Belgium's deficit levels are unlikely to fall within the EU's budgetary limits by the time they are re-introduced in 2024, putting the Federal Government on a potential collision course with EU authorities.
According to a report published on Thursday by Belgium's Federal Planning Office (FPO), Belgium's fiscal deficit is set to rise from 4% of annual GDP in 2022 to 5.7% this year, before falling to 5.4% in 2024.
Worryingly, 2024 is also the point at which the EU's fiscal limit of 3% of GDP is set to re-enter into force, after being temporarily suspended during the Covid-19 pandemic. The suspension was later extended because of the war in Ukraine.
Bleak winters ahead
In its report, the FPO cited a "slowdown in economic growth" and the "delayed effects of the high inflation of 2022 on certain revenues and expenditures" as contributing factors to Belgium's expected deficit increase. It also highlighted increases in interest rates on government debt, adding that the "costs of regional and federal measures relating to the energy bill of companies and families [will] also contribute to the deficit".
And though the report forecasts a slight reduction in Belgium's budget deficit from 2023 to 2024, this will largely be a consequence of the expected end of energy support measures: a decision which could see numerous Belgians struggle to afford basic goods and heating next winter.
Related News
- One in two meal voucher recipients in Belgium forced to cut spending on food
- Breaking point: Bankruptcies in EU reach historic highs
Furthermore, the report pointed out that the country's rising deficit will have other important ramifications. Most obviously, Belgium's overall debt-to-GDP ratio will continue to increase in the coming years: the FPO forecast that total government debt will reach 119% in 2028, up from 105% today. This far exceeds EU budgetary rules, which stipulate that debt-to-GDP ratio should not exceed 60%.
Belgium's rising deficit and debt levels will also likely entail rising interest rates on government debt, as investors seek greater protection from the risk of potential default. In particular, the FPO predicts that Belgium's annual interest payments will reach €18 billion by 2028: more than double what it is today (€8.3 billion).
Fortunately, the report did not foresee a "snowball" scenario emerging, in which Belgium becomes sucked into a vicious cycle of rising interest rates and increasing debt.
