How Germany is cutting billions from foreign aid

Germany, one of the most generous donor countries, has sharply reduced its official development assistance under Chancellor Olaf Scholz, whose three-party coalition government took power at the end of 2021. And it plans to continue to do so. Sharp cuts in 2023 had already led to €1.7 billion in cuts in the development budget at the Federal Ministry for Economic Cooperation and Development, BMZ, and €430 million in the humanitarian budget, compared to 2022. And when Parliament in January adopted a revised budget for 2024, nearly €1 billion ($1.08 billion) more was shaved off the foreign development budget and nearly €500 million from the humanitarian aid budget. German Finance Ministry forecasts show the government expects to make further, similar-sized reductions to foreign aid in 2025. In total, the world’s second-largest funder looks set to have shaved around €4.8 billion off its core development and humanitarian budgets between 2022 and 2025. This year’s deeper-than-expected reductions were the result of a constitutional court ruling in November, which said the government could not use for other purposes a large sum of money left over from borrowing for emergency spending on the COVID-19 pandemic. That left a €17 billion hole in the budget that had to be filled with cuts to a broad selection of budget items. In the closed-door negotiations that followed, both within the coalition government and between the government and Parliament, foreign aid was a big loser. Michael Herbst, CEO of VENRO, an umbrella organization of development and humanitarian NGOs in Germany, criticized the decision. The cuts mark “a turnaround in Germany’s global commitment to combat hunger, poverty and climate damage,” he said in a statement. “The federal government is deprioritizing international cooperation.” Germany is second only to the United States among nations in the size of its development and humanitarian aid budgets. NGO officials fear that the decision to reduce aid could influence other countries. “Germany is the second biggest donor in the world, and we’re afraid this will have a cascading effect, a signaling effect,” said Meike Riebau, director of advocacy and policy at Save the Children Germany. German official development assistance, or ODA, was worth around €33.3 billion in total in 2022, and this comes from a diverse range of sources, not all of which are facing cuts. Around half the budget is dedicated to development funding and humanitarian aid. These are distributed through separate departments and are allocated separate budgets. It is these two areas that are facing cuts. Germany also spends an unusually large amount of its ODA through loans, largely through KfW, its development finance institution — around 5% of its total ODA, which is more than all but six of the other 31 Development Assistance Committee members. The rest of German ODA is a mixture of multilateral funding, chiefly contributions to the European Union; money spent by other departments; and money spent within Germany on student and refugee costs. German development leaders say these categories will be affected little or not at all by the most recent spending decisions. Development cuts Development aid is channeled through BMZ. Its 2024 budget of €11.2 billion represents a cut of €940 million — an 8% drop compared to last year. The Finance Ministry is projecting a further reduction of nearly €1 billion in 2025. By 2025, the end of the four-year legislative term of the current coalition government, the development budget is expected to be about €3.5 billion less than it was at its high point in 2022, and €3 billion less than in 2021 when the government took office. In a statement to Devex, the development ministry lamented that its support was being slashed to make “a painful contribution to the consolidation of the German budget,“ adding that the cuts “will be felt in all areas of development cooperation.” Humanitarian cuts Humanitarian aid, which is disbursed through the foreign ministry — The Federal Foreign Office, AA — was slashed this year proportionally even more than development aid, to €2.23 billion — a nearly €480 million reduction, almost an 18% cut compared to last year. With Germany accounting for about 10% of humanitarian aid globally, the cuts will mean more than 1.5 million people losing their access to food assistance, more than 300,000 people losing access to safe drinking water and more than 180,000 children in humanitarian emergencies losing access to formal or informal education, according to an estimate by Help – Hilfe zur Selbsthilfe, a German NGO. “2024 is just the beginning of a long period of continuous cuts,” warned Kayu Orellana, head of Help’s Berlin office. “We don’t know where we’re headed.” The budget cuts were approved by Parliament just days after officials announced that Germany, Europe’s biggest economy, had experienced a 0.3% economic contraction in 2023. This is putting pressure on the ruling coalition, which is made up of Chancellor Scholz's Social Democrats, the Greens, and the pro-business Free Democrats, as the country prepares for regional elections this year and a general election next year. “A lot of established parties are struggling with how to respond to the public’s demands for domestic policies to improve the lives of Germans and address their concerns over such issues as energy costs and inflation,” said Help’s Orellana. Right-wing parties, and especially the far-right Alternative for Germany, are calling for further reductions in foreign aid spending. Stephan Klingebiel, a senior researcher and head of the “Inter- and transnational cooperation” research program at IDOS, the German Institute of Development and Sustainability, said that Germany appears to be succumbing to a populist European trend. “Looking at the international landscape of the last couple of years, you’ll see that some countries are reducing their ODA, like the U.K., Norway, and Sweden. Germany was a quite stable partner in this regard. To see that Germany is now to some extent losing its reputation is difficult.” And more cuts may still be on the way. Shortly after the constitutional court ordered the government to cut spending, Finance Minister Christian Lindner, from the Free Democrats, suggested that Germany was still too generous with its foreign aid. He said the country could “reduce the distance” between itself and the next biggest spenders on development cooperation and international climate financing. According to OECD figures, Germany ranked fourth in the percentage of its gross national income, or GNI, spent on foreign aid in 2022, at 0.85%, after Luxembourg, Sweden, and Norway. The next two countries were Denmark and the Netherlands, both at 0.67%. The official United Nations target calls on high-income countries to devote at least 0.7% of GNI to foreign aid. 2022 was the high point for German foreign aid, with the increase over 2021 due mainly to the costs of helping Ukraine and the 1 million Ukrainian refugees in Germany. Although such expenses are allowed to be counted as ODA under international rules, NGOs often consider the practice as unfair as it allows donor countries to take credit for spending that does not support development projects in low-income countries. “Germany has been the biggest recipient of its ODA; 20% of spending stays in Germany,” said Lukas Goltermann, policy adviser in the strengthening civil society division of VENRO. Meanwhile, Germany’s military budget has been increasing rapidly and has been exempt from the cuts hitting other budget items in this year’s budget. In their coalition agreement hammered out in December 2021, the three government parties agreed that development aid and defense spending should both increase at the same pace. But that commitment was thrown out the window after Russia invaded Ukraine in early 2022 and Germany set a goal of increasing its military spending to 2% of GDP. Klingebiel, the researcher at IDOS, is typical in arguing that cutting foreign aid hurts Germany’s long-term interests. Still, he supports the decision to rapidly build up the country’s military power. “I actually think that we need more military spending in Germany,” he said. “It’s different now because of Ukraine and Russia and the potential that [Donald] Trump could become again [U.S.] president and we could lose [American] protection. We live in a different world.” In June, Germany will host a major international conference on the reconstruction of Ukraine. But many from the development community feel the large, ongoing cuts to Germany’s foreign aid undercut the country’s influence in such forums. “It is in Germany’s interest to support sustainable development in other parts of the world,” says VENRO’s Goltermann. “It’s quite shortsighted and irresponsible to cut the spending for international cooperation.”