German climate finance 2023 and 2024: downward projections

For 2023 and 2024, the federal government’s forecast indicates declining funds for climate finance. Despite this, the federal government is confident that it will meet its six-billion pledge. That does not seem to add up.

By 2025 at the latest, German budget allocations for financial support to low-income countries to cut emisisons and adapt to climate change is to grow to at least six billion euros annually – or so the German government has promised. (The pledge does not refer to overall climate finance, but only to the funds provided from the federal budget and the grant equivalents of low-interest development loans. The loans themselves are additionally reported, but are not part of the six-billion pledge.)

Notably, since 2021 when the pledge was made, German climate finance has grown – and this is somewhat surprising because overall budgets for development cooperation in the federal budget have not increased. Initially, the federal government had projected a level of around 4.3 billion euros for each of the years 2021-2023 (see here, table 1).

In contrast, around 5.3 billion euros were reached in 2021, and around 6.4 billion euros in 2022. The German Federal Ministry for Economic Cooperation and Development (BMZ), through whose budget the bulk of climate finance flows, explains this overachievement with growing demand for climate programs in recipient countries; one-off effects may also have played a role, for example in connection with special funds for food security programs in response to lower grain exports from Ukraine as a result of the war.

In line with government practice, the chart shows the budget allocations and the grant equivalents for concessional loans. Not shown are the loans themselves or the funds mobilised on the capital market, which are then used to provide public loans. For 2022 the figure shows the amounts achieved, for 2023 and 2024 it shows the government’s forecast, and for 2025 the German commitment is shown next to what various German NGOs consider to be a more appropriate target.

Declining climate finance in 2023 and 2024

For 2023, the German government has now raised its original forecast from the previous 4.3 billion euros (July 2022) to around 5.1 billion euros (September 2023), as can be seen from the answer to a parliamentary enquiry by MdB Cornelia Möhring (German only). This increase in the forecast indicates that the federal government’s forecasting tool has been adjusted to better reflect, for example, increased demand for climate-related funding by recipient countries cited by the federal government. We can assume so because the relevant budget lines in the federal budget, especially those related to bilateral development co-operation, are no better funded in 2023 than in preceding years.

Around 5.3 billion euros are forecast for 2024 – which raises questions. Funding for the relevant budget lines in the federal budget is set to fall compared with 2023, and yet the federal government is counting on increasing climate finance. This means the federal government is either counting on further significant growth in demand in the recipient countries, which will not only compensate for the cuts in the federal budget, but exceed them. Or the federal government may be planning major additional measures for 2024 that go beyond the routine programming of budget titles.

Given that relevant titles in the federal budget for 2024 are set to decrease in 2024 copared to 2023, one would expect a decrease of climate finance in 2024 compared to 2023. Table 1 compares the official forecasts of the German government with a forecast based on an extrapolation that compares climate finance provided in the past with the overall volumes of the respective budget lines (especially in the BMZ budget) and makes an estimate for 2023 and 2024 based on the planned volumes of the relevant titles in the 2024 federal budget draft. A forecast derived from this would result in roughly the same level for 2023 as the federal government’s forecast; for 2024, however, it would result in decreasing funds.

Is the 6 billion pledge slipping out of reach?

Even the Government’s own forecasts for 2023 (€5.1 billion) and 2024 (€5.3 billion) are considerably lower than the level achieved in 2022 (€6.4 billion). In addition, the German government intends to continue cutting the BMZ budget in 2025, as shown in the federal government’s medium-term financial planning. This is likely to have an impact on climate finance and could put the German government’s €6 billion pledge out of reach.

Nevertheless, the German government is confident (in German) that the level of at least six billion euros per year can be maintained in the coming years. The German government considers its own forecasts for 2023 and 2024 to be too conservative. Here, too, the German government justifies its optimism with the expectation of continued growth in demand for climate projects despite an overall decline in funding for development cooperation. This is of course conceivable, but the details of the forecasts are not publicly available. However, it would raise a new problem: Maintaining climate finance levels within a declining overall BMZ budget is likely to lead to more competition between climate and other development priorities in recipient countries, despite possible synergy effects.

In any case, hoping for the inadequacy of their own forecasts my not be too solid a basis for fulfilling Germany’s six-billion pledge. Nor is it an encouraging signal to the Global South in the run-up to the upcoming UN World Climate Conference COP28 in Dubai at the end of the year. The German government should provide more clarity on the reasons for its optimism – if it is justified. If not, and if its own forecasts are perhaps more reliable than the German government suspects, it would be urgent to put a stop to further cuts in the BMZ budget and instead aim for better funding for the ministry for the coming years – more than desirable anyway for supporting not only climate action in low-income countries but more generally for development and poverty reduction in the Global South.

Jan Kowalzig, Oxfam