Germany’s 2022 Budget

After 100 days in office, on March 16, 2022, the Cabinet of Germany’s ‘traffic light’ coalition — made up of the Social Democrats (SPD), the Greens, and the Free Democratic Party (FDP) — adopted a second draft of the 2022 federal budget. Worth €457.6 billion (US$517.2 billion), this draft budget implies a 20.1% decrease in government spending compared to the overall federal budget for 2021, which was developed under the former government led by Angela Merkel. What does this new budget, and its overall decrease, imply for Germany’s development cooperation in 2022 and beyond, especially against the backdrop of COVID-19 and war in Ukraine?

Germany’s Minister of Finance, Christian Linder, has already acknowledged that the budget draft provides an unrealistically low spending projection, as it does not yet consider the costs that the war in Ukraine implies for Germany. The additional expenditure required to deal with the mounting crisis in Ukraine, as well as the ongoing ramifications of COVID-19, mean that this year’s budget draft already includes €99.7 billion (US$112.7 billion) in new debt. The budget does not yet include the €100 billion (US$113 billion) for upgrading Germany’s armed forces (needed to reach the 2% NATO goal), which was committed by Chancellor Olaf Scholz in response to the Russian invasion of Ukraine three weeks ago. These funds, however, will not be drawn from the annual budget; instead, the German government plans to set up a special fund for its military spending, which will raise money through loans, meaning this spending is not expected to increase the debt ratio.

Now, the German Parliament must discuss and approve this core budget draft. The first reading in the Budget Committee will take place at the end of March and the finalization and approval of the budget are expected between the end of May and the beginning of June. A supplementary budget is likely to follow, according to Finance Minister Lindner.

The good news: Germany remains committed to 0.7% and the global COVID-19 response

According to the budget draft, the government is committed to maintaining its Official Development Assistance (ODA) to gross national income (GNI) ratio at 0.7% in 2022 by investing around €23.0 billion (US$26.0 billion) in development spending. As the costs of hosting refugees can be counted as ODA, the influx of Ukrainian refugees into Germany could further raise the country’s topline ODA figures.

Germany will continue to play a leading role in the global fight against COVID-19. As already announced by Minister of Finance Lindner at a G7 Ministers of Finance meeting on March 1, 2022, Germany aims to uphold its commitment to contributing its “fair share” to the Access to COVID-19 Tools Accelerator (ACT-A). To date, Germany is the second-largest donor to ACT-A and has already contributed €2.2 billion (US$2.5 billion). According to the 2022 budget draft, Germany plans to make another €1.3 billion (US$1.5 billion) available for ACT-A-related spending. These funds will come from budget plan 60, which is used for expenditures outside the core budget plan, and will be channeled to the specific ministries for their contributions to ACT-A partners:

• The Ministry for Economic Cooperation and Development will receive €784 million (US$886 million),
• The Ministry of Health will receive €320 million (US$362 million),
• The Foreign Office will receive €140 million (US$158 million), and
• The Ministry of Education and Research will receive €80 million (U$90 million).

As part of its G7 presidency, Germany has also announced €350 million (US$396 million) in support of the COVID-19 Vaccines Global Access (COVAX) Advanced Market Commitment (AMC). Germany will co-host the virtual 2022 Gavi COVAX AMC Summit, which will take place on April 8, 2022. In addition, Germany is planning to donate 75 million COVID-19 vaccine doses to low- and middle-income countries mostly through COVAX this year (compared to 139 million doses in 2021). Including the costs of these donated doses, which according to the OECD are valued at US$6.72 per dose, Germany’s ODA for 2022 will increase to 0.71%.

The bad news: BMZ’s 2022 budget will see significant cuts

While Germany’s commitment to maintaining ODA spending at 0.7% of its GNI and its continued efforts towards the global COVID-19 response are positive signs for global development — especially given the war in Ukraine and the government’s increased focus on defense — the budget leaves some reason for concern. The federal budget draft only outlines a budget of €10.8 billion (US$12.2 billion) for Germany’s biggest contributor to ODA, the Federal Ministry of Economic Cooperation and Development (BMZ). This marks a €1.6 billion (US$1.8 billion; 13%) drop from 2021 levels.

According to this budget, both BMZ’s multilateral and bilateral spending will go down. Bilateral funding is set to decline by €1.1 billion (US$1.2 billion; -27%) mainly driven by decreases in bilateral financial contributions. In 2022, bilateral financial cooperation and bilateral technical will stand at €2.1 billion (US$2.4 billion) and €1.9 billion (US$2.2 billion) respectively. The main budget envelope for BMZ’s multilateral cooperation, which includes “contributions to European development cooperation, UN and other international organizations”, is set at €2.2 billion (US$2.5 billion), compared to €2.7 billion (US$3.1 billion) in 2021 (-22%). As a result, many international organizations are likely to see funding from Germany decline this year and in the future. According to the budget draft, the Global Partnership for Education (GPE), which received €75 million (US$85 million) in 2021, will receive €59 million (US$67 million) in 2022. Germany’s commitment to the Global Fund will be around €630 million (US$712 million) for the 2023-2025 period, compared to €1.0 billion (US$1.1 billion) for 2020-2022. The Global Financing Facility (GFF) is not mentioned in the budget draft, meaning it most likely will not receive further funding from Germany.

Including the additional €784 million (US$886 million) that the BMZ has been allocated from budget plan 60 for ACT-A-designated expenditures, the ministry’s spending in 2022 will stand at €11.6 billion (US$13.1 billion). This is still below 2021 levels.

The way forward: Supplementary budget presents an opportunity to top up development finance

Given the immense challenges facing the global development community, Germany’s new government should work to further strengthen development assistance across sectors (not just those related to COVID-19) rather than decrease spending. COVID-19 has stalled progress in many areas of development including global health, education, gender equality, and the fight against hunger and poverty, making investments in these areas more important than ever. Meanwhile, war in Ukraine not only has immediate humanitarian consequences but also threatens global food security, which could put millions in low- and middle-income countries at risk of severe hunger. Germany’s current budget does not sufficiently address the scale of these challenges.

Over the course of the parliamentary budget process in the coming weeks, Parliament will have the opportunity to object to BMZ’s budget decrease and suggest amendments to the budget. Parliament must then approve the adjusted budget draft by absolute majority. However, if amendments do not get the required majority and the current budget draft gains parliamentary approval, then the government could still use a supplementary budget to increase the BMZ's funding to ensure it has the resources to adequately address the varied challenges of the current moment. Given the unpredictability of Germany’s spending related to the war in Ukraine, the Finance Ministry will most likely calculate further costs in a supplementary budget, providing an opportunity for Germany’s new government to step up, to maintain Germany’s leadership on the world stage as the second-largest donor country, and to invest further in its development cooperation.

Sources:

Federal budget draft 2022