Germany’s 2023 Budget

In August 2022, the governing coalition, consisting of the center-left Social Democrats (SPD), the Greens, and the liberal Free Democratic Party (FDP), presented Germany’s draft budget for 2023. Since September, the parliament had been debating amendments, which culminated in a budget settlement meeting on November 10. After 17 hours of lengthy discussion, Germany’s 2023 national budget was finalized in the early morning hours of November 11. As a result of these tense negotiations, parliament agreed on an overall decrease in Germany’s federal 2023 budget.

How large is the German federal budget for 2023?

The 2023 budget is set at €476.3 billion (US$492 billion), which is €19.5 billion (US$20.1 billion) less than in 2022, a 3.9% decrease. In comparison to the draft budget submitted by Chancellor Olaf Scholz’s coalition government earlier this year, the parliamentary budget process led to a €31 billion (US$32 billion) increase in the final budget from this initial draft. To realize the 2023 budget, the government is borrowing €45.6 billion (US$47.1 billion), the maximum debt leeway that still complies with the debt brake rules, limiting Germany’s financing of public spending through debt. This means that Germany will return to the constitutionally enshrined debt brake in 2023, which has been suspended for the past three years due to extraordinary spending related to the COVID-19 pandemic and the Russian war in Ukraine. A return to the debt brake was an important concern for Finance Minister Christian Lindner (FDP) and his party. The FDP considers the debt brake to to ensure low taxes and inflation in the long-term and therefore as relevant for inter-generational equality However, there was also friction within the government coalition with the SPD and Greens wanting to suspend the debt brake for another year. 

The return to the debt brake and the decrease of the total budget has clear impacts on spending for the Ministry of Economic Cooperation and Development (BMZ). The BMZ’s budget for 2023 stands at €12.2 billion (US$12.6 billion), which is €190 million (US$190 million) less than the BMZ had at its disposal in 2022. While the parliamentary budget process did not manage to increase the BMZ’s budget compared to last year, it did make the decrease less severe. The draft budget set BMZ spending at €11.1 billion (US$12.2 billion) in 2023, which is €1.3 billion (US$ 1.3 billion) less than in 2022, but the Budget Committee agreed on a top-up of around €1 billion (US$1 billion) for the new fiscal year.

Both the government draft budget and the final budget for the BMZ have been widely criticized by civil society and the parliament. The criticisms revolve around the fact that a decreased budget limits the BMZ’s ability to react to the compounded crises that low and middle-income countries are facing. Further, the downward trend of the BMZ’s budget is anticipated to continue in the upcoming years from €10.7 billion (US$11.1 billion) in 2024 down to €10.4 billion (US$10.7 billion) in 2026, as foreseen in the mid-term financial planning published in June 2022 by the Ministry of Finance. The ministries planning causes discontent within the coalition. Members of the Social Democratic and Green parties, including Development Minister Schulze (SPD), criticized the mid-term financial planning during the parliamentary debate on the 2023 budget. Annual budget negotiations between the Finance Ministry and the Development Ministry offer room for a reversal of this trend.

In line with the drop in the BMZ’s budget, which is the main source of German Official Development Assistance (ODA), the government expects to spend less on ODA in 2023 than in 2022. The 2022 government budget draft saw ODA spending of €23.0 billion (US$23.8 billion); for 2023, the government expects ODA to stand at €22.4 billion (US$23.1 billion). These estimates are largely based on the BMZ’s and Foreign Office’s budgets in 2022 and 2023, respectively. However, the ongoing Russian war in Ukraine is expected to cause ODA to spike in 2022 and 2023. Much of the humanitarian and financial support given to Ukraine this year and in the future, as well as costs associated with refugees Germany hosts, will likely be drawn from Germany’s ODA and will be accounted for in overall development funding.

What are the implications of the new budget for Germany's development spending?

Despite the parliamentary process securing additional funding for multilaterals, the overall downward trend in multilateral funding was not reversed. The multilateral budget envelope decreased by 22% compared to 2022 and is slated to be €2.3 billion (US$2.4 billion) in 2023. Bilateral cooperation is also decreasing, going from €5.4 billion (US$5.6 billion) in 2022 to €4.9 billion (US$5.1 billion) in 2023.

