State Accounts Court Head Expresses Frustration
The state of North Rhine-Westphalia (NRW) is gearing up for a record budget in 2026, with expenditures projected to reach €112.2 billion, an increase of 6.7 billion euros from the current state budget for 2025. This marks a significant escalation in revenues and expenditures compared to the previous record set in 2022.
However, the outlook for tax revenues, personnel costs, and the assumption of old debts by cities is not promising, leading Finance Minister Marcus Optendrenk to acknowledge the need for savings due to weak tax revenues. The sources of the so-called global additional revenues, amounting to more than 5.5 billion euros annually from 2026, remain unclear.
The NRW Finance Ministry's approach involves a benchmark debt portfolio strategy focused on duration and sustainability bonds issuance, which have seen strong investor demand and support the state's social and environmental projects. The state's strategy to incorporate sustainability-linked financing aligns with global trends and improves investor confidence, potentially lowering borrowing costs.
Despite the substantial debt level of almost €163 billion, the stable interest rates on issued debt and the medium-to-long weighted maturity help moderate refinancing risks. However, the high absolute debt level requires careful fiscal management to maintain balance without excessive taxpayer burden.
Brigitte Mandt, the president of the State Audit Office (SAO), has expressed concerns about the lack of clarity regarding where cuts should be made in the budget and criticized the lack of detail in the revenue projections. Mandt also highlighted the importance of expenditures being permanently offset by reliable revenues and warned against the "cyclical component" and the new option for federal states to take on debt annually at 0.35 percent of GDP, which she considers a "toxic temptation."
In summary, NRW's projected global additional revenues factor in supportive policies and market demand but remain subject to macroeconomic risks and must be carefully monitored. The state debt level is substantial but managed with a long-term, cost-effective borrowing strategy and an increasing focus on sustainable financing instruments. This approach mitigates some fiscal risks but requires discipline to avoid future austerity or excessive tax burdens.
External economic fluctuations and policy changes, such as EU renewable energy directives, will impact the reliability of revenue projections and debt sustainability. The SAO Annual Report, presented in the state parliament, emphasizes the need for more budget discipline from the state of NRW.
The Finance Ministry of North Rhine-Westphalia (NRW) has plans to incorporate sustainability-linked financing, maintaining its social and environmental projects while potentially lowering borrowing costs (finance, business). However, the state needs to show budget discipline to offset expenditures with reliable revenues and avoid future taxpayer burden, as stresses the State Audit Office (SAO) (finance, business).
