Belgium's deficit is predicted to continue to grow unless measures are taken. One economist warned the next government will have to launch sharp austerity measures to reduce its debt in line with EU rules.
The recent agreement on the EU budget rules is set to impose stricter for countries with high debt ratios, such as Belgium. If approved, the country will have to reduce its budget deficit to 1.5% of gross domestic product (GDP) by 2031, while it is on course to become 5% of annual GDP in 2025.
Finance Minister Vincent Van Peteghem (CD&V) stressed that Belgium will need to save €27 billion over seven years to rein in its high budget deficit and public debt in line with EU budget rules. The European Commission's figures underpin savings of an estimated €38 billion would be needed.
Since then, the Federal Planning Bureau (FPB) has reaffirmed that the national will widen if no measures are taken. "Under unchanged policies, the deficit would increase from 4.6% of GDP in 2024 to 5.6% in 2029," spokesperson Rik Vanhautegem said.
The most worrying feature of the forecasts made by the FPB, according to Eric Dor, the Director of Economic Studies at the IESEG School of Management, is a consequence of the persistence of such excessively high government deficits. "If the fiscal policy remains unchanged, the public debt of Belgium would rise, from 105% of GDP in 2023 to 117% in 2029," he told The Brussels Times.
"Belgium would thus totally infringe the European rules about public deficits and debts." If this is the case, heavy fines would follow.
Counter-efforts needed
He explained that the reformed version of this stability pact will already have to be taken into account by the government budgets for 2025, which have to be prepared in 2024.
"Therefore, it is clear that, after the elections, the new government will have to launch sharp austerity measures to ensure that the trajectory of the public deficits and debts are in line with the European requirements," Dor said.
Miranda Ulens, General Secretary ABVV, questioned what sectors would be affected in De Standaard, fearing this could lead to lower pensions and benefits, a concern which already saw thousands of trade unionists take to the streets last year.
A demonstration against the European Union's plans to reintroduce austerity in December 2023. Credit: Belga/ Hatim Kaghat
Meanwhile, Dor warned that they will also have recessionary effects, meaning the growth rate of real GDP will be lower than the rather optimistic forecasts of the Federal Planning Bureau that were made based on an unchanged fiscal policy: it predicted economic growth of 1.4% this year in Belgium.
Fixing competitiveness
Dor added that the FPB's forecast of losses of market shares by Belgian exporting companies until 2025 is also worrying. This is mostly due to deteriorating competitiveness, driven by increased labour costs as a result of the automatic wage indexation. Economic experts had warned this would be the case in the past, but unions have continued to argue that automatic wage indexation cannot be abolished.
As a result, Belgium will likely record a trade deficit nearly every year until 2029 and, if the situation remains unchanged, there will be a larger deficit of the current account balance every year from 2026 until 2029.
"The implication is that the net claim of Belgium, all public and private agents included, on the rest of the world will decrease. It is worrying because this net claim on the rest of the world is important to assure the sustainability of the Belgian government debt," Dor noted.
Currently, the government debt is lower than the net assets of the private sector, and Belgium is a net creditor country, meaning the country is less dependent on foreign funding. "This explains why, despite having a huge public debt, Belgium has escaped any sovereign debt crisis until now, contrary to other countries with a big public debt like Greece, Portugal, Ireland, and Cyprus."
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Dor warned that, if no changes are made, Belgium could be on course a country with a net debtor position, making it dependent on foreign funding. "Measures must be decided to ensure that Belgium returns to a current account balance surplus and keeps a net creditor position on the rest of the world," he said, adding that this implies improving the competitiveness of its companies.
This responsibility will fall into the hands of the next government. Herman Matthijs, professor of public finance at UGent and VUB told De Morgen that this is already putting an "atom bomb" on the post-election negotiations.
