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Dorothee Bargstädt, Cora Lüdemann
July 11, 2023
On July 5, 2023, following months of intense political discussion and conflict within the governing coalition, the German Cabinet adopted the draft for the 2024 federal budget, totaling EUR445.7 billion (US$486.6 billion). The government also adopted a draft of federal financial plans through 2027.
The current budgetary draft for 2024 reflects an overall decrease of 6% (-EUR30.6 billion, -US$33.4 billion) compared to the 2023 federal budget. These decreases are said to aim to achieve fiscal consolidation and secure sustainable finances for the future. The budget cuts were justified by Finance Minister Christian Lindner ( FDP ) as a response to the significant challenges facing Germany, including the full-scale Russian war against Ukraine, the economic impact of the COVID-19 pandemic, and the need to adhere to the constitutional debt brake (Schuldbremse).
Tensions have strained trust between the governing coalition partners over the past few months. The SPD and FDP have largely prevailed with their proposed cost-cutting measures against the Greens, the third coalition partner. The SPD and FDP prioritize financial normalization and adherence to the debt brake while the Greens oppose these measures.
According to the cabinet’s budget draft, most ministerial budgets will experience a decline. One of the few exceptions is the Federal Ministry of Defense, whose budget will increase by 3.4%, with EUR51.8 billion (US$56.6 billion) budgeted for the ministry itself and EUR19.2 billion (US$20.9 billion) in extra budgetary funds for the armed forces. Germany plans to comply with NATO's 2% target for military spending in 2024.
What is in the 2024 German budget? The German government plans to invest around EUR20.6 billion (US$22.5 billion) in ODA in 2024, representing a decrease of EUR3.7 billion (US$4 billion) in ODA expenses from the federal budget compared to 2023. These ODA expenses do not include funding from federal states used to cover in-donor refugee costs or market funds of the KfW Development Bank. Despite the anticipated cuts in 2024, Germany will likely stay the second-largest OECD DAC donor country after the US.
The BMZ, which contributes approximately half of Germany’s ODA, is set to have a budget of EUR11.5 billion (US$12.6 billion) in 2024, reflecting a 5% decrease compared to the 2023 budget of EUR12.2 billion (US$13.3 billion). Most of these cuts will be made to the bilateral funding envelope and BMZ funding for special initiatives. Multilateral funding, however, is only expected to go down by 3%.
The mid-term financial planning projects a further decrease in BMZ’s budget to EUR10.3 billion (US$11.2 billion) in 2025 and EUR10.4 billion (US$11.4 billion) in 2026 and 2027. The Foreign Office budget, which provides Germany’s humanitarian funding, will see even larger cuts than BMZ, amounting to EUR1.3 billion (US$1.4 billion) in 2024, of which EUR1.1 billion (US$1.2 billion) will be cut from the budget for humanitarian assistance.
The Federal Minister for Economic Cooperation and Development, Svenja Schulze ( SPD ), publicly displayed understanding for the budget cuts. She acknowledged the need for military investment due to the war against Ukraine, which has made it challenging to maintain the "1:1 rule” of budget allocation between defense and ODA spending that was outlined in the coalition agreement.
The final budget draft still requires parliamentary approval and is likely to face objections and proposed changes during the upcoming legislative process. However, it is unlikely that the overall funding level for development and humanitarian assistance will notably increase.
To account for abnormal fluctuations in exchanges rates, funding that is reported in Policy Updates and Publications without an official US$ conversion rate is converted using the average of the previous week’s Daily US Federal Reserve exchange rates.
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