of  new  business 
model  areas.  Investments  are  also  necessary  in 
improving separate waste collection and treatment 
infrastructure  for  recycling,  with  particular  focus 
on biowaste. 

Table A9.1: Overall and systemic indicators on circularity 

(1) Persons employed in the circular economy only tracks direct jobs in selected sub-sectors of NACE codes E, C, G and S; (2) the 
circular material use rate measures the share of material recovered and fed back into the economy in overall material use; (3) the 
recovery rate of construction and demolition waste includes waste which is prepared for reuse, recycled or subject to material 
recovery, including through backfilling operations; (4) soil sealing: 2016 column refers to 2015 data; (5) food waste includes 
primary production, processing and manufacturing, retail and distribution, restaurants and food services, and households.  
Source: Eurostat, European Environment Agency 

45 

AREA201620172018201920202021EU-27 Latest year EU-27Overall state of the circular economyMaterial footprint (tonnes/capita)29.131.528.727.528.6-13.72020YoY growth in persons employed in the circular economy (%)1------2.92019Water exploitation index plus (WEI+) (%)0.40.60.50.5--3.62019IndustryResource productivity (purchasing power standard (PPS) per kilogram)3.33.23.43.43.63.52.32021Circular material use rate (%)27.110.610.810.59.93.811.72021Recycling rate (% of municipal waste)49.248.949.048.952.855.349.62021Built environmentRecovery rate from construction and demolition waste (%)3100.0-98.0-99.0-89.02020Soil sealing index (base year = 2006)4105.6-111.3---108.32018Agri-foodFood waste (kg per capita)5----147.0-131.02020Composting and digestion (kg per capita)167.0153.0154.0152.0186.0200.0100.02021 
 
           
 
at  least  basic  digital  skills  and  ICT  specialists. 
Nevertheless,  the  lack  of  ICT  specialists  remains 
an issue: While the country has a high share of ICT 
specialists  with  6.7%  of  the  workforce,  the  share 
of  businesses  reporting  hard-to-fill  vacancies  for 
jobs requiring ICT specialist skills is well above the 
EU average (71% compared to 63%). 

Luxembourg  is  among  the  EU  leaders  in 
digital  infrastructure/connectivity.  It  scores 
considerably  above  the  EU  average  and  almost 
reaches  full  availability  for  very  high  capacity 
(VHCN)  coverage.  By  mid-2022,  5G 
network 
coverage  figures  stood  at  51%  in  the  3.4  to  3.8 
GHz band and 93% for overall 5G coverage, both 
well above the EU average.  

Digital  technologies  are  well  integrated  in 
business  activities.  Luxembourg  performs 
slightly  below  the  EU  average  on  basic  digital 
intensity  of  small  and  medium-sized  enterprises. 
As for the integration of advanced technologies, it 
scores  well  on  artificial  intelligence  and  big  data, 
but  is  below  the  EU  average  in  the  use  of  cloud 
services. 

Luxembourg  scores  well  on  digital  public 
services.  The  country  performs  considerably 
above  the  EU  average  in  digital  public  services  – 
both  for  citizens  and  businesses.  The  country 
implements  multiple  initiatives  and  programmes 
to  further  digitalise  the  public  sector.  A  national 
electronic  identification  (eID)  scheme  is  in  place, 
notified  under  the  eIDAS  Regulation.  A  national 
electronic  wallet  is  under  development  allowing 
users to manage and present digital certificates of 
official  documents  on  their  smartphones.  The 
country  has  also  started  to  implement  some 
measures  in  the  RRP  to  modernise  and  digitalise 
public services and to provide e-health services.  

ANNEX 10: DIGITAL TRANSFORMATION 

transformation  by  2030, 

Digital  transformation  is  key  to  ensuring  a 
resilient and competitive economy. In line with 
the  Digital  Decade  Policy  Programme,  and  in 
particular  with  the  targets  in  that  Programme  for 
digital 
this  Annex 
describes  Luxembourg’s  performance  on  digital 
skills,  digital  infrastructure/connectivity  and  the 
digitalisation  of  businesses  and  public  services. 
Where relevant, it makes reference to progress on 
implementing  the  Recovery  and  Resilience  Plan 
(RRP).  Luxembourg  allocates  30%  of  its  total  RRP 
budget to digital (EUR 24.5 million) (70)). 

The  Digital  Decade  Policy  Programme  sets 
out a pathway for Europe’s successful digital 
transformation  by  2030.  The  Programme 
provides  a  framework  for  assessing  the  EU’s  and 
Member States’ digital transformation, notably via 
the  Digital  Economy  and  Society  Index  (DESI).  It 
also  provides  a  way  for  the  EU  and  its  Member 
States  to  work  together,  including  via  multi-
country  projects,  to  accelerate  progress  towards 
the  Digital  Decade  digital  targets  and  general 
objectives (71).  More  generally,  several  aspects  of 
digital  transformation  are  particularly  relevant  in 
the current context. In 2023, the European Year of 
Skills, building the appropriate skillset to make full 
use of the opportunities that digital transformation 
offers  is  a  priority.  A  digitally  skilled  population 
increases the development and adoption of digital 
technologies  and  leads  to  productivity  gains (72). 
Digital  technologies,  infrastructure  and  tools  all 
play  a  role  in  the  fundamental  transformation 
needed to adapt the energy system to the current 
structural challenges (73). 

Luxembourg  performs  relatively  well 
in 
digital  skills,  but  lacks  ICT  specialists.  The 
country scores well above the EU average for both 

(70)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII of the RRF 
Regulation and is based on the amended RRP, adopted by 
the Council on 10/02/2023. 

(71)  The Digital Decade targets as measured by DESI indicators 
and complementary data sources are integrated to the 
extent currently available and/or considered particularly 
relevant in the MS-specific context.  

(72)  See for example OECD (2019): OECD Economic Outlook, 

Digitalisation and productivity: A story of complementarities, 
OECD Economic Outlook, Volume 2019 Issue 1 | OECD 
iLibrary (oecd-ilibrary.org). 

(73)  The need and possible actions for a digitalisation of the 
energy system are laid out in the Communication 
‘Digitalisation the energy system – EU action plan’ 
(COM(2022)552. 

46 

 
 
                                                 
 
Table A10.1: Key Digital Decade targets monitored by DESI indicators 

(1) The 20 million target represents about 10% of total employment. 
(2) The Fibre to the Premises coverage indicator is included separately as its evaluation will also be monitored separately and 
taken into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75 % of Union enterprises have taken up one or more of the following, in line with their business operations: (i) cloud 
computing services; (ii) big data; (iii) artificial intelligence.   

Source: Digital Economy and Society Index 

47 

EUDigital Decade target by 2030 DESI 2021DESI 2022DESI 2023DESI 2023(EU)Digital skillsAt least basic digital skillsNA64%64%54%80%% individuals2021202120212030ICT specialists (1)6.3%6.7%6.7%4.5%20 million% individuals in employment aged 15-7420202021202120212030Digital infrastructure/connectivityFixed Very High Capacity Network (VHCN) coverage92%93%93%73%100%% households20202021202220222030Fibre to the Premises (FTTP) coverage (2)72%75%76%56%-% households20202021202220222030Overall 5G coverage0%13%93%81%100%% populated areas202020212022202220305G coverage on the 3.4-3.8 GHz spectrum bandNANA51%41%-% populated areas202220222030Digitalisation of businessesSMEs with at least a basic level of digital intensityNANA66%69%90%% SMEs202220222030Big data (3)19%19%19%14%75%% enterprises20202020202020202030Cloud (3)NA29%29%34%75%% enterprises2021202120212030Artificial Intelligence (3)NA13%13%8%75%% enterprises2021202120212030Digitalisation of public servicesDigital public services for citizensNA939577100Score (0 to 100)2021202220222030Digital public services for businessesNA979784100Score (0 to 100)2021202220222030Access to e-health recordsNANA6771100Score (0 to 100)202320232030Luxembourg 
 
 
 
 
  
 
 
 
 
 
 
 
 
ANNEX 11: INNOVATION 

This  Annex  provides  a  general  overview  of  the 
research  and 
performance  of  Luxembourg’s 
innovation system, which is essential for delivering 
the twin green and digital transition. 

in 

Luxembourg  is  a  ‘strong  innovator’  but  its 
leadership 
is  decreasing. 
the  EU 
Luxembourg’s  innovation  performance  is  above 
the  EU  average.  However,  it  is  increasing  (by 
1.4 percentage  points)  more  slowly  than  the  EU 
(9.9 pps) (74).  Luxembourg's 
average 
relative 
strengths,  highlighted  in  the  European  Innovation 
share  of 
Scoreboard,  notably 
international  scientific 
co-publications,  which 
reflects 
the  quality  and  attractiveness  of 
Luxembourg’s  public  research  system,  which  has 
become  of  a  pole  of  attraction  for  excellent 
researchers. 

include 

the 

Luxembourg has been unable to raise its R&D 
intensity (75),  which  has  been  on  a  declining 
trend  over  the  past  two  decades.  Low  and 
declining R&D intensity (1.02% in 2021 compared 
to  1.42%  in  2011)  remains  a  challenge,  holding 
back  the  much-needed  diversification  of  the 
economy. In particular, while public expenditure on 
R&D  (relative  to  GDP)  has  remained  stagnant  (at 
around  0.55%)  in  recent  years,  business  R&D 
intensity has continued to decline, falling to 0.47% 
in 2021. 

Graph A11.1: Business expenditure on R&D as % of 
GDP, 2011-2021 

Public  support  for  business 
innovation 
remains  very  low.  Over  the  last  few  years, 
Luxembourg has taken concrete steps to develop a 
policy mix aimed at fostering business innovation, 
for  example  through  the  ‘Fit  4’  performance 
programmes  targeting  start-ups  and  small  and 
medium-sized enterprises. However, public support 
for  business  innovation  is  still  marginal  (0.037% 
of  GDP  in  2020,  compared  to  an  EU  average  of 
0.196%).  Luxembourg  does  not  provide  indirect 
support  to  R&D  in  the  form  of  tax  credits,  unlike 
most  OECD  and  EU  countries.  The  government 
allocates  only  25%  of  its  R&D  budget  to  specific 
projects, including those with private partners, the 
remaining  75%  being  for  institutions.  Only  6%  of 
business R&D is funded by  government (76). While 
the government recently announced an increase in 
research  funding  of  nearly  EUR 300  million  to  a 
total  of  EUR 1.7  billion  for  2022–2025 (77),  that 
amount is for public institutions only. Luxembourg 
could fund more innovation projects in partnership 
with businesses to generate more private research 
and 
increasing 
innovation.  This 
productivity (see Annex 12). 

is  key 

to 

sector 

linkages 

Despite  the  high  quality  of  Luxembourg’s 
public  research  system,  linkages  with  the 
business 
remain  underexploited. 
remain  weak,  as 
Science-business 
evidenced  by  the  low  share  of  public  expenditure 
on R&D financed by businesses (0.014% in 2019, 
compared  to  an  EU  average  of  0.054%).  The 
Luxembourg recovery and resilience plan does not 
this 
contain  specific  measures 
challenge.  However, 
feature 
the  development  of 
substantial  support  for 
quantum  communication  infrastructure,  which  is 
expected  to  help  Luxembourg  accumulate  key 
research  and  innovation  (R&I)  capabilities  in  this 
field,  while  providing  possible  opportunities  for 
cooperation 
and 
businesses. 

the  plan  does 

to  address 

research 

between 

labs 

Source: Eurostat 

(74)  European Innovation Scoreboard 2022:ec_rtd_eis-country-
profile-lu.pdf (europa.eu). The EIS provides a comparative 
analysis of innovation performance in EU countries, including 
the relative strengths and weaknesses of their national 
innovation systems (also compared to the EU average). 

accentuating 

The  shortage  of  skilled  workers  has 
worsened, 
the  mismatch 
between  available  skills  and  the  profiles 
required  on  the  market.  The  gap  between  the 
profiles available and the skills the economy needs 
persists,  in  particular  due  to  the  difficulties  the 
national  education  system  has  in  training  the 

(76)  OECD Economic Surveys: Luxembourg 2022 | READ online 

(oecd-ilibrary.org) 

(77)  Luxembourg to invest EUR 1.7 bn euro in research and higher 

(75)  R&D intensity is R&D expenditure as a percentage of GDP. 

education - researchluxembourg 

48 

0.400.701.001.301.6020112012201320142015201620172018201920202021EULU 
 
  
 
                                                 
                                                 
 
Table A11.1: Key innovation indicators 

(1) EU average for the latest available year or the year with the highest number of country data. 
Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO's Patent Statistical database), Invest EU 

talents  that  companies  need  and  the  latter's 
strong dependence on highly qualified people from 
outside. (78)  The  number  of  the  new  graduates  in 
science  and  engineering  per  thousand  population 
than 
aged  25-34 
anywhere else in EU (2.5 in 2020 compared to an 
EU average of 16) and the number of graduates in 
computing  per  thousand  population  aged  25-34 
(1.2 in 2020, compared to an EU average of 3) is 
the second lowest in EU.  

in  Luxembourg 

lower 

is 

Thus,  Luxembourg’s  R&I  system  relies  heavily  on 
its continuing ability to attract foreign talents. The 
national 
strategy 
recognises  the  need  to  better  monitor  the  skills 
gap  between  needs  and  supply  and  train  more 
people in new, highly dynamic digital skills. (79)  

research  and 

innovation 

(78)

