German municipalities: Popular partners under growing pressure

Economic resilience

German municipalities are traditionally considered extremely attractive partners for investors. Their role as users and clients is valued in particular because of their reliability and stable legal situation. For investors, municipal projects – from infrastructure measures to residential construction projects – offer a combination of long-term planning security and social added value. However, the current economic situation also poses considerable challenges for these flagship partners, which are increasingly reflected in their payment practices.

The ongoing economic crisis has left deep scars on the budgets of cities and municipalities in many places. Deficits in the billions shape municipal finances and force many municipalities to make drastic cuts. At the same time, demand for public investment remains high, especially in areas such as education, transport and digitalisation. This balancing act between growing requirements and limited financial resources means that public clients are increasingly late in paying their invoices.

One in five municipal bills overdue

The Leipziger Volkszeitung, for example, also reported on this issue on January 6, 2025. According to a survey by the Construction Industry Association East last August, more than one in two construction companies (54 percent) suffers from late payments by the public sector. The association represents the interests of 260 larger companies with 20,000 employees in Saxony, Saxony-Anhalt, Berlin and Brandenburg. The construction companies surveyed often speak of “deliberate late payment” by their clients.

A study by the credit agency Creditreform shows that about one in five municipal bills in Germany is overdue. On average, companies wait almost a month and a half for their receivables to be settled. These delays are often facilitated by the tight budget situation, which tempts municipalities to exhaust payment deadlines in order to secure liquidity in the short term. The construction industry, which is already suffering from a massive crisis, is particularly affected.

Cooperation depends on clear contractual structures

For investors and asset managers, this represents a new dimension of challenge. While German municipalities are still considered trustworthy partners, the image of their stability is clouded by the sluggish payment methods. This carries the risk of projects stalling and creating financial burdens for contractors and service providers.

At the same time, the situation shows how closely the economic health of municipalities is linked to their function as reliable partners for investors. Sustainable financial planning and compliance with payment deadlines are essential to maintain trust in municipal projects. On the other hand, companies and investors must be more prepared for the fact that public contracting authorities are also susceptible to delays under the current economic conditions.

The attraction of German municipalities as investment partners remains undisputed, but the economic reality requires both the public sector and private actors to rethink. Clear contract structures, financial safeguards and a realistic understanding of the economic situation of the municipalities will be crucial in the coming years to ensure reliable cooperation.