Hardly any changes in the credit volume and a still good credit rating – this is how the financial situation of many Swiss municipalities looked until the beginning of 2020. But now the effects of the Corona crisis are likely to make themselves felt. In the third part of our blog series on municipal finance in Switzerland, we take a closer look at this aspect.
Since 2003, the Lucerne School of Economics (HSLU) has been providing reliable and detailed answers on the topic of municipal finances. In its most recent study, it also took a close look at maturities, interest rates and financing partners. In the study presented in summer 2020, the experts conclude, among other things, that the average loan volume of the municipalities has only increased slightly compared to previous years. It finds that about half of the municipalities have been able to greatly reduce their debt since 2016, but the other is significantly more indebted.
An account with many unknowns
But will this change due to the ongoing Corona crisis? Prof. Christoph Lengwiler, head of the study, dares to make a cautious assessment, even though it is still difficult to predict the overall development. Last spring, one of the most important goals was to prevent a second wave of contagion, says Lengwiler. “But unfortunately we did not succeed”. Now it is a matter of doing everything possible to block a third wave. Economic experts agree that this will have a significant impact on further economic development in Switzerland.
The effects become visible with a delay
But it is already clear that the municipalities are feeling the crisis, he says. On the one hand, the municipalities have saved money because projects could not be realised, but on the other hand, they have already had significantly higher additional expenses in the short term.
Prof. Christoph Lengwiler summarises the outlook for the municipalities as follows:
All of this will tend to keep the financial situation of the municipalities tense and increase debt, Lengwiler continues. He therefore assumes that additional or alternative financing measures will be necessary.
Details about the study and the participants
In 2003, the Institute of Financial Services Zug (IFZ) at the Lucerne School of Business under the direction of Prof. Dr. Christoph Lengwiler, conducted its first survey of the financing market for medium-sized municipalities in Switzerland. The study has been conducted six times since then – most recently at the end of 2019. The focus is on municipalities with 4,000 to 30,000 inhabitants. In the most recent study, a total of 470 municipalities were requested and 238 provided their data – this corresponds to just under eleven percent of all municipalities in Switzerland. With a participation rate of 50.6%, the survey can be considered largely representative. For the first time, Western Switzerland was also included, which is reflected in the credit volume with an increase of almost 30% compared to the 2016 study.
Read also Part 1 and Part 2 of the blog series on municipal finance in Switzerland.