(79)  https://gouvernement.lu/dam-

https://www.cc.lu/fileadmin/user_upload/tx_ccnews/Pub
lications_2021_Eco_News_Flash_N__6__Ecosysteme_d_inn
ovation.pdf  

assets/documents/actualites/2020/02-fevrier/25-mesr-
strategie-recherche-innovation/mesr-strategy-research-
innovation.pdf 

49 

EUaverage (1)R&D intensity (GERD as % of GDP)1.421.251.181.061.022.26Public expenditure on R&D as % of GDP0.480.590.540.520.550.76Business enterprise expenditure on R&D (BERD) as % of GDP0.940.660.640.540.471.5Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 13.712.714::9.8PCT patent applications per billion GDP (in PPS)1.61.71.7:: 3.3Public-private scientific co-publications as % of total publications9.48.910.810.613.17.1Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0080.0070.014::0.054New graduates in science & engineering per thousand pop. aged 25-34:1.92.62.5:16.3Total public sector support for BERD as % of GDP:0.0520.037::0.196Business enterprise expenditure on R&D (BERD) financed by the public sector (national and abroad) as % of GDP :0.0520.037::0.104R&D tax incentives: foregone revenues as % of GDP::::::Share of environment-related patents in total patent applications filed under PCT (%)1711.912::13.3Venture capital (market statistics) as % of GDP0.0350.0110.0260.0360.0420.074Employment in fast-growing enterprises in 50% most innovative sectors3.14.66.2::5.5Finance for innovation and economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation 2021Luxembourg2010201520192020 
 
                                                 
 
 
 
                                                 
 
  
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

is 

Luxembourg has a competitive economy that 
is  well  integrated  into the  Single  Market  for 
the  13th  most 
services.  Luxembourg 
competitive  economy  in  the  world (80).  It  is  a  top 
performer  in  attracting  talent  and  has  a  strong 
position  in  international  investment  and  trade.  Its 
Single Market integration is the highest in the EU, 
with the addition of exports and imports of goods 
and  services  representing  111%  of  its  GDP  (EU 
average: 46%). This is mainly due to Luxembourg’s 
leadership in services, notably in financial services: 
exports  and  imports  in  services  represent  83%  of 
its GDP, far ahead of the Member States’ average 
(14%),  while  exports  and 
in  goods 
represent just 28% of its GDP, below the Member 
States’ average (31%).  

imports 

Although  still  one  of  the  highest  in  the  EU, 
Luxembourg’s  labour  productivity  has  been 
stagnating  since  the  2000’s.  Luxembourg  has 
one of the highest labour productivity levels in the 
EU and  the  OECD (81).  However,  when  analysing 
labour productivity in terms of growth rates rather 
than levels, the situation looks less positive. Since 
2007, Luxembourg’s productivity  has evolved less 
favourably  than  the  productivity  of  euro  area 
countries and of neighbouring countries (see graph 
A12.1).  In  2023,  labour  productivity,  expressed  in 
terms of real GDP per occupied person, is forecast 
to  decrease  by  0.8%  (vs.  an  increase  by  0.4%  in 
the  EU) (82).  Differences  across  sectors  are 
significant,  both  in  terms  of  levels  and  growth. 
Labour  productivity 
information  and 
in 
communication  sector  has  strongly  declined  since 
2017, while increasing in financial activities and in 
2018 
manufacturing 
respectively (83).  The  growth  of  labour  productivity 
per  person  in  industry  (-0.3%)  was,  however,  still 
below the EU average (+1.4%) in 2022.  

2019 

since 

and 

the 

Graph A12.1: Evolution of labour productivity, 
whole economy (index, 100=07Q4) 

Source: Eurostat 

Low  productivity  gains  are  partly  explained 
by low business investment, including in R&D. 
In 2021, business investment represented 8.3% of 
GDP  in  Luxembourg,  against  13.4%  in  the  EU (84). 
This  is  amongst  the  lowest  in  the  EU  and  in  the 
OECD (85).  Business  expenditure 
in  R&D  has 
continued  to  decline  and  fell  to  0.47%  in  2021, 
against  1.5%  in  the  EU (86)  (see  Annex  11). 
Investment  in  equipment  shrank  from  2014  until 
2018  (with  an  average  yearly  percentage  change 
of  -4.5%,  against  +4.9%  in  the  EU),  but  it  has 
grown faster than the EU average since 2019 (87).   

Long-term  barriers  to  investment  persist.  As 
in  the  rest  of  the  EU,  the  availability  of  skilled 
staff  is  the  most  cited  long-term  barrier  to 
investment by Luxembourg firms (86% vs 85% in 
the  EU),  followed  by  energy  costs  (81%  vs  82%) 
and  uncertainty  about 
(79%  vs 
78%) (88).  Some  barriers  are  mentioned  more 
frequently  in  Luxembourg  than  in  the  rest  of  the 
EU:  demand  for  products  and  services  (62%  vs 
53%),  transport  infrastructure  (55%  vs  48%)  and 
access  to  digital  infrastructure  (54%  vs  44%). 
Although  business  regulations  are  mentioned  less 
often  than  in  the  rest  of  the  EU  (56%  vs  61%), 
they  can  still  be  a  barrier  to  investment.  In 

the  future 

(80)  Institute for Management Development, World 
competitiveness ranking 2022, 15/6/2022 

(84)  EC, Eurostat, SDG_08_11 

(85)  OECD Economic surveys: Luxembourg 2022, 17/11/2022 

(81)  OECD, labour productivity across countries, 2019 

(86)  EC, Eurostat, RD_E_BERDPFR2  

(82)  EC, 2023 Spring forecast, statistical annex, 15/05/2023 

(87)  EC, 2023 Spring forecast, statistical annex, 15/05/2023 

(83)  Conseil national de la productivité, rapport annuel 2021-

(88)  EIB Investment Survey 2022, 11/2022, based on interviews 

2022, 12/2022, p.18 

carried out between April and July 2022. 

50 

80100120LUDEBEFREA19 
 
                                                 
   
 
                                                 
 
 
the 

to  deploy 

the  administrative  procedure 

particular, 
for 
renewable 
obtaining  authorisation 
energy projects is long. One of the reasons for this 
lack  of  administrative  staff.  Lastly, 
is 
availability  of  finance 
is  cited  by  44%  of 
Luxembourg  firms  as  a  barrier  to  investment,  in 
line with the EU average (43%). Indeed, access to 
finance  is  good  both  for  loans  and  equity (89). 
Regarding  late  payments,  the  share  of  SMEs  who 
experienced late payments reached 53% in 2022, 
above the EU average (43%).    

Graph A12.2: Business environment and 
competitiveness drivers 

Source: 1) % of GDP, 2021 Eurostat;  
2) composite indicator, 2021 European Investment Fund 
access to finance index;  
3) average payment delay in number of days, 2022 Intrum;  
4) % of firms in manufacturing facing constraints, 2022 
European Commission business consumer survey;  
5) proportion of contracts awarded with a single bidder, 2022 
Single Market Scoreboard. 

Since  the  beginning  of  2022,  Luxembourg 
firms have been faced with an unfavourable 
economic  context.  High  prices  for  energy  and 
raw  materials,  persisting  skills  shortages,  high 
labour  costs,  inflation,  increasing  interest  rates, 
disruptions to supply chains and lower internal and 
external  demand  are  harming  Luxembourg 
businesses’  activity,  profitability  and  investment, 
particularly in  the  retail  and  industrial  sectors (90). 
Investment  in  equipment  is  expected  to  shrink  by 
1%  in  2022  and  by  1.9%  in  2023 (91).  To  slow 

(89)  2021 EIF SME Access to Finance Index, 10/22 

(90)  Luxembourg Chamber of commerce, baromètre de 

l’économie, 2nd half 2022, 27/10/2022. 

down  inflation,  help  households  and  businesses 
faced  with  increasing  energy  prices  and  promote 
the energy and digital transitions, the government 
and 
tripartite 
agreements  in  March  2022,  September  2022 and 
March 2023. 

social  partners 

signed 

the 

SMEs  face  a  skills  shortage,  which  harms 
their green and digital transitions. The lack of 
skills,  particularly  digital  skills (92),  harms  SMEs’ 
capacity to become greener and more digital. Only 
9%  of  SMEs  were  selling  online  in  2021,  against 
18% in the EU (93). To help SMEs’ green and digital 
transitions  and  help  them  retain  their  customers, 
Luxembourg adopted three packages for SMEs (94) 
on 29 November 2022.  

be 

could 

Entrepreneurship 
further 
encouraged. Luxembourg ranks only 37 out of 47 
countries  for  total  early-stage  entrepreneurial 
activity (95).  Starting  a  business,  while  possible  to 
do  online,  remains  a  cumbersome  procedure (96). 
Entrepreneurs’ fear of failure is among the highest 
in the EU. To modernise the right of establishment 
and  stimulate  entrepreneurship,  Luxembourg 
tabled a bill of law in April 2022 (97). It confers the 
right  to  start  a  second  business  after  bankruptcy, 
simplifies  the  requirements  relating  to  the  holder 
of  the  business  license  and  business  transfers, 
eases  access  to  certain  craft  professions  and 
simplifies some administrative procedures.  

board (98), 

Tackling  structural  weaknesses, 
including 
restrictive  regulations  in  services,  would 
improve  productivity.  According  to  the  national 
improving 
productivity 
productivity are: investment in digitalisation (Annex 
10); research and innovation (Annex 11); reskilling 
(Annex  14)  and  improving  managerial  skills;  and 
adapting  the  regulatory  framework  to  strengthen 
competition. Indeed, professional licensing rules in 

key 

to 

(92)  EC, 2022 SME country fact sheet for Luxembourg, 19/6/2022 

(93)  EC, Luxembourg in the Digital Economy and Society Index, 

28/7/2022 

(94)  Luxembourg, SME packages, 29/11/2022 

(95)  Global entrepreneurship monitor 2021/2022, 10/2/2022, 

p142-143.  

(96)  OECD, Economic surveys: Luxembourg 2022, 17/11/2022. 

(97)  Bill of Law 7989 amending the Law of 2 September 2011 

regulating access to the professions of craftsman, merchant, 
manufacturer and certain liberal professions. 

(98)  Conseil national de la productivité, rapport annuel 2021-

(91)  EC, 2022 Autumn forecasts statistical annex, 11/11/2022 

2022, 12/2022  

51 

1) Businessinvestments2) EIFaccess tofinanceindex4) Materialshortage4) Labourshortage5) SinglebidsEuropean UnionLuxembourg 
   
                                                 
                                                 
regulations 

Luxembourg are among the most restrictive in the 
less 
OECD.  Making  professional 
restrictive  could  increase  GDP  per  capita  by  0.6% 
over five years (99). Compared to other EU Member 
States,  regulatory  restrictions  remain  particularly 
high  for  architects,  civil  engineers,  accountants 
and  tax  advisers,  lawyers  and  estate  agents (100). 
Luxembourg  has  reformed  its  retail  regulatory 
framework, both for establishment and operations, 
leading to a significant improvement of its score in 
indicator (101). 
the 
Territorial  supply  constraints  continue  to  affect 
consumer  choice  and  prices.  Food  prices  are  the 
highest in the EU (102). 

restrictiveness 

retail  and 

could 

accelerate 

the 
Luxembourg 
to  promote 
transposition  of  directives 
business  integration  in  the  single  market. 
Indeed,  Luxembourg  needs  15.7  months 
to 
transpose  Single  Market-related  directives  (EU 
average:  8.6  months)  and  its  transposition  deficit 
is  1.8%  (EU  average:  1.6%).  Regarding  Single 
Luxembourg’s 
Market-related 
infringements, 
performance 
sectors 
are transport  and  direct  taxation  with  46%  of  all 
pending cases. (103) 

is  good.  Problematic 

(99)  OECD Economic surveys: Luxembourg 2022, 17/11/2022.  

(100) EC, Communication on updating the reform 

recommendations for regulation in professional services, 
COM (2021)385, 9/7/2021 

(101) EC, Retail Restrictiveness Indicator (2022 update), 

forthcoming 

(102) Eurostat, Comparative price levels for 2021, data 12/2022 

(103) EC, Single Market scoreboard, 2022 

52 

 
                                                 
Table A12.1: Industry and the Single Market 

(*) Last available year 
Source: (1) AMECO, (2) Eurostat, (3) ECFIN BCS, (4) Eurostat, (5) COMEXT and Commission calculations, (6) Eurostat, (7) Eurostat, 
(8) OECD, (9) Single Market Scoreboard, (10) EIB survey, (11) Eurostat: (12) Intrum, (13) SAFE Survey, (14) EIF SME Access to 
Finance Index. 

