The reforms and savings planned by Belgium's new Federal 'Arizona' Government will be insufficient to get the budget in order quickly, warned the National Bank when presenting its annual report.
Belgium's budget deficit and public debt increased last year, the National Bank stated in its annual report. The deficit rose to 4.6% of GDP – 0.4 percentage points worse than in 2023. Government expenditure was €28 billion higher than revenue.
However, the deficit was no longer affected by one-off costs linked to the energy crisis or other crises. As a result, spending remained on a structural upward trend, partly due to the impact of ageing on pensions and healthcare.
'Payback effects'
Meanwhile, the new Federal Government's ambitious plans on pensions and the labour market, are sure to have a positive impact on the Belgian economy, according to Governor Pierre Wunsch.
"On that front, the De Wever government is courageous," he said. "Some structural challenges for our country such as the tightness of the labour market or the cost of ageing are being tackled quite ambitiously."
Additionally, it is "very uncertain" if the Federal Government will succeed in bringing the employment rate to 80%. Raising the employment rate is the central objective of the coalition agreement of the 'Arizona' coalition, but when asked for his assessment of the agreement, Wunsch said there is no full quantification of the targets. "And we will not have one any time soon either."
A logo of the National Bank. Credit: Belga / Jonas Roosens
The deficit will decline, but whether it will fall quickly below the 2024 level is not clear. And how fast the deficit will fall to 3% again is also not clear, the National Bank said.
"We fear it will not be enough, especially compared to what the EU is asking for," he added. "The government is counting on a lot of payback and at the same time there is not a lot of savings. The 2% growth norm for healthcare, for example, will be maintained."
With Belgium's poor public finances, the National Bank is concerned that it could be in the crosshairs of the financial markets in the event of another economic shock.
"I am not sure that the new government's plans are enough to reassure credit rating agencies," Wunsch said. These agencies closely study the situation of governments and large companies and then periodically attach their score to it. Such a score indicates how reliable the issuer of a debt is.
Worst in class
Credit rating agencies used to always focus on Portugal, Ireland, Greece, Italy and Spain, said Wunsch. Now, however, some of these countries are doing much better, so the attention of credit rating agencies and financial markets is shifting more and more to France and Belgium.
"We are now among the worst students in the class. The time when we could hide behind other countries is over."
At two of the three major credit rating agencies (Fitch and Moody's), the outlook for Belgium is currently negative. That means that they may lower the credit score or rating at the next review.
If the financial markets then set their sights on Belgium, the country's state bond yields could rise sharply, and it will become much more expensive to finance its large public debt.
