This document discusses capacity building for modernizing institutions and governance. It outlines several issues to consider, including increasing demand and use of data, fostering strong institutions and data processes, effective governance structures, building partnerships, and establishing multi-year financing. Capacity building aims to enhance skills, abilities, resources, strengthen understandings and relationships, and address values and conditions to support sustainable development. It works best when locally driven with a long-term focus on building local capacities and ongoing learning through adaptation. Program activities that are results-oriented, cost-effective, support ownership, and stimulate regional interaction through peer learning are an effective means for capacity building.