53 

POLICY AREAINDICATOR NAME20182019202020212022EU27 average (*)Net private investment, level of private capital stock, net of depreciation, % GDP (1)2.73.51.93.33.13.7Net public investment, level of public capital stock, net of depreciation, % GDP (1)1.61.72.21.71.60.4Real labour productivity per person in industry (% yoy)(2)-1.9100.93.1-0.31.4Cost competitive-nessNominal unit labour cost in industry (% yoy)(2)2.6-7.6-1.53.34.52.9Material shortage (industry), firms facing constraints, % (3)1055181447Labour shortage using survey data (industry), firms facing constraints, % (3)5612162728Vacancy rate (business economy)(4)1.91.91.82.33.13.1Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials (5)0.190.170.150.160.180.18Installed renewables electricity capacity, % of total electricity produced (6)9593.99494.5n.a.50.9Single Market integrationEU trade integration, % (7)107.0110.7107.6114.8111.345.8RestrictionsEEA Services Trade Restrictiveness Index (8)0.070.070.070.070.070.05Public procurement Single bids, % of total contractors (9)261720182329Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle (10)18.111.010.412.312.929.6Bankruptcies, Index (2015=100)(11)117.1125.7105.7118.8109.686.8Business registrations, Index (2015=100) (11)112.7116.4107.6134115.6121.2Payment gap - corporates B2B, difference in days between offered and actual payment (12)n.a.n.a.n.a.n.a.n.a.13Payment gap - public sector, difference in days between offered and actual payment (12)n.a.n.a.n.a.n.a.n.a.15Share of SMEs experiencing late payments in past 6 months, % (13)n.a.49.339.168.753.243EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1 (14)0.790.720.490.89n.a.0.46EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 1 (14)0.120.190.110.41n.a.0.23BUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to financeHEADLINE INDICATORSEconomic StructureRESILIENCEShortagesStrategic dependenciesSINGLE MARKET 
 
   
 
The  justice  system  performs  efficiently  but 
access could be improved. The efficiency of civil 
justice continues to be consistently high, although 
the length of proceedings is significantly longer at 
second  and  third  instances  (an  average  of  154 
days at first instance, 501 days at second instance 
and  312  days  at  third  instance).  On  the  quality 
side,  the  justice  system  does  not  make  many 
arrangements to facilitate access for people at risk 
of discrimination or older people. The digitalisation 
of  justice  needs  to  be  improved.  No  systemic 
deficiencies  in  judicial  independence  have  been 
reported. (107) 

Graph A13.1: Luxemburg. Public administration. 
Share of women and men in senior positions. 
2022 data 

Source: European Institute for Gender Equality  

ANNEX 13: PUBLIC ADMINISTRATION 

This  Annex  outlines  the  performance  of 
Luxemburg’s  public  administration,  which  is 
essential for providing services and carrying 
out  reforms.  Government  effectiveness 
in 
Luxembourg  remains  among  the  highest  in  the 
EU (104).  The  government  programme  aims  to 
advance digital transformation and administrative 
simplification (105).  

in 

e-government 

Overall, 
Luxembourg 
already  scores  high.  The  share  of  citizens 
interacting with the government via the internet in 
the  last  year  has  been  high,  showing  an  upward 
trend  from  previous  years.  In  2022,  Luxembourg 
extended  the  list  of  services  that  are  provided 
online. A new mobile app allows citizens to use eID 
to  interact  with  the  government.  Luxembourg 
plans  to  make  several  investments  under  the 
recovery  and  resilience  facility  to  support  the 
digitalisation  of  services  that  issue  permits  to 
citizens  and  businesses.  The  provision  of  open 
government data is below the EU average. 

Regulatory  governance  faces  challenges  in 
several  respects.  Performance  on  the  OECD 
indicators  on  regulatory  governance  and  policy  is 
well below the EU average (Graph A13.2). Ex ante 
impact  assessments  are  done  for  all  new 
regulations.  However,  these  focus  only  on  the 
administrative  burdens  and  do  not  analyse  the 
effects,  costs  or  benefits  of  proposals.  Ex  post 
evaluations are not done systematically. An online 
platform  for  conducting  public  consultations  has 
been launched. However, stakeholder engagement 
remains 
limited  to  formal  consultation  with 
professional groups (106).  

The  civil  service  in  Luxembourg  is  young, 
compared  to  the  EU  average,  but  faces 
several  challenges.  The  gender  imbalance  in 
senior  civil  service  positions  is  one  of  the  biggest 
in  the  EU-27  and  continues  to  widen  (Graph 
A13.1).  The  share  of  civil  servants  with  higher 
education  is  below  the  EU  average  (Luxembourg: 
41.8%; EU 52%), unlike the participation of public 
administration employees in adult learning.  

(104) Worldwide governance indicators, 2021.  

(105) Government programme (https://gouvernement.lu/dam-

assets/documents/actualites/2018/12-decembre/Accord-de-
coalition-2018-2023.pdf).  

(106) OECD, Better Regulation Practices across the European Union 

2022, (pp.180-181).  

(107) For a more detailed analysis of the performance of the 
justice system in Luxemburg, see the 2023 EU Justice 
Scoreboard (forthcoming) and the country chapter for 
Luxemburg in the 2023 Rule of Law Report (forthcoming). 

54 

0102030405060708090100LUEU-27MenWomen 
 
                                                 
   
 
                                                 
 
Table A13.1: Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2022 value. If not available, the 2021 value is shown. 
(3) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. (4) Defined as the absolute value of the difference between the 
percentage of men and women in senior civil service positions. 
Flags: (b) break in time series; (d) definition differs; (u) low reliability. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Labour Force 
Survey, Eurostat (# 4, 5, 7), European Institute for Gender Equality (# 6); Fiscal Governance Database (# 8, 9); OECD Indicators of 
Regulatory Policy and Governance (# 10). 

Graph A13.2: Luxembourg. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post 
evaluation of legislation 

Source: Indicators of Regulatory Policy and Governance Surveys 2017 and 2021, (http://oe.cd/ireg). 

55 

LU201720182019202020212022EU-27(2)177.165.3 (b)62.363.879.1n/a64.82n/an/an/a84.387.188.872.93n/a0.80.60.60.70.70.8433.7 (u)34.535.438.542.9 (b)41.852.0518.620.820.814.917.7 (b)18.8 (u)16.9629.837.242.848.443.853.411.072.52.72.52.72.8 (b)3.31.580.70.70.70.80.8n/a0.790.80.80.80.90.9n/a1.5101.43n/an/an/a1.43n/a1.7Medium term budgetary framework indexIndicator (1)E-government and open government dataShare of individuals who used the internet within the last year to interact with public authorities (%)E-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education (levels 5-8, %)Participation rate of public administration employees in adult learning (%)Gender parity in senior civil service positions (4)Ratio of 25-49 to 50-64 year olds in NACE sector OPublic financial management Strength of fiscal rules indexEvidence-based policy makingRegulatory governance0.000.501.001.502.002.503.0000.511.522.53LU2017LU2021LU2017LU2021Primary lawsSecondary lawsb) Stakeholder engagement MethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53LU2017LU2021LU2017LU2021Primary lawsSecondary lawsc) Ex-postevaluation of legislationMethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53LU2017LU2021LU2017LU2021Primary lawsSecondary lawsa) Regulatory impact assessmentMethodologyOversightSystematic adoptionTransparencyEU-27 
 
 
   
 
   
FAIRNESS 
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The  European  Pillar  of  Social  Rights  is  the 
compass  for  upward  convergence  towards 
better  working  and  living  conditions  in  the 
EU.  This  Annex  provides  an  overview  of 
Luxembourg’s progress in implementing the Pillar’s 
20 principles and EU headline and national targets 
for  2030  on  employment,  skills,  and  poverty 
reduction. 

Table A14.1: Social Scoreboard for Luxembourg 

(1) Update of 27 April 2023. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2023. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income. 
Source: Eurostat 

the 

labour  market 

Although 
quickly 
recovered  from  the  COVID-19  crisis,  some 
labour  market  has 
challenges  remain.  The 
shown  great  resilience  amid  high  GDP  growth  in 
2021, with an employment rate of 74.1% in 2021 
and  74.8% 
The 
unemployment  rate  stood  at  5.3%  in  2021  and 

(EU:  74.6%). 

in  2022 

reached 4.6% in 2022, well below the EU average 
(6.2%).  However,  the  employment  rate  of  low-
skilled  people  was  still  modest  in  2021  (59.6%) 
although above the EU average (54.9%). Moreover, 
the  employment  rate  of  older  workers  (aged  55-
64)  remains  much  lower  than  the  EU  average 
despite  a  steady  increase  in  recent  years  (from 
39.6%  in  2016  to  46.6% vs.  EU:  60.5% in  2021). 
The  youth  unemployment  rate  (16.9%  in  2021, 
slightly  above  the  EU  average)  has  varied  greatly 
over the years, largely due to the small size of the 
sample. Overall, there is room for further progress 
for  Luxembourg  to  reach  its  2030  employment 
target.  The  European  Social  Fund  Plus  (ESF+)  will 
support  measures 
policies 
to 
supporting  an  active  labour  market,  with  a  focus 
on  digital  skills  and  jobs.  It  will  target  young 
people,  low-skilled  people,  long-term  unemployed 
people,  women,  and  people  aged  over  45. 
these  challenges  would  support 
Addressing 
Luxembourg’s  progress 
the  national 
towards 
employment rate target of 77.6% by 2030. 

strengthen 

Luxembourg  has  recorded  an  increase  in 
early  school  leaving,  and  pupils’  basic  skills 
are  closely  linked  to  their  socio-economic 
background.  The  share  of  early leavers (108)  rose 
from 6.3% in 2018 to 9.3% in 2021 but decreased 
to  8.2%  in  2022.  In  2018,  Luxembourg’s  average 
skills levels, as measured by the OECD Programme 
for  International  Student Assessment  (PISA),  were 
significantly lower than the EU average in all three 
areas  tested.  The  country  had  the  largest  gap 
across  all  EU  countries  between  advantaged 
students  and  their  disadvantaged  peers (109)  (see 
Annex 15 for more information on education). The 
ESF+  will  support  measures  improving  education 
and  training  and  career  guidance,  fighting  early 
school  leaving,  and  boosting  the  integration  of 
young  refugees  and  migrants  into  the  school 
system. 

Participation  in  adult  learning  is  one  of  the 
highest  in  the  EU  but  is  still  uneven  among 
groups.  The  participation  in  adult  learning  over 
the  past  4  weeks  remained  well  above  the  EU 
average  in  2021  (17.9%  vs.  EU:  10.8%),  notably 

(108) Share of the population aged 18 to 24 with, at most, lower 

secondary education who were not involved in any education 
or training during the 4 weeks preceding the survey. 

(109) Luxembourg did not participate in the 2022 PISA survey. 

56 

8.263.797.46.54.5974.84.61.3111.0921.129.434.1815.45.1621Critical situationTo watchWeak but improvingGood but to monitorOn averagePolicy areaHeadline indicatorEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24, 2022)Share of individuals who have basic or above basic overall digital skills (% of population aged 16-74, 2021)Youth NEET rate(% of population aged 15-29, 2022)Gender employment gap(percentage points, 2022)Income quintile ratio(S80/S20, 2021)Dynamic labour markets and fair working conditionsEmployment rate(% of population aged 20-64, 2022)Unemployment rate(% of active population aged 15-74, 2022)Long term unemployment(% of active population aged 15-74, 2022)GDHI per capita growth                                                              (2008=100, 2021)Social protection and inclusionAt risk of poverty or social exclusion rate                                            (% of total population, 2021)At risk of poverty or social exclusion rate for children                       (% of population aged 0-17, 2021)Impact of social transfers (other than pensions) on poverty reduction (% reduction of AROP, 2021)Disability employment gap(percentage points, 2021)Housing cost overburden(% of total population, 2021)Children aged less than 3 years in formal childcare(% of population under 3-years-old, 2021)Self-reported unmet need for medical care(% of population 16+, 2021)Better than averageBest performers 
 
 
 
  
 
                                                 
 
labour 
in 

ICT  but  also 

among  unemployed  people  (34.4%  vs.  EU:  12.7% 
in 2021). Nonetheless, participation is still uneven, 
with only 6.8% for low-qualified people and 8.9% 
for older workers. Moreover, despite the high share 
of  cross-border  workers  (around  46%  of  the 
shortages  are 
country’s  workforce), 
significant,  particularly 
in 
construction  and  industry.  Despite  a  high  digital 
skills level among the population, Luxembourg has 
a significant shortage of ICT specialists. Therefore, 
there  is  scope  to  improve  lifelong  learning  to 
foster  under-represented  groups’  integration  into 
the  labour  market  and  address  skills  shortages. 
Skills  figure  prominently  in  the  country’s  recovery 
and resilience plan with the ongoing skills strategy. 
The ESF+ will support measures promoting lifelong 
learning  in  connection  with  skills  needs.  These 
measures are expected to help Luxembourg reach 
the national target of at least 62.5% of all adults 
participating  in  education  and  training  every  year 
by 2030. 

transfers, 

in  2021.  Social 

(56.7%  for  ISCED  levels  0-2  compared  to  10.0% 
for ISCED 5-8) (110). The impact of social transfers 
(excluding pensions) on reducing poverty fell from 
39.4% in 2020 to 34.2% in 2021, whereas in the 
EU, there was an increase from 33.2% in 2020 to 
including 
37.1% 
Revis (111), have therefore become less effective in 
alleviating  poverty 
in  Luxembourg.  National 
forecasts  also  expected  energy  poverty  to  rise 
in  2022:  3.2%  of  households  were 
sharply 
fall 
expected 
poverty 
(precariousness) 
in  2022  (without  considering 
recent  measures  such  as  energy  price  caps) (112) 
(see  Annex  8  for  further  details).  The  ESF+  will 
support disadvantaged groups, in particular people 
with  a  migrant  background,  by  supporting  their 
sustainable integration into the labour market and 
continuing  the  fight  against  child  poverty.  These 
measures,  together  with  further  social  policy 
action, would help Luxembourg reach the national 
target  of  having  at  least  4 000  fewer  people  at 
risk of poverty by 2030. 

energy 

into 

to 

The  share  of  people  at  risk  of  poverty  or 
social exclusion increased in 2021 but stayed 
slightly  below  the  EU  average  (21.1%  vs. 
21.7%  in  EU).  Non-EU  citizens  are  particularly 
affected  (38.7%  in  2021  against  13.9%  for 
Luxembourgish citizens and 21.5% for EU citizens). 
In-work  poverty  in  particular  has  increased  in 
recent  years  (from  10.9%  in  2016  to  13.5%  in 
2021) and is among the highest in the EU (8.9%). 
Young  people  are  particularly  affected:  their  in-
work  poverty  rate  rose  from  10.2%  in  2012  to 
20.8%  in  2021,  well  above  the  EU  average  of 
12.8% 
is  also 
considerable among single-parent households with 
dependent  children  (26.9%  vs.  EU:  19.0%).  A 
similar  situation  can  be  observed  for  people  not 
born in the EU who tend to be much more affected 
by  in-work  poverty  (26.8%  in  2021)  than  people 
born in the EU (14.7%) and in Luxembourg (7.4%). 

