Belgium needs to start fiscal consolidation by next year at the latest, and make an additional effort of at least 0.7% of gross domestic product (GDP), the High Council of Finance (HCF) recommends.
“Postponement, which has been applied too often in the past, should be stopped, and the required fiscal consolidation should be started without further delay, at the latest in the 2024 budget,” the HCF said.
This recommendation is all the more sensitive, politically speaking, as 2024 is the year of all elections.
Debt expected to top 106% of GDP
The HCF’s recommendation was published as part of the stability programme, which each eurozone country has to draw up every year for the next few years (in this case 2023-2026), and submit to the European Commission.
The spring of 2024 should mark the return of the European budgetary rules (public deficit of no more than 3% and public debt not exceeding 60% of GDP). These rules have been suspended since 2020 because of Covid-19, the energy crisis and the Russian war in Ukraine.
Belgium is set to present a budgetary deficit of 5.7% of GDP this year, and the deficit is still expected to be 5.9% in 2028, according to the Planning Bureau. The Monitoring Committee is hardly more optimistic, forecasting a deficit of 4.8% this year and 5.4% in 2028.
The debt ratio is estimated to exceed 106% of GDP this year and rise to 111% or even 113% by 2026.
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Forecasts do not make allowance for unexpected events
According to the High Council of Finance, depending on the scenario adopted, the minimum additional structural effort to be made would vary from 0.7% to 0.9% of GDP per year.
The HCF further warns that the trajectories mentioned are “minimal”, i.e. they do not make allowances for unexpected events, nor for possible higher costs due to an ageing population, the prolongation of the war in Ukraine or further interest rate hikes.
In a more cautious and less risky scenario in the eyes of the European Commission, an additional structural effort of 2.8 % of GDP would be needed over the period 2024-2026. The effort would peak in 2024 and decline in 2025-2026, stabilising the debt ratio at the 2023 level for the following three years.
