The crisis at Moskenes can affect the entire Municipality of Norway – NRK Nordland

Vesle Moskenes municipality in Lofoten is known for its idyllic landscape and spectacular mountains.

But beneath the surface, a big problem hides.

The municipality of less than a thousand inhabitants has few professionals and resources, lacks mayors, and has a high proportion of young people who are outside work, education or training.

In addition, they have had miserable finances for years.

They have been on ROBEK-listed for 12 years, and earlier this year they threatened to “bankrupt” themselves if they didn’t get help.

They have a total deficit of around NOK 120 million.

And the finances of the municipality can, in the worst case, ruin other municipalities in Norway by making their debt more expensive.

At least if we are to believe KLP and head of credit analysis Thomas Eitzen at SEB.

Breaks the expectations

Eitzen explains this by saying that the financial market believes that Norwegian municipalities are guaranteed by the state, but that is not entirely true, according to him.

– Many Norwegian municipalities have quite bad finances, but when you borrow the money, the financial market thinks that things are going well because the Norwegian state supports them if needed.

Eitzen believes that the situation with Moskenes municipality will be resolved, but if it turns out that Moskenes is allowed to payment settingor go municipal “bankruptcy”, the entire expectation that the state helps Norwegian municipalities could be shattered.

– If they are allowed to adopt a payment proposal, then someone has said that Norwegian municipalities are not as creditworthy as they were before. Because the state does not come and help.

And then the financial market will demand higher interest rates on loans to municipalities.

– That is the challenge.

Affects the municipal loan market

KLP Bank is also concerned about this. They have even sent a letter to the Ministry of Local Government and District Affairs, as well as the Ministry of Finance.

– What we are concerned about is that uncertainty will spread among those who finance the municipalities that there is a higher credit risk in the municipal market than is assumed. We are concerned that interest rates, or the credit mark-up as it is called, will increase. This means that you get a higher interest rate with the municipalities.

That’s what Carl Steinar Lous, director of public markets at KLP Bank, says.

In the letter to the ministries, they write that Norwegian municipalities have a combined loan debt of over NOK 700 billion. The increase in the credit margin of, for example, 0.5 percentage points will increase annual interest costs for the municipal sector of NOK 3.5 billion.

Lous says that they don’t think this will happen, but send the letter as a precaution.

– For our part, we are not worried that we will lose any money on it, but it is that the market will be affected by it in the long run.

– Is not good

Most municipalities have loans from Kommunalbanken or KLP Bank, but some also have loans from the securities market, such as bonds and certificate loans.

According to Lous, around 160 Norwegian municipalities have loans here, including Trondheim.

It is this market that KLP Bank is particularly concerned about.

– If a perception were to spread in the market that the credit risk of Norwegian municipalities is not low after all, this would affect both the banks and the securities market. Which in turn will lead to the municipalities receiving higher interest rates. This will have a major impact on the financing cost of the municipalities, the letter states.

Lous says that this is not good for society.

– It is not good for society that the municipalities receive higher financing costs. It is very unfavorable. Then it goes beyond any other things that municipalities should spend money on.

Want them to clean up themselves

One can then imagine that the solution to the problem is for the state to simply pay off the debt to Moskenes. That way, it does not affect the rest of Municipality-Norway. Or?

It is not that simple, according to Eitzen.

– The state has a wish that the municipalities clean up themselves.

He says that if the state only pays off the debt to Moskenes, it may give the impression that the 356 other municipalities in the country can only do what they want and the state pays for it.

– The state must balance the need to help Moskenes against the fact that other municipalities at the same time receive a credible message that they cannot renounce their responsibility for the debt.

State Secretary in the Ministry of Local Government and Districts, Ole Gustav Narud (Sp) has previously stated that it is not appropriate for Moskenes to adopt a payment proposal.

– Not as long as Moskenes has the funds to pay. The municipality has an overdraft and is therefore able to pay, he told NRK.