In-work  poverty 

in  2021. 

living 

Child  poverty  also  rose  sharply  in  2021  and 
particularly  affects  households  with  high  to 
very high work intensity. In Luxembourg, the at-
risk-of-poverty  rate  for  workers 
in  a 
household  with  children  is  16.5%  vs.  10.2%  for 
those  living  in  a  household  without  children 
(10.2% vs. 7.8% respectively in the EU). The strong 
increase 
likely 
contributed to this (the house price index bounced 
back from 151 in 2020 to 172 in 2021, one of the 
highest in the EU; 2015 = 100). Child poverty also 
has  a  greater  impact  on  households  with  parents 
levels 
who  have 

in  house  prices  has  most 

low  educational  attainment 

Table A14.2: Situation of Luxembourg on 2030 
employment, skills and poverty reduction targets 

(1) Adult Education Survey, adults in learning in the past 12 
months. 
(2) Number of persons at risk of poverty or social exclusion 
(AROPE), reference year 2019. 

Source: Eurostat, DG EMPL. 

(110) International Standard Classification of Education: levels 0-2: 
less than primary, primary, and lower secondary education;  
levels 5-8: tertiary education. 

(111) Revenu d’inclusion sociale: social minimum income. 

(112) STATEC Rapport Travail et Cohésion Sociale 2022 p. 147. 

. 

57 

IndicatorsLatest dataTrend            (2015-2021)National target by 2030EU target by 2030Employment (%)74.1         (2021)77.678Adult learning1 (%)42.6     (2016)62.560Poverty reduction2 (thousands)+7                 (2021)-4-15,000Adult Education Survey, adults in learning in the past 12 monthsNumber of persons at risk of poverty or social exclusion (AROPE), reference year 2019Eurostat, DG EMPL 
 
   
 
 
 
 
                                                 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  for 
Luxembourg’s  education  and  training  system  in 
light  of  the  EU-level  targets  and  other  contextual 
indicators  under  the  European  Education  Area 
strategic framework, based on the 2022 Education 
and Training Monitor. 

for 

School  outcomes  are  heavily  influenced  by 
linguistic 
the  pupils’  socioeconomic  and 
background The spoken language in the national 
school  system  at  primary  level  is  Luxembourgish, 
while pupils learn to read and write in German and 
all subjects (except French) are taught in German. 
Pupils’  basic  skills  and  overall  performance 
therefore  depend  largely  on  their  skills  in  these 
languages. At age 8, there is a marked difference 
between  the  performance  of  pupils  in  German 
reading  comprehension  depending  on  whether 
they come from a socio-economically  advantaged 
or  disadvantaged  background  and  if  they  speak 
German  /  Luxembourgish  or  another  language  at 
home.  The  gap  seems  to be  increasing  over time.  
(Graph  A15.1).  At  age  15,  Luxembourg’s  average 
competence  levels,  as  measured  by  the  2018 
International  Student 
OECD  Programme 
Assessment  (PISA),  were  significantly  lower  than 
the EU average in all three areas tested, with the 
largest  gap  recorded  between  advantaged  and 
disadvantaged students across all EU countries. In 
September  2022,  Luxembourg  launched  a  pilot 
project in four primary schools, where pupils start 
learning first in French, then continue in German. If 
extended  to  more  schools,  this  approach  could 
help  improve  the  performance  of  pupils  whose 
first language is French. Furthermore, the number 
of  European  public  schools  –  with  free  access  for 
pupils  –  has  increased  to  six.  Pupils  in  these 
schools  can  choose  between  English,  French  or 
German  as  main  tuition  language,  instead  of  the 
trilingual  system.  At  present  only  4%  of  pupils  at 
pre-primary  and  primary  level  in  Luxembourg  are 
enrolled  in  such  public  international  schools  and 
pupils  with  a  disadvantaged  socio-economic  or  a 
are 
non-German/ 
underrepresented. 
teaching 
through  one  main  language  were  extended  to 
cover  a  larger  part  of  the  school  population  it 
could substantially improve their chances to reach 
better 
learning  outcomes.  As  of  2022/23, 
Luxembourg  offers  pupils  free  school  meals  and 
after-school facilities. 

-French 
If 

the  option  of 

background 

participate  in  ECEC  (EU  average:  93.0%;  EU-level 
target: 96%), compulsory education starting at age 
4.  The  2016  Youth  Act  established  ECEC  national 
quality standards, which all providers had to meet 
by September 2017 in order to be eligible for the 
co-financing 
childcare  voucher 
government’s 
scheme.  This  includes  activities  to  familiarise 
children  aged  1  to  4  with  Luxembourgish  and 
French.  Childcare  vouchers  give  parents  reduced 
rates at crèches, after-school centres, mini-crèches 
and day-care centres. 

Graph A15.1: Changes in writing comprehension in 
German in year 3 of primary school, depending on 
socio-economic status between 2018 and 2020 

Source: LUCET 2021. Note: Pupils’ achievements are 
standardised so that the mean value of the respective 
reference cohort is always 500 and the standard deviation 
100 (Fischbach et al., 2014) 

of 

education 

estimates 

The rate of early leavers from education and 
training  (ELET)  (8.2%)  is  already  below  the 
EU-level  target  (below  9%) (113).  Using  an 
alternative  definition  of  early  school  leavers,  the 
in 
Ministry 
2020/2021,  that  also  the  share  of  young  people 
aged 16-24 who left the public education system 
without obtaining an upper secondary qualification 
reached  8.2%  (MENJE,  2022a).  In  2020/21,  80% 
of pupils who dropped out had repeated a year at 
least once. The repetition rate remains high: by the 
end of primary education (age 12), 21% of pupils 
will  have  repeated  at  least  one  school  year 
(MENJE, 2022b). 

that 

Luxembourg  invested  heavily  in  access  to 
and quality of early childhood education and 
care  (ECEC).  From  age  3,  89.5%  of  children 

(113) The EU indicator is based on data available on population 
aged 18-24 whose highest level of education or training 
attained is at most lower secondary education and who 
received no education or training in the four weeks preceding 
the survey. 

58 

5665675754614494340100200300400500600201820192020Written comprehensionadvantageddisadvantaged 
 
  
                                                 
 
Table A15.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Source: (1,3,4,5,7,8,9,10,11) = Eurostat; 2 = OECD (PISA); 6 = European Commission (Joint Research Centre). Notes: Data is not 
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering 
underachievement in digital skills and participation of adults in learning. The equity indicator shows the gap in the share of 
underachievement in reading, mathematics and science (combined) among 15-year-olds between the lowest and highest quarters 
of socio-economic status. 

Luxembourg  is  promoting  digital  education. 
Since  2021/22,  coding  has  been  taught  in  all 
subjects  in  teaching  cycles  1  to  3  (ages  4  to  9). 
From  2022/23,  digital  sciences  are  taught  once  a 
week  in  all  secondary  schools  from  grade  7 
(MENJE, 2021). 

Overall  participation  in  vocational  education  and 
training  and  in  lifelong  learning  activities  is  high 
(see Annex 14). 

attainment 

educational 

Tertiary 
and 
graduate  employment  rates  are  among  the 
highest in the EU, with 61.0% of the population 
aged 25-34 holding a tertiary degree (EU: 42.0%). 
The rate is significantly higher among the migrant 
population  (69.1%,  compared  with  53.5%  of 
people born in Luxembourg). However, the number 
of  new  graduates  in  science  and  engineering  per 
thousand  population  aged  25-34  is  the  lowest  in 
the EU (2.5 in 2020 compared with an EU average 
of 16) and the number of graduates in computing 
per thousand population aged 25-34 (1.2 in 2020, 
compared with an EU average of 3) is the second 
lowest in EU (see Annex 11). The employment rate 
of  recent  tertiary  graduates  in  2021  improved 
somewhat, to reach 87% (EU average: 84.9%), but 
remains considerably lower than in 2019 (94.2%). 

59 

96%86.3%91.9%89.5%202093.0%2020Reading< 15%25.6% 20.0%29.3%201822.5%2018Mathematics< 15%25.8% 22.3%27.2%201822.9%2018Science< 15%25.9% 21.1%26.8%201822.3%2018< 9 %9.3%b11.0%8.2% 9.6%Men10.5%b12.5%9.0%11.1%Women8.1%b9.4%7.3%8.0%Cities7.7%b, u9.6%:u8.6%Rural areas8.9%b12.2%5.5%10.0%Native6.9%b10.0%8.5%8.3%EU-born15.7%b20.7%7.6%u20.3%Non EU-born:b, u23.4%:u22.1%6Equity indicator (percentage points)::26.9201819.320187Exposure of VET graduates to work based learningTotal ≥ 60% (2025) : :33.7%60.1%45%50.3%b36.5%61.0%42.0%Men45.0%b31.2%57.4%36.5%Women55.5%b41.8%64.8%47.6%Cities78.1%b46.2%86.3%52.2%Rural areas41.5%b26.9%53.0%30.2%Native44.7%b37.7%52.7%43.0%EU-born57.5%b32.7%69.1%39.5%Non EU-born51.4%b27.0%63.4%35.7%21.1% 38.3%20.2%202039.2%2020Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth11Share of school teachers (ISCED 1-3) who are 50 years or over1Participation in early childhood education (age 3+)2Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)3Total3By gender4By degree of urbanisation5By country of birth20152022IndicatorTargetLuxembourgEU27LuxembourgEU27 
 
   
 
ANNEX 16: HEALTH AND HEALTH SYSTEMS 

A  healthy  population  and  an  effective, 
accessible  and  resilient  health  system  are 
prerequisites  for  a sustainable  economy and 
society.  This  Annex  provides  a  snapshot  of 
in 
population  health  and  the  health  system 
Luxembourg.  

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2019-2070 

Life  expectancy  in  Luxembourg  is  above  the 
EU average and has rebounded after it fell in 
in  COVID-19 
2020.  There  was  an 
Luxembourg 
mortality 
fares 
comparatively  well 
in  avoiding  deaths  from 
treatable causes. Cancers and circulatory diseases, 
followed  by  COVID-19  are  the  leading  causes  of 
death. 

in  2021 (114). 

increase 

Graph A16.1: Life expectancy at birth, years 

Source: Eurostat 

relative 

spending 

to  GDP 

In  2020, 

in 
Health 
Luxembourg  was  below  the  EU  average  in 
2020. 
total  healthcare  spending 
increased  slightly  to  5.8%  of  GDP  (from  5.4%  in 
2019), but this is partly due to data comparability 
issues regarding the Luxembourgish GDP (115). This 
is  in  line  with  the  upward  trend  in  all  Member 
States  in  2020.  Health  spending  per  capita  in 
Luxembourg  is  one  of  the  highest  in  the  EU.  The 
share  of  health  expenditure 
in  total  public 
spending  increased  slightly  from  12%  in  2019  to 
12.4%  in  2020.  Public  expenditure  on  health 
accounts  for  86.4%  of  total  health  spending,  a 
share that has increased since 2012 (82.8%)  and 
that  is  above  the  EU  average  (81.2%).  Public 
expenditure  on  health  is  projected  to  increase  by 
1.1 percentage points of GDP by 2070 (compared 
to 0.9 percentage points for the EU overall).  

(114) Based on data provided directly by Member States to ECDC 
under the European Surveillance System (data current as of 
13 April 2023) 

(115) A significant proportion of GDP in Luxembourg consists of 

profits from foreign-owned companies that are repatriated. 
Thus, gross national income can be used as an alternative 
measure of the domestic economy in Luxembourg. 

60 

AWG reference scenario 
Source: European Commission / EPC (2021) 

spending  on  prevention 

In  2020, 
in 
Luxembourg  amounted  to  5.3%  of  total 
spending  on  healthcare,  compared  to  3.4% 
for  the  EU  overall.  This  is  comparatively  high, 
with  four  other  Member  States  also  reporting  a 
level  above  4%.  Between  2020  and  2019, 
spending  on  prevention  in  Luxembourg  increased 
by 135%, compared to a 26% increase for the EU 
overall. Across the EU, this increase was primarily 
driven  by 
spending  on  disease  detection, 
surveillance, control and response programmes as 
part  of  the  public  health  response  to  COVID-19. 
Between  2019  and  2020,  a 
remarkable 
proportional  increase  in  reported  spending  was 
noted  in  Luxembourg  for  programmes  for  early 
disease detection, epidemiological surveillance and 
disease control. For disease control programmes in 
particular,  Luxembourg 
the  highest 
increase of all Member States.  

reported 

Luxembourg  faces  a  shortage  of  doctors. 
There  were  3  practising  doctors  per  1 000 
population in 2020 (against 4 on EU average) and 
the increase since 2010 is small. The age structure 
adds  to  this  challenge: 
in  2017,  43.4%  of 
physicians were over the age of 55, and 54.4% of 
practising  general  practitioners  and  60%  of 
specialists  were  over  the  age  of  50.  The  low 
density of doctors is largely due to the absence of 
possibilities  for  medical  training  in  the  country. 
Luxembourgish 
Moreover,  historically,  many 
residents  would  seek  healthcare  in  neighbouring 
countries.  To  address  this  challenge,  the  first 
national  degree  in  general  medicine  started  in 
2021.  Luxembourg’s  healthcare  system  strongly 
depends on staff who are resident in neighbouring 
countries,  making  it  particularly  vulnerable  in 
crises  that  necessitate  border  closures.  This 
concerns two thirds of nurses and half of doctors 
practising in Luxembourg.  