Multilateral spending saw large cuts in the Cabinet’s draft published earlier this year. Despite the top-up negotiated in parliament, the multilateral budget envelope decreased by 22% from €3.0 billion (US$3.1 billion) in 2022 to €2.3 billion (US$2.4 billion) in 2023. This extraordinary drop is partly due to the expiration of ACT-A financing, which was previously financed partly through this budget line. ACT-A has entered a phase of transitioning to long-term COVID-19 control until March 2023 and set out a significantly lower funding ask compared to previous periods. The budget line for the United Nations and other international organizations received a €22 million (US$23 million) increase compared to the cabinet draft. While all details on the final contributions are still pending publication, it has been announced that of the €22 million, an additional €6 million (US$6 million) will be allocated to the International Planned Parenthood Federation (IPPF; €16 million, or US$16 million in total in 2023), and an additional €8 million (US$8 million) to UN Women (€17 million, or US$18 million in total in 2023), in the spirit of the Minister’s feminist development policy agenda. According to the press, Germany’s contribution to the World Food Programme (WFP) was increased by €50 million (US$52 million), with additional funding from ‘Budget Plan 60,’ a cross-budget envelope that includes funding on crisis response, bringing the WFP’s funding level for 2023 to €78 million (US$81 million). The contribution to the Consultative Group on International Agricultural Research (CGIAR) decreased by €3 million (US$3 million) according to the cabinet draft, landing at €32 million (US$33 million) in 2023.

A rare exception within the multilateral funding lines for 2023 is the increased contribution to international climate protection over the 2022 budget. While €786 million (US$812 million) was allocated to international environmental and climate protection in 2022, the spending increased to €833 million (US$860 million) in 2023, €5 million (US$5 million) more than in the original cabinet draft budget.

Funding for bilateral cooperation stands at €4.9 billion (US$5.1 billion) in 2023, marking an 8% decrease from 2022 levels. Of this, bilateral financial cooperation receives the largest share with €2.3 billion (US$2.4 billion), followed by bilateral technical cooperation standing at €1.8 billion (US$1.9 billion). Despite the government’s strong promotion of multilateralism, bilateral cooperation is expected to remain an essential aspect of Germany’s development cooperation.

How does the new budget suggest Germany will deal with the ongoing global crises?

Despite the overall tightening of the budget for 2023, the BMZ and the Foreign Office (AA) are each receiving an additional €1 billion (US$1 billion) from the funding envelope for ‘global crisis response’ located in ‘Budget Plan 60,’ which lies outside the ministries’ core budgets. Further funding could be sourced from this extra budget throughout the year, as was the case in 2022.

The parliamentary process on the 2023 budget for the BMZ resulted in a 10% (€1 billion, or US$1 billion) increase in the ministry’s budget compared to the cabinet draft budget. This funding is sourced from an additional budget envelope sitting outside the ministries’ core budgets. The ‘Budget Plan 60’ includes an envelope on ‘global crisis response’. This funding can be accessed to address acute global challenges, such as the COVID-19 pandemic or the Russian invasion of Ukraine and its consequences. Throughout 2022, the BMZ’s core budget of €12.4 billion (US$12.8 billion) was topped up twice with additional funding from ‘Budget Plan 60.’ This included €1 billion towards a supplementary budget and €495 million (US$511 million) out of this €1 billion (US$1 billion) for the third national relief package, both of which were dedicated to support Ukraine and mitigate the global food security crisis. Including the additional budget for crisis response from ‘Budget Plan 60,’ the BMZ budget for 2022 arrives at €13.8 billion (US$14.3 billion). The comparison between the 2022 budget, including crisis-related spending, and the 2023 budget, shows a 12%, or €1.7 billion, (US$ 1.8 billion) cut in funding for the BMZ. (See a detailed comparison below.)

*This includes additional funding from the supplementary budget in reaction to the Russian invasion of Ukraine and additional funding for food security included in the third national relief package.

‘Budget Plan 60’ offers some reserves for further crisis response throughout 2023, and the 2023 cabinet draft has allocated €5 billion (US$5.2 billion) for global crisis response in this plan. Of this, only about €2 billion (US$2.1 billion) have been used for the top-ups of the BMZ and the Foreign Office, and another €1 billion (US$1 billion) for commitment appropriations, meaning there is still some funding available for further crisis relief in 2023. / / ‘Budget Plan 60’ is a useful instrument to enable a prompt reaction to unpredictable global crises, such as the COVID-19 pandemic and the Russian war of aggression in Ukraine. At the same time, civil society is criticizing the decreased funding for long-term system strengthening and overall development aims, which is crucial to prevent future crises. Civil society actors continue to call on the government to increase the BMZ’s core budget to prevent a course reversal on Germany’s development agenda in both the short- and long-term. If the downward trend continues, Germany is at risk of losing its position as a leader in global development.