Continued Financial Burden on Municipalities in Saxony-Anhalt: New Research Reveals Persistent Debt Issues among Local Authorities - Research Findings: Continued Financial Obligations of Saxony-Anhalt's Municipalities Increase
Saxony-Anhalt, a region in Eastern Germany, is grappling with a significant investment backlog in public infrastructure, a study commissioned by the development bank KfW ("KfW Municipal Panel") has revealed. The perceived investment backlog in Saxony-Anhalt increased by almost 16 percent or 29.6 billion euros compared to the previous year. To bring their infrastructure up to an adequate standard, municipalities in the region would need to invest a record sum of 215.7 billion euros.
This revelation comes as municipalities across Germany are facing a similar challenge, with cities and municipalities short of billions for necessary investments in schools, roads, and sports halls. In Saxony-Anhalt, investment loans and debt securities of municipalities increased by 14.9 percent last year to finance these investments.
The study, which looked at the investment backlog of municipalities in Germany as a whole, highlighted several factors driving the need for increased investment in Saxony-Anhalt. These include the legacy of underinvestment in public infrastructure, which has created bottlenecks and inefficiencies, the desire to stimulate both short- and long-term economic growth through improved infrastructure, and specific challenges in sectors such as housing.
The financial situation of municipalities in Saxony-Anhalt has worsened in the past year, with the budget balance per inhabitant standing at 61 euros, better than the national average. However, this is still insufficient to meet the region's infrastructure needs. To finance investments, municipalities in Saxony-Anhalt, like their counterparts across Germany, are likely to increasingly rely on external funding in the future.
In response to these challenges, the German government has adopted new constitutional and fiscal policy reforms that permit regional governments, including those in Saxony-Anhalt, to take on additional debt specifically for structural and investment purposes. This allows Länder to borrow up to 0.35% of GDP for new structural borrowing and supports a special infrastructure fund of up to EUR 500 billion over 12 years.
KfW Bank Group, the commissioner of the study, emphasizes the need for these funds to be distributed "targeted, but as unbureaucratically as possible." Dirk Schumacher, KfW's chief economist, underscores this point, stressing the importance of efficient and effective investment to address the investment gap in public infrastructure and support sustainable economic growth.
As municipalities in Saxony-Anhalt seek multi-billion packages from the federal government, it is clear that addressing the investment backlog in public infrastructure is a pressing issue that requires urgent attention and action. The fundamental reason for this shift is the need to close a substantial investment gap in public infrastructure to support sustainable economic growth and address longstanding deficiencies at the local level.
Developing a comprehensive solution to address the substantial investment gap in public infrastructure in Saxony-Anhalt is crucial, as the region's municipalities are in dire need of funding for vocational training programs, schools, roads, and other necessary amenities. To stimulate economic growth and alleviate inefficiencies, it's essential to secure business financing and invest in targeted, unbureaucratic ways, fostering sustainable development.