82.782.182.382.782.282.780.980.981.081.380.480.1201620172018201920202021LuxembourgEU6.63.60.91.102468EULuxembourg% of GDP20192070increase 
 
      
                                                 
      
 
Table A16.1: Key health indicators 

Note: The EU average is weighted for all indicators, except for (*) and (**), for which the EU simple average is used. The simple 
average for (*) uses data for 2020 or most recent year if former not available. Doctors' density data refer to practising doctors in 
all countries except EL, PT (licensed to practice) and SK (professionally active). Nurses' density data refer to practising nurses in all 
countries except FR, PT, SK (professionally active) and EL (nurses working in hospitals only). 
Source: Eurostat; except: ** ECDC 

health 

foreign 
the  Gesondheetsdësch 

The  health  strategy  included  in  the  recovery 
and  resilience  plan  (RRP)  aims  to  address 
staff  shortages.  It  aims  to  do  so  by  decreasing 
professionals. 
reliance 
on 
Furthermore, 
reform 
launched  in  February  2020  laid  the  foundations 
for  the  new  national  health  plan.  Another  reform 
by 2025 will trigger policy changes to make health 
professions  more 
residents, 
implement  skill-mix  approaches,  expand  training 
opportunities,  and  put  in  place  new  academic 
programmes for nurses, in addition to the general 
medicine  faculty,  which  was  opened  in  2021. 
Under  the  RRP,  investments  of  EUR  1.2  million 
(1.3%  of  the  RRP’s  total  value)  helped  improve 
telemedicine and will set up an electronic register 
of health professionals.  

attractive 

to 

61 

20172018201920202021EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)73.167.763.160.3NA91.7 (2020)Cancer mortality per 100 000 population235.4225.3218.5203.1NA242.2 (2020)Current expenditure on health, % GDP 5.15.35.45.8NA10.9 (2020)Public share of health expenditure, % of current health expenditure84.084.185.086.4NA81.2 (2020)Spending on prevention, % of current health expenditure 2.22.22.55.3NA3.4 (2020)Acute care beds per 100 000 population377370329324322387.4 (2019)Doctors per 1 000 population *3.0NANANANA3.9 (2020)Nurses per 1 000 population *11.7NANANANA8.3 (2020)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day (total consumption in CY and CZ) **20.920.719.814.814.614.5 (2021) 
 
 
   
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

This  Annex  showcases  the  economic  and 
in  Luxembourg, 
social  regional  dynamics 
providing  an  update  on  economic,  social  and 
territorial  cohesion  in  the  country  compared  with 
the EU as a whole and the main regional economic 
recovery challenges. 

Luxembourg  has  the  highest  GDP  per  capita 
(in PPS) in the EU, but its leading position has 
steadily  eroded  during  the  last  decade.  Its 
GDP  level  per  capita  was  to  268%  of  the  EU 
average  in  2021  but  had  gradually  decreased 
from its historical high of 283% in 2014. Real GDP 
per capita contracted by around 0.05% per annum 
on  average  in  2011-2020  but  grew  at  a  rate  of 
0.6% per year in the EU as a whole.  

This  is  partly  explained  by  the  increase  in 
population,  which  grew  by  around  2.1%  per 
annum in 2011-2020 – while  real  GDP  also grew 
by  2.1%  per  annum  during  the  same  period  –, 
much  faster  than  the  EU  population  average 
growth of 1%. A substantial  share of that growth 
was due to net migration.  

to 

achieving 

Labour  productivity  has  also 
steadily 
decreased.  Low  and  declining  R&D  intensity 
(1.02%  in  2021;  1.42%  in  2011)  remains  an 
obstacle 
the  much-needed 
diversification  of  the  economy  (see  Annex  11). 
Labour  productivity  was  much  higher  than  in  the 
rest  of  the  EU  (at  164%  of  the  EU  average  in 
2020)  but  decreased  by  an  average  of  0.6%  per 
year during the last decade whilst the overall EU-
27 growth rate was 0.2%.  

Nevertheless,  Luxembourg  is  classified  as  a 
strong  innovator  in  the  European  Innovation 
Scoreboard. Similarly, it ranks well above the EU 
average  in  the  Regional  Competitiveness  Index 
2022 with a score of 125.1. 

trade  openness, 

Luxembourg's 
financial 
integration  in  the  EU  and  labour  intensity 
explain  this  trend.  In  particular,  Luxembourg's 
central  location in the  EU and  at the  heart  of the 
‘Greater Region’ made up of German, Belgian and 
French  regions  enables  it  to  attract  not  only 
commuters but also permanent residents. 

Significant socio-economic disparities persist 
within  Luxembourg  between  its  different 
territories.  In  2021,  the  unemployment  rate  in 
towns  and  suburbs  was  higher  at  6.2%  than  in 

in 

significant  differences 

cities  (5.1%)  and  rural  areas  (4.3%).  There  are 
terms  of 
very 
educational  attainment.  Almost  78%  of  the 
population  has  a  tertiary  degree  in  cities  but  this 
share drops to 43% in towns and suburbs, and in 
rural areas. The share of NEETs (116) is also higher 
in  towns  and  suburbs,  and  rural  areas  (Table 
A17.1). 

The  incidence  of  poverty  is  higher  in  towns 
and suburbs, where 24.7% of the population was 
at  risk  of  poverty  or  social  exclusion  in  2021, 
compared with 20.6% in cities and 16.3% in rural 
areas.  

impact  on 

The  COVID-19  pandemic  heavily  affected 
in  Luxembourg,  with 
health  conditions 
significant  excess  mortality  attributed  to  the 
disease.  The 
the  economy  was 
significant with GDP growth dropping from 2.3% in 
2019  to  -0.8%  in  2020.  The  unemployment  rate, 
which  had  been  stable  at  around  5.5%  in  recent 
years,  increased  significantly  to  6.8%  in  2020. 
Luxembourg's  economy  has  rapidly  rebounded, 
however, with GDP growth increasing to 5.1% and 
unemployment dropping back to 5.3% in 2021.  

Luxembourg  has  significantly  reduced  its 
greenhouse  gas  (GHG)  emissions  in  recent 
decades.  GHG  emissions  per  capita  were  more 
than  56%  lower  in  2021  than  in  1990.  However, 
Luxembourg  still  has  one of  the  highest  levels  of 
in the EU. 

Table A17.1: Selected indicators in Luxembourg 

Source: Eurostat 

(116) NEETs are defined as young people (aged 20-34) neither in 
employment nor in education and training. It is measured as 
a percentage of the total population aged 20-34. 

62 

Unemployment rate (%) (2020)Population (ages 25-64) with tertiary education % (2020)Young people neither in employment nor in education and training % (2020)At-risk-of-poverty or social exclusion % (2020)Cities 5.177.58.120.6Towns and suburbs 6.243.39.4.024.7Rural areas 4.343.28.716.3 
 
 
 
                                                 
 
  
 
 
  
 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

under  management 

Luxembourg has the largest investment-fund 
sector  in  the  EU,  with  EUR 5.1 trillion  in 
assets 
in  2022. 
Luxembourg is an important international financial 
centre. The financial sector contributes about 23% 
to  the  country’s  GDP  and  accounts  for  about 
10.5%  of  total  employment.  In  particular,  it  has 
the  largest  investment-fund  sector  in  the  EU, 
thanks  to  its  status  as  the  main  European  –  and 
one of the largest global – fund domiciles. 

Russia’s war on Ukraine put the resilience of 
Luxembourg’s  fund  industry  to  the  test.  The 
direct exposure of Luxembourg’s investment funds 
to  Russian  and  Ukrainian  assets  was  relatively 
small  at  the  beginning  of  the  war  (0.3%  of  total 
assets 
in  February  2022).  Nonetheless,  fund 
managers  exposed  to  Russian  assets  started  to 
offload  these  assets  from  their  portfolios  almost 
immediately.  This  meant  that  the  number  of 
Russian shares and bonds held by funds domiciled 
in  Luxembourg  was  already  very  small  by  mid-
2022.  A  negligible  number  of  funds  with  larger 
investments  in  companies  listed  in  Russia  had  to 
temporarily  suspend  redemptions  or  segregate 
those assets that had become illiquid. But overall, 
the implementation  of  these  exceptional  liquidity-
management  tools  was  successful,  and  a  wider 
crisis  of  confidence in  the  investment-fund  sector 
was averted. As a result of the drawdowns, the net 
asset  value  of  Luxembourg’s  investment  funds 
decreased  by  more  than  12%  between  end-2021 
and  end-2022.  Still,  these  drawdowns  did  not 
unleash  a  wider  ‘fire  sale’  of  funds’  portfolio 
securities,  and  funds  saw  only  manageable 
outflows following the Russian invasion. 

banks  are  appropriately 
Luxembourg’s 
capitalised  and  have  outstanding  asset 
quality,  but  their  profitability  is  structurally 
low. 
Luxembourg’s  banks  are  adequately 
capitalised  and  liquid  with  very  sound  balance 
sheets.  The  non-performing-loan  ratio  of  0.7%  in 
Q3-2022  is  the  lowest  in  the  EU,  and  banks’ 
aggregate core equity tier 1 ratio of 17.0% is well 
above  regulatory  requirements.  However,  with  a 
return  on  equity  of  5.6%  (Q3  2022),  the  banking 
sector’s  profitability  is  structurally  low  and  below 
the EU average of 6.1%. Banks could increase their 
the  future  by  making  more 
profitability 
investments in digitalisation projects to lower their 
operating  costs.  In  2021,  Luxembourg  ranked 
above  the  EU  average  for  the  number  of  people 

in 

who had used the internet in the last 3 months for 
internet banking (72% vs an EU average of 65%), 
according  to  the  European  Commission’s  Digital 
Scoreboard.  The  use  of  e-banking  services  in 
Luxembourg  has  picked  up  in  the  wake  of  the 
COVID-19  pandemic.  Nevertheless,  banks  will  still 
need to scale up their digitalisation efforts to keep 
up  with  the  rapid  rate  of  technological  progress 
and to better serve their clients.  

Graph A18.1: Size of the financial intermediaries 
and of the debt securities market in Luxembourg, 
end-2021 

Source: ECB, EIOPA, AMECO. 

The exposure of some domestic banks to the 
housing market is significant and a matter of 
concern.  The  rapid  pace  of  house-price  growth 
could  pose  a  threat  to  the  country's  financial 
stability  due  to  the  high  level  of  household 
indebtedness.  House  prices  in  Luxembourg  more 
than doubled between 2010 and 2022, a rise that 
is  well  above  the  EU’s  average  growth  of  39%  in 
the  same  period.  As  a 
result,  household 
indebtedness  relative  to  GDP  has  also  grown 
rapidly  in  Luxembourg  in  recent  years.  High 
household  indebtedness  increases  the  system’s 
vulnerability  to  shocks,  particularly  if  there  are 
further  increases  in  interest  rates.  This  could  be 
problematic  for  those  Luxembourgish  banks  with 
above  average  housing  exposure.  To  rein  in 
mortgage  lending  by  banks,  the  central  bank 
introduced  loan-to-value  (LTV)  ceilings  in  January 
2021.  This  measure  has  had  positive  results,  as 
the  weighted  average  LTV  for  new  loans  has 
improved,  and  the  share  of  riskier  loans  to  lower 
income  households  has  decreased  somewhat. 
However,  debt-service-to-income  and  debt-to-

63 

NFCMFIsOtherInsurance and pensionGGMFIsInv.fundsInsurancePen. Funds010002000300040005000600070008000900010000       Debt securities                          Intermediary assets% of GDP 
 
 
  
 
Table A18.1: Financial soundness indicators 

(1) Last data: Q3 2022. 
(2) Data is annualized. 
Source:  ECB, Eurostat, S&P Global Capital IQ Pro 
Source:  

income  ratios  remain  high  which  is  of  concern  as 
borrowers’ real  disposable incomes are eroded by 
higher inflation at the same time.  

stock 

leading 

venues 

itself  as 

exchange 

sovereign 

the  preferred 

bonds 
investment-fund 

has 
Luxembourg’s 
established  itself  as  one  of  the  leading 
trading 
and 
for 
worldwide. 
sustainability-linked 
Besides 
industry, 
its 
Luxembourg has also one of the largest secondary 
markets  for  bonds  in  the  world,  and  it  has 
listing 
positioned 
destination  for  bonds  issued  by  international 
public  bodies,  sovereigns  and  public  agencies.  By 
contrast,  Luxembourg’s  stock  exchange 
for 
equities  is  rather  small  by  EU  standards.  In 
addition, Luxembourg is one of the leading trading 
venues for listed green and social bonds. In 2016, 
the stock exchange created the Luxembourg Green 
Exchange. As at November 2022, the Luxembourg 
Green  Exchange  encompassed  over  3 160 
sustainable  securities,  with  a  total  value  of 
EUR 840  billion  from  issuers  in  50  countries (117). 
Luxembourg is also one of the largest markets for 
sustainable  fund  products, 
its 
positioning as the largest European fund hub, with 
EUR 2.2 trillion 
under 
management and over 2 000 green funds by end-
2022 (118). 
in 
Luxembourg  managed  about  one  third  of  all  the 

Asset  managers 

line  with 

domiciled 

assets 

green 

of 

in 

(117) Luxembourg Stock Exchange, November 2022. 

