Belgium's credit rating was lowered from "stable" to "negative" by Fitch Ratings on Saturday, with the country now seen as a riskier place to lend money to. The company attributed its downgrade to the "fragile" Federal Government's "limited capacity" in dealing with economic challenges.
In particular, Fitch Ratings explained that they viewed the Belgian Government as incapable of reining in Belgium's growing budget deficit. In January of this year, Belgium's deficit stood at 5.1% of the country's GDP making it the largest in the eurozone.
The Belgian Government felt obliged to increase its public investments following the multiple crises that have beset the country in the past years. The Covid-19 pandemic and the ongoing energy crisis have seen increased healthcare costs as well as a continued indexation of salaries.
According to Fitch Ratings, this has further widened Belgium's budget deficit, which they expect to reach 5.2% throughout 2023 and thus making the country a riskier place for potential creditors.
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To remedy this issue, Fitch Ratings has called on the Belgian Government to enact fiscal consolidation measures in an attempt to reduce the country's debts, with borrowing costs having reached a decade-long high earlier this year.
However, the credits agency expressed significant doubts over their ability to do so especially so close to next year's election. Such policies are frequently unpopular with the general population and are often equated to austerity.
The company also explained that such measures risk being delayed significantly by Belgium's "fragmented political landscape and very lengthy coalition negotiations in the past". While other European countries with majority governments would have no issues passing these measures through parliament, Belgium is headed by a seven-party coalition with ministers from each side of the political spectrum.
