Germany’s 2024 budget: Massive ODA cuts after a fiscal odyssey

Germany's 2024 federal budget was officially adopted on February 2, 2024, following a series of hurdles that delayed adoption to two months later than originally planned.

The delays ensued following a November 2023 Constitutional Court ruling which prohibited the German government from repurposing unused debt for future expenses. The verdict reinstated the so-called debt brake, a fiscal rule limiting additional governmental loans to 0.35% of GDP, meant to guarantee sustainable financing. In effect, the debt brake made the Scholz government's planned reallocation of unused funds– originally designated for pandemic-related expenses and created through the suspension of the debt brake– to a climate and green energy initiative unconstitutional.

The court's decision left the German government with a significant budget shortfall for the next years, with EUR17 billion (US$18 billion) for 2024 alone.

Global development advocates have been watching the proceedings closely to understand implications for Germany’s ODA. This Donor Tracker commentary will explore the effects of the ruling on German ODA as well as the individual funding consequences within the 2024 budget.

Context

Constitutional Court ruling sparks budgetary turmoil, halting 2024 budget progress

The German government was plunged into an immense political and budgetary crisis following the ruling. After tense budget negotiations between Chancellor Olaf Scholz, Minister of Economics and Vice-Chancellor Robert Habeck, and Minister of Finance Christian Lindner, the cabinet presented a modified budget draft in line with the court ruling. After weeks of negotiation and reshuffling, the government issued an adjusted budget draft for 2024, which was then adopted by Parliament. Despite the financial challenges emerging from the ruling, the 2024 budget saw a notable increase of 3.4%. The increased budget was possible, among others, due to higher tax and administrative revenues than originally expected. But while the overall budget and some ministries saw a budgetary increase compared to 2023, the 2024 budget increase came at the cost of a massive cut to Germany’s ODA-relevant budget envelopes. Consequently, Germany is not expected to reach its 0.7% ODA/GNI target in 2024 for the first time since 2019.

Internal shuffling, funding redistribution, and budget cuts

The 2024 budget stands at EUR476.8 billion (US$516.6 billion), a 3.4% increase to 2023’s budget, which stood at EUR461.2 billion (US$499.7 billion), with several ministries benefitting from the governmental reshuffling process following the November decision. However, the BMZ and the AA, which traditionally provide more than 60% of Germany’s ODA, were hammered with severe cuts from the German ODA budget.

While the original 2024 budget draft, released by the government in August 2023, detailed the BMZ's budget at EUR11.5 billion (US$12.5 billion), a proportional decrease of -5.3%, the final 2024 federal budget cut the BMZ's funding to EUR11.2 billion (US$12.1 billion, or 2.35% of the federal budget), representing a -7.7% reduction compared to 2023 (EUR12.2 billion; US$13.2 billion, or 2.64% of the federal budget).

The AA, tasked with humanitarian assistance and crisis prevention, saw its budget decrease from EUR7.5 billion (US$8.1 billion) in 2023 to EUR6.7 billion (US$7.3 billion) in 2024, marking a -10.3% decline.

ODA implications

Ministry for Economic Cooperation and Development

The BMZ’s budget cuts were distributed over several funding lines, with some areas enjoying stable or increased funding and others facing steep cuts.

Bilateral Spending

While the overall BMZ budget decreased by -7.7%, the bilateral envelope saw a steeper cut of -11%, dropping from EUR5.8 billion (US$6.3 billion) to EUR5.2 billion (US$5.6 billion). Within this envelope, “financial cooperation” (-11.5%) and “crisis prevention and reconstruction efforts” (-16%) were particularly affected.

Civil Society, Community, and Economic Engagement

This budget envelope decreased from EUR1.4 billion (US$1.5 billion) in 2023 to EUR1.3 billion (US$1.4 billion) in 2024 (-4%).

Multilateral Spending

The multilateral budget envelope was less affected by cuts compared to other envelopes. Its reduction came to a drop of -5.7%, falling from EUR2.4 billion (US$2.6 billion) to EUR2.3 billion (US$2.5 billion).

Multi-year commitments to priority organizations such as the GFATM (EUR415 million; US$449.6 million), and Gavi (EUR120 million; US$130 million) remained stable. Although CGIAR suffered a cut in 2023, its funds remained stable in 2024 and kept to EUR32 million (USD34.7 million). The IPPF's budget also remained stable at EUR15.5 million (US$16.3 million).