(118) Sustainable Finance in Luxembourg – A quantitative and 
qualitative overview (2022), LSFI & PWC Luxembourg. 

64 

net  assets  of  sustainable  funds  domiciled  in 
Europe.  But  as  global  demand  for  sustainability-
related  investment  funds  grows,  so  too  does  the 
risk  of  ‘greenwashing’.  It  is  important  to  mitigate 
this  risk  not  only  to  avoid  legal  claims  against 
managers  and  reputational  damage,  but  also  to 
increase  investor  confidence  in  the  market  for 
sustainability-related products. 

of 

largest 

domicile 

insurance-premium 

Luxembourg  is  one  of  the  largest  bases  of 
the  European  life-insurance  industry,  and  a 
major  hub  for  the  cross-border  distribution 
of  life-insurance  products.  Luxembourg  is  the 
eighth 
life-insurance 
businesses  in  the  EU  by  gross  premiums  written 
(EUR 13.3 bn by mid-year 2022). In 2021, 40% of 
gross 
income  came  from 
cross-border life-insurance policies, of which 45% 
were  for  French  nationals.  Life  insurers  are  well 
capitalised,  although  their  ratio  of  own  funds  to 
the  solvency  capital  requirement  of  173.2%  was 
below the EU average of 298.4% in Q2-2022. On 
investment portfolios, life insurers have very little 
investment  in  property,  and  most  of  their  assets 
are  invested  across  the  EU,  with  little  home  bias. 
As 
in  the  EU,  the 
unexpectedly  high  levels  of  inflation  are  likely  to 
generate  significant  losses  in  non-life  insurance 
businesses  in  Luxembourg.  Higher  expenses  from 
claims costs, which are directly linked to inflation, 
will  probably  outweigh  the  benefit  from  higher 
premium rates. 

is  the  case  elsewhere 

201720182019202020212022EUMedianTotal assets of the banking sector (% of GDP)1784.71787.81863.51928.01915.41771.1276.8207.9Share (total assets) of the five largest banks (%)26.226.327.731.329.6--68.7Share (total assets) of domestic credit institutions (%)113.213.012.814.113.513.5-60.2NFC credit growth (year-on-year % change)3.24.54.9-1.6-4.50.5-9.1HH credit growth (year-on-year % change)7.87.32.67.710.17.9-5.4Financial soundness indicators:1        - non-performing loans (% of total loans)0.70.80.60.70.60.71.81.8- capital adequacy ratio (%)22.521.419.721.720.518.018.619.8- return on equity (%)25.75.55.24.45.55.66.16.6Cost-to-income ratio (%)156.059.362.261.661.254.060.651.8Loan-to-deposit ratio (%)176.675.676.562.455.657.488.678.0Central bank liquidity as % of liabilities0.90.80.61.11.81.0-2.9Private sector debt (% of GDP)281.2280.6310.8320.3340.6--120.7Long-term interest rate spread versus Bund (basis points)22.616.913.29.71.758.6-93.3Market funding ratio (%)62.462.161.763.362.3-50.840.0Green bonds issued to all bonds (%)0.20.30.41.11.92.33.92.31-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States. 
                                                 
 
   
 
ANNEX 19: TAXATION  

This  Annex  provides  an 
indicator-based 
overview  of  Luxembourg’s  tax  system.  It 
includes  information  on  the  tax  structure  (the 
types  of tax  that Luxembourg  derives most  of its 
revenue from), the tax burden on workers, and the 
progressivity  and  redistributive  effect  of  the  tax 
system. 
information  on  tax 
collection  and  compliance,  and  on  the  risks  of 
aggressive tax planning. 

It  also  provides 

(38.5% 

in  2022 

the  EU-27 

Luxembourg’s  tax  revenues  in  relation  to  its 
GDP are slightly below the EU average. Table 
A19.1 shows that Luxembourg’s tax revenues as a 
percentage  of  GDP  were  slightly  below  the  EU 
aggregate 
and  40.6% 
respectively).  Luxembourg’s  tax  revenues  from 
personal  (PIT)  and  corporate  (CIT)  income  taxes 
account  for  38.0%  of  all  tax  revenues  (including 
social contributions) – substantially more than the 
average share of PIT and CIT in total tax revenues 
(31.2%). (119)  Revenues  from 
for 
consumption  and  environmental  taxes  as  a  share 
of  GDP  were  among  the  lowest  in  the  EU.  The 
latter  indicates  that  the  ‘polluter  pays’  principle 
can be better applied (see also Annex 6). Moreover, 
the Luxembourg government has acted to mitigate 
the  effects  of  inflation  by  temporarily  reducing 
VAT-rates  by  one  percentage  point 
from 
1 January 2023  to  31 December 2023.]  Revenues 
from  capital  taxes  as  a  share  of  GDP  are  the 
highest in the EU. Revenues from property taxes in 
general  are  relatively  high,  but  revenues  from 
recurrent  property  taxes,  which  are  particularly 
conducive to growth, are among the lowest in the 
EU. 

Luxembourg’s income tax burden is relatively 
low  across  the  income  distribution.  Graph 
A19.1  shows  that  for  Luxembourg  the  tax  wedge 
in  2022  was  lower  than  the  EU  average  at  lower 
income  levels,  i.e.  for  single  earners  at  50%  and 
67%  of  the  average  wage,  while  equal  to  the  EU 
average  at  100%  and  higher  than  it  at  167%  of 
the average wage. Furthermore, the tax wedge for 
second  earners  at  67%  of  the  average  wage was 
clearly  higher  than  the  EU  average. (120)  While 

(119) See European Commission, Directorate-General for Taxation 
and Customs Union, Taxation trends in the European Union: 
data for the EU Member States, Iceland, Norway and United 
Kingdom: 2021 edition, Publications Office of the European 
Union, 2021, https://data.europa.eu/doi/10.2778/843047  

(120) For the methodology of the tax wedge for second earners 

see OECD (2016) “Taxing Wages 2014-2015” 
(https://www.oecd-ilibrary.org/sites/tax_wages-2016-4-

labour  taxes  are  more  progressive  than  the  EU 
average, the tax-benefit system as a whole has a 
relatively  small 
income 
impact 
inequality as measured by the Gini coefficient. 

reducing 

in 

Luxembourg  is  doing  moderately  well  on 
digitalisation  of  the  tax  administration, 
which  can  help  reduce  tax  arrears  and  the 
VAT  gap.  Outstanding  tax  arrears  marginally 
increased  by  0.1  percentage  point  between  2019 
and  2020  to  12.9%  of  total  net  revenue.  This  is 
significantly  below  the  EU-27  average,  which 
increased by 9.1 percentage points over the same 
period to  40.7%  -  although  that  figure is  inflated 
by very large values in a few Member States. The 
VAT gap (an indicator of the effectiveness of VAT 
enforcement  and  compliance,  where  a  low  gap 
indicates  high  effectiveness) 
in  Luxembourg 
decreased  from  9.7%  in  2019  to  6.0%  in  2020. 
Values  for  both  2019  and  2020  were  well  below 
the EU aggregate and also the reduction between 
the 2 years was more pronounced in Luxembourg. 
The  forward-looking  effective  average  corporate 
income tax rate was well above the EU average in 
tax  planning  may 
2021,  but  aggressive 
substantially reduce the tax burden. 

in  Luxembourg. 

There appears to be a high risk of aggressive 
In  2021, 
tax  planning 
Luxembourg was ranked fourth worldwide in terms 
of  inward  foreign  direct  investment  (FDI)  stock  – 
behind  the  US,  China  and  the  Netherlands  but 
ahead  of  the  UK  –  and  third  in  terms  of  outward 
investment  –  behind  the  US  and  the  Netherlands 
but  ahead  of  China.  Luxembourg's  inward  FDI 
stock  of  USD  3 327 bn  and  outward  FDI  stock  of 
USD 3 392 bn are about 40 and 50 times the size 
of  its  GDP  respectively   (121).  Around  70%  of 
Luxembourg’s  both  inward  it’s  and  outward  stock 
is held through special purpose entities (SPEs) (see 
Graph  A19.2).  By  comparison,  less  than  20%  of 
both the inward and outward FDI stock in the other 
26  Member  States 
through  SPEs. 
Luxembourg  is  also  a  major  conduit  for  dividend 
and  interest  flows  (see  Graph  A19.2).  It  receives 
21% of the total amount of dividends received by 
the  EU-27  and  is  the  source  of  21%  of  the  total 
amount of the dividends paid by the EU-27. It also 
receives around 40% of all interest received by the 
EU-27  and  is  the  origin  of  around  38%  of  all 
interest paid by the EU-27 (2021). Luxembourg is 

is  held 

en/index.html?itemId=/content/component/tax_wages-2016-
4-en) 

(121) OECD data 

65 

 
 
                                                 
                                                                              
 
Table A19.1: Taxation indicators 

(1) Forward-looking effective tax rate (OECD). 
(2) A higher value indicates stronger redistributive impact of taxation. 
(*) EU-27 simple average 

For more data on tax revenues as well as the methodology applied, see European Commission, Directorate-General for Taxation 
and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United Kingdom: 
2021 edition, Publications Office of the European Union, 2021, https://data.europa.eu/doi/10.2778/843047 and the Data on 
Taxation webpage, https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en. 
For more details on the VAT gap, see European Commission, Directorate-General for Taxation and Customs Union, VAT gap in the 
EU: report 2022, Publications Office of the European Union, 2022, https://data.europa.eu/doi/10.2778/109823. 
Source: European Commission, OECD. 

tax  planning 

risk  of  aggressive 

a  major  financial  hub  in  the  EU  and  globally,  but 
the scale of these figures suggests that there is a 
in 
high 
Luxembourg   (122), especially when compared with 
other  Member  States.  As  part  of 
its  RRP, 
Luxembourg  introduced  a  conditional  measure  of 
non-deductibility of interest and royalty payments 
in  2021.  This  should  help  to  reduce  the  risk  of 
aggressive tax planning, but its scope is limited to 
the  EU  list  of  non-cooperative  jurisdictions  which 
are  not  among  Luxembourg’s  main  economic 
partners  and  does  not  specifically  target  low  or 
zero 
Luxembourg's  other 
measures  have  been  limited  to  implementing  EU 
legislation  and  Council  conclusions.  Moreover,  the 
OECD Pillar 2 rules on a global minimum corporate 
tax-rate  are  yet  to  be  implemented  in  the  EU.  It 
will  help  address  the  outbound  payment  issue  in 
Luxembourg  but  will  not  fully  address  it  because 
its  scope  is  limited  to  the  largest  multinationals 

jurisdictions. 

tax 

(threshold  of  €750  million)  and  certain  sectoral 
exemptions exist. 

Graph A19.1: Tax wedge for single and second 
earners as a % of total labour costs, 2022 

Second earner tax wedge assumes first earner at 100% of 
the average wage and no children. 
Source: European Commission 

(122) Aggressive tax planning (ATP) is by nature an opaque 

phenomenon, and the figures provided cannot constitute a 
proof in themselves. However, substantial discrepancies in 
macroeconomic data are indicators that ATP may be taking 
place. The sharing of more accurate data by Luxembourg's 
authorities (particularly on the source and destination 
jurisdictions of certain flows) would make it easier to 
distinguish data linked to legitimate financial activities from 
data linked to ATP.  

66 

26.632.240.447.044.42025303540455050100150Tax wedge, % of total labour costsEarnings in % of the average wageSingle earner - LUSingle earner - EU averageSecond earner -  LUSecond earner -  EU average2010201920202021202220102019202020212022Total taxes (including compulsory actual social contributions) (% of GDP)35.739.638.238.538.437.939.940.040.6Labour taxes (as % of GDP)15.818.418.818.320.020.721.320.9Consumption taxes (as % of GDP)9.98.98.38.810.811.110.711.2Capital taxes (as % of GDP)10.012.411.011.57.18.18.08.5Total property taxes (as % of GDP)1.02.42.52.61.92.22.22.2Recurrent taxes on immovable property (as % of GDP)0.10.10.10.11.11.21.21.1Environmental taxes as % of GDP2.31.81.41.42.42.42.22.2Tax wedge at 50% of average wage (Single person) (*)25.324.425.826.126.633.932.331.932.131.7Tax wedge at 100% of average wage (Single person) (*)35.338.539.539.840.441.040.139.939.739.7Corporate income tax - effective average tax rates (1) (*)23.223.223.219.519.419.1Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)9.75.26.95.38.67.78.17.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)12.812.931.640.7VAT Gap (% of VAT total tax liability, VTTL)9.76.011.09.1LuxembourgEU-27Tax structureProgressivity & fairnessTax administration & compliance 
                                                 
 
   
 
 
     
 
 
 
 
 
 
 
Graph A19.2: Financial activity risk in Luxembourg: dividend and interest flows, and the use of special 
purpose entities (SPEs) for foreign direct investment (FDI) 

Source: European Commission 

67 

6%14%64%16%7%16%63%14%USE OF SPES FOR FDI IN LUXEMBOURG AND IN THE REST OF THE EUIN ASSETS (OUTSIDE) AND LIABILITIES (INSIDE) STOCKS, 2021Luxembourg(Non-SPEs)Luxembourg(SPEs)EU26 (Non-SPEs)EU26 (SPEs)total assets = €21,787.8Bn totalliabiliies = €19,096.7Bn0%20%40%60%80%100%120%140%160%180%0.100.200.300.400.500.600.ReceivedPaidReceivedPaidDividends                        Interest* % of GDP€ billionTotal dividends and interest flows in LU and in the rest of the EU26, 2021In EUR billion (LHS) and in % of respective GDP (RHS)EU26 - LHSLuxembourg - LHSEU26 - RHSLuxembourg - RHS 
 
 
 
   
ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS 

Table A20.1: Key economic and financial indicators 

(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
(2) Net international investment position (NIIP) excluding direct investment and portfolio equity shares.  
Source: Eurostat and ECB as of 2 May 2023, where available; European Commission for forecast figures (Spring forecast 2023). 

