Thirty-two municipalities in Iceland warned over debt levels ahead of 2026 requirements

Thirty-two municipalities in Iceland have received warnings regarding their debt levels as they do not meet the new debt ratio requirements set for 2026. Seven municipalities, however, are in good standing. According to reports, Reykjavík is managing its debt limits wisely and shows a positive financial outlook.

The Municipal Supervisory Committee issued these warnings to 32 municipalities that failed to comply with the latest municipal governance laws concerning debt levels due by 2026. Árborg and Reykjavík were notably flagged for their poor debt compliance. The regulation establishes that the debt ratio should consider total debt, including A and B sections, compared to the regular income of municipalities. The correspondence sent to the municipalities is based on their financial statements from 2023.

Árborg is facing significant financial challenges, having encountered severe debt issues this year, prompting the municipality to collaborate with the Ministry of Infrastructure for a restructuring plan.

When assessing debt ratios, Reykjavík emerged with the worst standing among all municipalities, with a debt ratio of 158 percent—exceeding the legal maximum of 150 percent by 8 percent. Its A section, funded by tax revenue, is 13 percent above the supervisory committee’s guidelines.

In contrast, Reykjavík’s balanced budget rule has placed it in a favorable position, boasting a surplus of 26 billion ISK, while Árborg recorded a deficit of just under 5 billion ISK. Among the largest municipalities in the country, only seven remain within debt limits: Bláskógabyggð, Bolungarvík, Grundarfjörður, Langanesbyggð, Norðurþing, Reykjanesbær, and Vestmannaeyjabær.