The UNDP received one of the highest increases, coming to a plus of 35%, bringing Germany’s allocation from EUR75 million (US$81.3 million) to EUR100 million (USD108.3 million). UN Women received an additional EUR3 million (US$3.3 million), coming to EUR20 million (US$21.7 million) (+18%). This decision fits within the ministry’s priority on gender equality, also emphasized within Germany’s feminist development policy and the recently published BMZ Gender Action Plan.

The WFP was significantly impacted, with a notable -26% reduction compared to 2023, dropping from EUR78 million (US$84.5 million) to EUR58 million (US$62.8 million).

Special Initiatives

The BMZ envelope 'Special Initiatives' bore a disproportionate impact from the budget cuts. While the BMZ budget saw a -7.7% reduction, the special initiatives overall were cut by -13%. Among these are the special initiatives Transformation of the agricultural and food systems initiative and International climate and environmental protection initiative.

Foreign Office

The AA saw an overall budget reduction from EUR7.5 billion (US$8.1 billion) in 2023 to EUR6.7 billion (US$73.3 billion) in 2024, marking a -10.3% decline.

Peace and Stability

The 'Peace and Stability' envelope, comprising more than 50% of the AA's budget, was cut from EUR4.4 billion (US$4.8 billion) to EUR3.5 billion (US$3.8 billion), a drop of -20%. The envelope covers activities such as crisis prevention, stabilization, peacebuilding and humanitarian assistance abroad.

Budget trajectory

Germany's evolving role, economic realities, and global political shifts

Economists and government representatives anticipate a budgetary shortfall ranging from EUR15-25 billion (US$16-27 billion) in 2025 due to the Constitutional Court’s verdict. Due to the shortfall, Germany may face continued difficulties in balancing its financial commitments and navigating evolving global challenges while meeting ODA requirements.

The negotiation process for the 2025 budget has already begun, with Minister of Finance Christian Lindner sending a clear message to all ministries: stringent cost-saving measures are imperative and require the ministries to skip the usual budget cap process. Amid conflicting priorities among governing parties, with none of the three coalition members ( SPD, FDP, and the Greens) prioritizing development assistance, the BMZ’s budget is at further risk of being downsized.

Given the immense budget cuts in ODA-relevant envelopes, Germany is not expected to reach the 0.7% ODA/GNI target in 2024. The downward trend of the BMZ’s budget is anticipated to continue in the upcoming years from EUR10.3 billion (US$11.2 billion) in 2025 down to EUR10.4 billion (US$11.3 billion) in 2026 and 2027, as foreseen in the midterm financial planning published in August 2023 by the Finance Ministry.

While cost-saving measures have been announced, it is also important for the German government to generate additional revenues. Germany has introduced an additional taxation of flight tickets from May 2024 onwards, with the revenues intended to be used for climate protection measures. There are also ongoing debates from CSOs and political stakeholders to increase taxes for the extremely wealthy and fight against tax evasion. If and how these measures are implemented, however, remains to be seen.

Factors influencing upcoming federal and development budgets

The current financial strain and budgetary shortfall is exacerbated by ongoing global crises, including the Russian full-scale invasion of Ukraine, the Israel-Palestine conflict, and the pressing issue of climate change. German Minister of Defense Boris Pistorius announced at the 2024 Munich Security Conference that, in light of these ongoing crises, Germany will reach the NATO 2% defense spending target for the first time since the Cold War. Simultaneously, Germany may find itself compelled to enhance its financial contributions for reconstruction efforts in Ukraine, driven primarily by the urgent need to address humanitarian crises and support recovery in the next years.

Germany is currently embroiled in a public debate on the relevance, effectiveness, and efficiency of development assistance. Detractors could further discredit ODA and jeopardize the willingness of the government to reallocate funds towards ODA-relevant ministries and organizations. Major multilateral organizations have their replenishment conferences scheduled for the end of 2024 and beginning of 2025, among them Gavi, the IDA, and the Global Fund. It remains to be seen how much political momentum can be generated in Germany for their upcoming funding cycles, given the tense political debate. Both the feminist development policy of the BMZ and the feminist foreign policy of the AA could potentially influence how limited financial resources are allocated.

The next German federal election, to take place in autumn 2025, may change how Germany handles and funds ODA, particularly if conservative and right-wing parties gain more support, as suggested by recent polls. Additionally, the looming US elections and its implications for US foreign policy might require Germany to adapt its own strategy in relation to the foreign and development policy of the world's largest economy.