68 

2004-072008-122013-1920202021202220232024Real GDP (y-o-y)5.20.62.6-0.85.11.51.62.4Potential growth (y-o-y)3.82.22.21.91.92.22.32.3Private consumption (y-o-y)1.82.42.6-7.39.52.82.42.7Public consumption (y-o-y)1.73.62.97.85.43.83.72.3Gross fixed capital formation (y-o-y)4.42.81.4-3.66.7-0.5-2.91.6Exports of goods and services (y-o-y)8.31.64.40.29.7-0.62.63.6Imports of goods and services (y-o-y) 7.32.94.8-0.411.8-0.92.73.8Contribution to GDP growth:Domestic demand (y-o-y)1.81.91.6-1.75.01.40.91.5Inventories (y-o-y)0.1-0.10.2-0.30.4-0.10.00.0Net exports (y-o-y)3.3-1.30.81.2-0.30.20.70.9Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.91.31.61.41.41.92.22.1Capital accumulation (y-o-y)1.31.31.00.70.80.70.60.6Total factor productivity (y-o-y)0.6-0.3-0.4-0.2-0.3-0.5-0.5-0.4Output gap1.3-1.5-0.7-3.2-0.1-0.8-1.5-1.4Unemployment rate4.64.95.96.85.34.64.85.0GDP deflator (y-o-y)4.13.81.74.76.26.45.53.4Harmonised index of consumer prices (HICP, y-o-y)3.22.71.20.03.58.23.22.6HICP excluding energy and unprocessed food (y-o-y)2.52.41.61.41.54.45.13.2Nominal compensation per employee (y-o-y)4.02.22.21.26.05.46.93.4Labour productivity (real, hours worked, y-o-y)1.9-1.1-0.23.4-2.0-2.3-1.8-0.9Unit labour costs (ULC, whole economy, y-o-y)2.24.32.63.83.97.47.83.3Real unit labour costs (y-o-y)-1.80.50.9-0.8-2.20.92.2-0.1Real effective exchange rate (ULC, y-o-y)1.02.11.4-0.43.53.61.9-0.2Real effective exchange rate (HICP, y-o-y)1.20.40.30.10.8-1.1..Net savings rate of households (net saving as percentage of net disposable income)5.26.17.919.112.4...Private credit flow, consolidated (% of GDP)40.45.115.042.953.9...Private sector debt, consolidated (% of GDP)218.0287.4300.6320.3340.6...of which household debt, consolidated (% of GDP)46.255.161.568.566.0...of which non-financial corporate debt, consolidated (% of GDP)171.8232.3239.1251.7274.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (1)..0.70.60.5...Corporations, net lending (+) or net borrowing (-) (% of GDP)7.20.5-1.0-0.40.71.84.65.6Corporations, gross operating surplus (% of GDP)28.630.930.729.330.030.631.631.7Households, net lending (+) or net borrowing (-) (% of GDP)-0.20.20.66.12.82.83.82.7Deflated house price index (y-o-y)8.11.24.813.112.43.8..Residential investment (% of GDP)3.23.23.83.83.33.2..Current account balance (% of GDP), balance of payments6.85.74.53.24.65.06.15.9Trade balance (% of GDP), balance of payments29.636.539.532.734.728.4..Terms of trade of goods and services (y-o-y)0.01.1-0.11.71.2-0.30.60.3Capital account balance (% of GDP)0.4-0.40.0-0.11.20.5..Net international investment position (% of GDP)10.112.165.363.940.428.2..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)..-3543.9-4148.8-4638.1-3767.0..IIP liabilities excluding non-defaultable instruments (% of GDP) (2)..10012.510869.011424.09551.8..Export performance vs. advanced countries (% change over 5 years)26.616.516.018.419.0...Export market share, goods and services (y-o-y)4.5-1.33.415.4-0.9-4.3-0.1-0.2Net FDI flows (% of GDP)..56.4-32.2173.647.6..General government balance (% of GDP)1.20.81.7-3.40.70.2-1.7-1.5Structural budget balance (% of GDP)..2.0-2.00.80.5-1.1-0.8General government gross debt (% of GDP)8.017.721.524.524.524.625.927.0forecast 
 
 
 
      
 
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  Annex  assesses  fiscal  sustainability 
risks for Luxembourg over the short, medium 
and  long  term.  It  follows  the  same  multi-
dimensional 
European 
Commission’s  2022  Debt  Sustainability  Monitor, 
updated  based  on  the  Commission’s  2023  spring 
forecast. 

approach 

the 

as 

1  -  Short-term  risks  to  fiscal  sustainability 
are 
low  overall.  The  Commission’s  early-
detection  indicator  (S0)  does  not  signal  major 
short-term  fiscal  risks  (Table  A21.2). (123)  Gross 
financing needs are expected to remain limited at 
around  6%  of  GDP  in  the  short-term  (i.e.  over 
2023-2024)  and  declining  since  2020  (Table 
A21.1,  Table  1).  Financial  markets’  perceive 
sovereign risk to be low, as confirmed by the ‘AAA’ 
rating  that  the  three  major  rating  agencies 
assigned to Luxembourg’s government debt. 

2 - Medium-term risks to fiscal sustainability 
are low overall.  

The  DSA  for  Luxembourg  shows  that,  under 
the  baseline,  the  government  debt-to-GDP 
ratio  is  expected  to  remain  well  below  60% 
of  GDP  (at  33.4%  of  the  GDP  in  2033), 
although  increasing  over  the  medium  term 
(Graph  1). (124), (125)  The  assumed  structural 
primary balance (a deficit of 0.5% of GDP) seems 
low  compared 
fiscal  performance, 
indicating ample room for correction action. At the 

to  past 

(123) The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of macro-financial and 
fiscal variables that have proven to perform well in the past 
in detecting situations of upcoming fiscal stress.  

(124) The assumptions underlying the Commission’s ‘no-fiscal 
policy change’ baseline notably comprise: (i) a structural 
primary deficit, before ageing costs, of 0.5% of GDP as of 
2024; (ii) inflation converging linearly towards the 10-year 
forward inflation-linked swap rate 10 years ahead (which 
refers to the 10-year inflation expectations 10 years from 
now); (iii) the nominal short- and long-term interest rates on 
new and rolled over debt converging linearly from current 
values to market-based forward nominal rates by T+10; (iv) 
real GDP growth rates from the Commission 2023 spring 
forecast until 2024, followed by EPC/OGWG ‘T+10 
methodology projections between T+3 and T+10, i.e. for 
2025-2033 (on average 2.1%); (v) ageing costs in line with 
the 2021 Ageing Report (European Commission, Institutional 
Paper 142, November 2020). For information on the 
methodology, see the 2022 Debt Sustainability Monitor. 

same  time,  the  baseline  projections  up  to  2033 
benefit  from  a  favourable  (although  diminishing) 
snowball  effect,  with  real  GDP  growth  at  around 
2.1%  of  GDP  over  2025-2033.  Government  gross 
financing  needs  are  expected  to  remain  limited 
over the projection period, reaching 5% of GDP in 
2033, close to the level forecast for 2024. 

the 

reverting 

trajectories  under 

The  baseline  projection 
is  stress-tested 
against  four  alternative  scenarios  to  assess 
the  impact  of  changes  in  key  assumptions 
(Graph  Ax.1).  For  Luxembourg, 
to 
‘historical 
historical 
structural  primary  balance  (SPB)’  scenario  would 
support  debt  reduction.  If  the  SPB  gradually 
converged  to  a  surplus  of  1.9  %  of  GDP  (its 
historical 15-year average), the projected debt-to-
GDP  would  be  lower  (by  around  15  pps.)  than  in 
the  baseline  in  2033.  Reducing  the  SPB  level 
permanently  by  half  of  the  cumulative  forecast 
change  under  the  `lower  structural  primary 
balance’  scenario  would 
to  a  higher 
government  debt-to-GDP  ratio  by  2033  (about  4 
pps.) as compared with the baseline. A permanent 
worsening  of  the  macro-financial  conditions,  as 
reflected  under the ‘adverse interest- growth rate 
differential’  scenario  (i.e.  1  pp.  higher  than  the 
baseline)  would  also  lead  to  higher  government 
debt-to-GDP  ratio  (around  2  pps.)  by  2033,  as 
compared  with 
temporary 
worsening  of  financial  conditions,  as  reflected  in 
the  ‘financial  stress  ‘scenario  (i.e.  temporarily 
increase of interest rates by 1 pp.), would provide 
a  broadly  similar,  though  slightly  higher,  public 
debt-to-GDP  ratio  by  2033  compared  with  the 
baseline.  

the  baseline.  A 

lead 

Additionally,  stochastic  projections  show  a 
low risk related to these projections against 
plausible  unforeseen  events  (Graph  2). (126) 
These  stochastic  simulations  point  to  a  60% 
probability of the debt ratio in 2027 being greater 
than  in  2022,  entailing  low  risk  given  the  initial 
low  debt  level.  In  addition,  such  shocks  point  to 
limited uncertainty (i.e. the difference between the 
10th  and  90th  debt  distribution  percentiles) 
surrounding 
the  government  debt  baseline 
projections.  

(125) Table 1 shows the baseline debt projections and its 

(126)The stochastic projections show the joint impact on debt of 

breakdown into the primary balance, the snowball effect (the 
combined impact of interest payments and nominal GDP 
growth on the debt dynamics) and the stock-flow 
adjustment.  

2000 different shocks affecting the government’s budgetary 
position, economic growth, interest rates and exchange rates. 
The cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

69 

 
 
                                                 
                                                 
 
 
granted on bank loans to firms and self-employed 
during  the  COVID-19  and  energy  crises  remain 
currently 
liabilities 
limited.  Overall,  contingent 
appear significant, including those stemming from 
the  banking  sector.  Moreover,  because  pension 
fund  surpluses  are  added  to  the  pension  reserve 
fund  and  therefore  result  in  positive  stock-flow 
adjustments  that  limit  debt  reduction  is.  On  the 
other-hand,  risk-mitigating  factors  include  the 
lengthening  of  debt  maturity  in  recent  years, 
relatively  stable 
(with  a 
diversified  and  large  investor  base),  the  currency 
the  AAA-rating. 
denomination  of  debt  and 
Luxembourg’s 
international 
investment  position  also  mitigates  vulnerabilities, 
as well as the positive net financial asset position 
of  the  government.  In  addition,  the  structural 
reforms under the NGEU/RRF, if fully implemented, 
could  have  a  further  positive  impact  on  GDP 
growth in the coming years, and therefore help to 
mitigate debt sustainability risks. 

financing  sources 

positive 

net 

3  -  Long-term  risks  to  fiscal  sustainability 
are high overall. (127)  

The  S2  indicator  (at  8.4  pps.  of  GDP)  points 
to high fiscal sustainability risks. The indicator 
shows that, relative to the baseline, the SPB would 
need  to  significantly  improve  to  ensure  debt 
stabilisation  over  the  long  term.  This  result  is 
underpinned  by  the  projected  increase  in  ageing-
related 
the  projection  period 
(contribution  of  7.7  pps.  of  GDP).  Public  pension 
expenditure  (contribution  of  6.0  pps.  of  GDP)  are 
projected to substantially increase, as well as – to 
a  lower  extent  -  health  and  long-term  care 
spending  (joint  contribution  of  2.1  pps.  of  GDP) 
(Table 2).  

costs  over 

that 

signals 

indicator 

long-term 

Combined  with 
long-term  debt 
some 
vulnerabilities,  as  highlighted  by  the  S1 
indicator,  overall 
risks  are 
assessed  as  high.  Indeed,  the  S1  sustainability 
gap 
a  moderate 
consolidation  effort  of  4.3  pps.  of  GDP  would  be 
needed to bring debt to 60% of GDP by 2070. This 
result is mainly driven by the projected increase of 
ageing-related  public  expenditure  (contribution  of 
4.5  pps.  of  GDP),  in  particular  due  to  pension 
spending (contribution of 3.7 pps. of GDP) and to a 
lesser  extent  health  care  and  long-term  care 
spending  (joint  contribution  of  1.3  pps.  of  GDP), 
while  being  only  partly  offset  by  the  debt 
requirement (-0.7 pp. of GDP) (Table 2). 

