Minister Taina Bofferding; Credit: SIP

On Friday 15 May 2020, Luxembourg's Minister of the Interior, Taina Bofferding, spoke to reassure municipalities across the Grand Duchy that the government has measures in place to help prevent municipalities becoming insolvent and going bankrupt.

The COVID-19 pandenic has created economic and budgetary challenges not only for the private sector, but also for the public sector. The Luxembourg state and the municipalities will thus be faced with a decline in their respective revenues.

Faced with this difficult situation, Minister Bofferding stated “Luxembourg municipalities are not at risk of going bankrupt. It is a fact, which I must emphasize in the face of the concerns of the municipal authorities, to which I assure my full understanding. The country's municipalities will always be able to pay their staff, their bills and rents and to answer for their debts. Unlike other countries, we have mechanisms that help prevent an insolvency."

Communal law protects the communal sector through different mechanisms: first, operating expenses must always be lower than operating revenues. Then, the final result of the budget, which consists of the ordinary bonus, the result of the extraordinary budget and the carryover of the result from the previous year, must be positive. Furthermore, the annual repayment of all loans must be less than 20% of operating revenue, this ensures that a municipality has enough room to maneuver to repay its loans.

Thus, even if a municipality closes its 2020 account with a deficit, it has the possibility of absorbing this penalty during the next budget. A decreasing spiral, which could lead to over-indebtedness of a municipality, is therefore excluded in Luxembourg.

"Public sector investment, including that of municipalities, must continue, not only to counter the economic recession, but above all because it is essential for the development of our society," said Minister Bofferding.

The means available to the municipalities allow them to continue to invest, despite the current budgetary challenges.