Three municipalities exceeded debt limits as average debt hit 139%

Three Icelandic municipalities were above the limits set by the debt rule at the end of last year, while municipal debt averaged 139% of revenues nationwide, mbl.is reported.

The rule limits the combined debt of municipalities’ A and B sections to 150% of their annual revenues. It was reinstated this year after being temporarily suspended during the coronavirus pandemic. Reykjavík, Hveragerði and Reykjanesbær had the highest debt levels at year-end.

The financial outlook is difficult for almost all municipalities that have published results for the first six months of this year. But economist Aron Heiðar Steinsson said the challenges were manageable, though the coming months and years would be demanding. He said some municipalities could sell assets to reduce their debts.

Steinsson’s analysis found that the state and municipalities owe a combined 4,367 billion, or about 11 million per resident and more than 44 million for a household of four. After monetary assets are deducted, net debt amounts to 4.79 million per person, or 19.2 million for a family of four.

The total debt is equivalent to just over 88% of gross domestic product, a lower share than in many comparable countries. Steinsson said it was worth examining ways to improve municipal efficiency and to raise the retirement age gradually.

“Municipal revenues cannot be expected to improve much this year or next, as unemployment is expected to rise, meaning lower local income tax revenues and probably greater pressure on municipal social services,” he said.