Finally,  several  additional  risk  factors  need 
to  be  considered  in  the  assessment.  On  one 
hand,  risk-increasing  factors  are  related  to  the 
recent increase in interest rates and the contingent 
liability  risks  stemming  from  State  guarantees 
provided  to  the  private  sector.  The  possible 
materialisation of calls under the State guarantees 

(127)The S2 fiscal sustainability gap indicator measures the 

permanent fiscal effort (SPB adjustment) in 2024 that would 
be required to stabilise public debt over the long term. It is 
complemented by the S1 fiscal sustainability gap indicator, 
which measures the permanent fiscal effort required in 2024 
to bring the debt-to-GDP ratio to 60% in the long term (by 
2070). For both the S1 and S2 indicators, the risk 
assessment depends on the amount of fiscal consolidation 
needed: ‘high risk’ if the required effort exceeds 6 pps. of 
GDP, ‘medium risk’ if it lies between 2 pps. and 6 pps. of 
GDP, and ‘low risk’ if the effort is negative or below 2 pps. of 
GDP. The overall long-term risk classification brings together 
the risk categories derived from S1 and S2. S1 may notch up 
the risk category derived from S2 when it signals a higher 
risk than S2. See the 2022 Debt Sustainability Monitor for 
further details. 

70 

 
                                                 
 
 
 
 
 
 
 
 
Table A21.1: Debt sustainability analysis - Luxembourg 

Source: Commission services. 

Table A21.2: Heat map of fiscal sustainability risks - Luxembourg 

Source: Commission services (for further details on the Commission's multidimensional approach, see the 2022 Debt 
Sustainability Monitor) 

71 

Table 1. Baseline debt projections20202021202220232024202520262027202820292030203120322033Gross debt ratio (% of GDP)24.524.524.625.927.026.926.826.727.127.928.930.231.833.4Changes in the ratio2.10.00.11.31.1-0.1-0.1-0.10.40.81.01.31.51.7of whichPrimary deficit3.2-0.9-0.31.51.11.01.01.01.21.41.61.81.92.1Snowball effect-0.6-2.4-1.7-1.4-1.1-1.1-1.1-1.0-0.7-0.6-0.5-0.5-0.4-0.5Stock-flow adjustments-0.53.32.11.21.10.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)7.42.73.65.95.54.44.34.24.34.44.64.74.95.3S1S2Overall index  (pps. of GDP)4.38.4of which Initial budgetary position0.40.8Debt requirement-0.7Ageing costs4.57.7of which    Pensions3.76.0     Health care0.60.9     Long-term care0.71.2Others-0.4-0.4Table 2. Breakdown of the S1 and S2 sustainability gap indicators051015202530354020202021202220232024202520262027202820292030203120322033Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p900102030405020202021202220232024202520262027% of GDPGraph 2. Stochastic debt projections 2023-2027MedianBaselineBaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWLOWDebt level (2033), % GDP33.419.037.735.733.6Debt peak year20332024203320332033Fiscal consolidation space100%82%100%100%100%Probability of debt ratio exceeding in 2027 its 2022 level60%Difference between 90th and 10th percentiles (pps. GDP)24.3(1)Debtlevelin2033.Green:below60%ofGDP.Yellow:between60%and90%.Red:above90%.(2)Thedebtpeakyearindicateswhetherdebtisprojectedtoincreaseoveralloverthenextdecade.Green:debtpeaksearly.Yellow:peaktowardsthemiddleoftheprojectionperiod.Red:latepeak.(3)Fiscalconsolidtationspacemeasurestheshareofpastfiscalpositionsinthecountrythatweremorestringentthantheoneassumedinthebaseline.Green:highvalue,i.e.theassumedfiscalpositionisplausiblebyhistoricalstandardsandleavesroomforcorrectivemeasuresifneeded.Yellow:intermediate.Red:low.(4)Probabilityofdebtratioexceedingin2027its2022level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)thedifference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.Short termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)LOWLOWHIGHMEDIUMHIGH 
 
 
   
 
 
   
 
ANNEX 22: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX   

term, cyclical factors should drive a moderation in 
house price growth, as mortgage interest rates rise 
and real household income growth moderates due 
to  inflation.  The  risk  for  banks  is  mitigated 
because a large share of debt is owed by wealthy 
the  proportion  of 
households.  Furthermore, 
mortgages  at  adjustable  rates  has  decreased  in 
recent years and stands around 40%. Most of this 
debt is held by five domestically oriented banks, in 
general banks are well capitalised and liquid, while 
buffers  appear  sufficient  to  absorb  potential 
shocks.  With  the  level  of  credit-to-GDP  remaining 
below its long-term trend, these vulnerabilities are 
expected 
risk. 
Luxembourg  activated  both  capital  and  borrower-
based 
limits)  macroprudential 
measures with effect from 1 January 2021, which 
seem  to  have  had  some  dampening  effect  on 
household debt. 

low  associated 

(loan-to-value 

to  entail  a 

implemented  measures 

in 
Luxembourg 
response  to  the  continuous  house  price 
increases,  but  further  structural  challenges 
remain. The government has presented a package 
of  three  tax  measures  which  address  the  main 
factors  underlying  the  structural  undersupply  of 
housing, 
land  and  unoccupied  dwellings,  and 
therefore is a step in the right direction. However, 
it  will  take  a  few  years to  implement.  Meanwhile, 
fiscal  support  to  owner-occupied  property  was 
increased  in  2023.  Fiscal  support  contributes 
further to the already high structural demand and 
elevated  household  indebtedness,  in  addition  to 
favouring  ownership  over  rental  tenure.  The 
implementation  of  the  reviewed  spatial  planning 
policy  needs  can  support  supply.  While  efforts  to 
increase  the  low  share  of  social  and  affordability 
rental  housing  can  reduce  the  affordability  issue. 
In  addition,  the  densification  of  urban  areas 
concentrated  around  transport  network  centres 
can  encourage  the  use  of  public  transport.  There 
are  additional  planned  policy  measures  in  the 
pipeline; the rental market reform and to improve 
affordability.  However,  it  is  too  early  to  assess 
their 
the 
and 
vulnerabilities. 

effectiveness 

impact 

on 

Based  on  this  assessment,  the  Commission 
considered  in  its  communication  European 
Semester – 2023 Spring Package (COM(2023) 
600  final)  that  Luxembourg  does  not 
experience imbalances. 

review 

undertaken 

The  Macroeconomic 
Imbalance  Procedure 
matrix presents the main elements of the in-
depth 
for 
Luxembourg. (128)  Luxembourg  was  selected  for 
an  in-depth  review  in  the  2023  Alert  Mechanism 
Report. This in-depth review on the prevention and 
correction of macroeconomic imbalances presents 
the main  findings  on  the gravity  and  evolution  of 
identified,  as  well  as  policy 
the  challenges 
responses  and  potential  policy  needs.  Findings 
cover all areas of vulnerability assessed in the in-
depth review. 

is 

facing 

Luxembourg 
increasing 
vulnerabilities  related  to  high  house  prices 
and  high  household  debt.  House  prices  in 
Luxembourg  have  historically  increased  faster 
than 
in  the  euro  area,  sustained  by  strong 
migration inflows, with housing supply persistently 
lagging  demand.  Between  2012  and  2022,  house 
prices increased by 118% (44% in the euro area), 
with half of this increase taking place over the last 
four  years.  Over  the  same  period,  population 
increased  by  around  30%  (5%  in  the  euro  area), 
more than  7000  households  per  year. Meanwhile, 
the  production  of  new  dwellings  was  below  4000 
units  per  year,  resulting 
in  a  high  housing 
shortage,  which  is  partly  mitigated  by  the  cross-
border  housing  market.  In  2022,  a  slowdown  in 
house  price  growth  was  observed  following  the 
tightening of financing conditions; although annual 
growth was still 10%, house prices declined in the 
fourth quarter. Mortgage credit increased steadily, 
with household debt reaching 180% of disposable 
income  in  2022.  High  fiscal  support  to  home 
ownership,  including  deductibility  of  mortgage 
interest,  partly  explained  the  higher  credit  growth 
compared  to  other  Member  States.  Furthermore, 
given  the  persistent  housing  shortage,  tax  relief 
and subsidies can be capitalised into higher house 
prices. 

While house price growth should moderate in 
the  near  future,  structural  drivers  are  likely 
to  continue  driving  house  prices  up  over  the 
medium  term.  Structural  demand  pressures  and 
constraints  have  been  key  drivers 
supply 
underlying  the  strong  long-lasting  trend  of  house 
price  growth  over  the  last  decade.  In  the  short 

(128)  European Commission (2023), In-Depth Review for 

Luxembourg, Commission staff working document 
(COM(2023) 638 final), in accordance with Article 5 of 
Regulation (EU) No 1176/2011 on the prevention and 
correction of macroeconomic imbalances.  

72 

 
 
                                                 
 
 
 
Table A22.1: Assessment of macroeconomic imbalances matrix 

Source: European Commission 

73 

Gravity of the challengeEvolution and prospectsPolicy responseUnsustainable trends, vulnerabilities and associated risksHousehold debtHousehold debt as percentage of GDP is 65.7% and below the benchmark value in 2022. However, household debt as percentage of disposable income is very high and reached 180% of disposable income in 2022. This is 61% above its long-term average and one of the highest deviations among EU member states. Some 80% of this is mortgage credit, which has increased steadily due to strong house price increases and fiscal support to home ownership, explaining the higher credit growth compared to other Member States. In combination with a large share of variable rate mortgages this increases vulnerabilities.Household debt to GDP fell to 65.7% in 2022 from 69.5% in 2020. After peaking in 2021Q1, a downward trend was confirmed in subsequent quarters. The same trend applies to household debt as percentage of disposable income which increased strongly in the last two decades from 107% in 2003-2007 to a peak of 180% in 2021-2022. As the housing market seems to have peaked in 2021, cyclical factors are expected to lower this ratio in the short-term although it is expected to remain at relatively high levels in the medium-term. In particular, the demand for new mortgages is projected to continue falling in 2023, while the labour market is expected to remain solid. However, the high inflation environment and the tightening of financing conditions weigh on debt service capacity of households, mainly those with variable rate debt. Several factors can mitigate the risks associated with household debt: a large share of debt is owed by wealthy households and covered by liquid financial assets, around 60% of the mortgages and most granted in recent years have fixed rates. Bank buffers appear sufficient to absorb potential shocks from the residential real estate market and mortgage debt. In addition, the structural supply shortage is expected to support house prices and reduce the risk of homeowners Some progress has been made in addressing high household debt. Luxembourg implemented both capital and borrower-based (loan-to-value limits) macroprudential measures with effect from 1 January 2021. These seem to have had a dampening effect considering the decline in the average loan-to-values. No new macro-prudential measures are expected at this stage also because of the cyclical turn in the market due to higher interest rates.  However, one of the main drivers of mortgage demand, the fiscal support, has been increased in 2023. The reduction of fiscal support to owner-occupied property can contribute to contain the already high household debt (as % of disposable income). Improving the balance in the housing market, by taking measures not to support demand and to increase supply, contribute to house price moderation and can have a positive impact on household indebtedness.Housing sectorBetween 2012 and 2022, house prices increased by 118% with half of this increase taking place over the last four years. Following the strong economic and demographic dynamics, housing supply (below 4000 units per year) lagged persistently demand (more than 7000 households per year), resulting in a chronical housing shortage, leading to sustained price increases. These long-term price dynamics have led to an overvaluation in the housing market according to the standard metrics and worsening of affordability. Despite the relative abundance of constructible land, supply is a limiting factor for housing. The price of constructible land, which accounts for 20%-40% of the house price, increased by 136.5% in the same period. High ownership concentration enabled by fiscal and institutional frameworks created incentives to hoard land, and to seek profit maximisation through the pace by which land is released and dwellings are placed on the market. The rise in interest rates has led to a turn in the housing market, with house prices falling in the last quarter of 2022, but a sharp correction in house prices is not expected. While some correction is taking place, the underlying structural drivers should lead to house price increases returning over the medium term. The population increase is estimated at 445,059 habitants by 2060, which is required to achieve a 3% GDP growth rate and to ensure the sustainability of the pension system. This corresponds to a potential housing demand between 5,600 and 7,500 units per year. This greatly exceeds the number of dwellings completed, even at the peak year in 2008 (4,444 dwellings). The housing shortage is being partly mitigated by the increasing cross-border housing market, with around 204,6 thousand (42% of employment) persons in 2021 commuting across borders every day, from Germany, France and Belgium. However, this generates other problems. Traffic congestion and transport is the main factor of air pollution and greenhouse gas emissions in Luxembourg.The risks associated with the persistent undersupply of housing may have economic and social consequences for households, public finance and the competitiveness of the national economy in the medium- to long-term.Some efforts have been made to effectively boost housing supply and address the affordability issue, but structural challenges remain. The government’s strategy to address the housing situation consists of two pillars. The first pillar dedicates more resources to increase the supply of affordable and social housing, and to incentivise the mobilization of existing land and dwellings. The second pillar increases assistance to enhance housing affordability. In the first category, the new "Housing Pact 2.0" is henceforth applicable with the adoption of the Law of 30 July 2021 with the aim of supporting municipalities to increase the availability of affordable and sustainable housing. Moreover, the government has presented a package of tax measures to tackle the housing supply shortage and mobilise existing inventories of dwellings and plots. In December 2021, the government followed up with a draft ‘affordable housing law’, which is still under discussion in the Parliament, proposes a continuum of affordable and low-cost housing. On 9 November 2020, the government also presented amendments regarding the draft law to reform residential renting tabled on 31 July 2020.