Last week, the ratings agency Fitch announced that it placed Belgium’s credit rating on negative watch. This free warning, which augurs a downgrading of the rating without change on the part of the Belgian public authorities, was explained by two main things: the situation of public finances, weakened by the aging of the population (with an increase in expenditure of care and pensions), and the automatic indexation of wages, which is detrimental to competitiveness.
And to add that it was “unlikely that the government will adopt the budgetary consolidation measures necessary to reduce the deficit because of the approach of the federal elections in 2024”.
Peter Vanden Houte (ING): “The future Belgian elections are worrying the rating agencies”
The rating agency Standard & Poor’s (S&P), another world giant in the rating sector with Moody’s, does not say anything else. On the form, S&P is however more subtle since it leaves its rating outlook to “stable”. The agency summarizes Belgium’s situation by recalling that “difficult macroeconomic conditions and tax measures related to wages and energy will weigh on Belgium’s public finances in 2023. We expect general government budget deficits to will widen to almost 5% of GDP in 2023”. Rather than fearing the 2024 elections like Fitch, the S&P agency is more optimistic: “the positive outlook for medium-term growth as well as our assumption of some fiscal consolidation after the next election will keep net public debt below of 100% of GDP”.
S&P’s warning is more subtle, in that it puts pressure on the next government to take the necessary steps to reduce the deficit and public debt. For now, the agency, which believes Belgium’s issuance in the markets will remain strong, maintains its “AA/A-1+” rating for Belgium, with a stable outlook. For the time being, the interest rates at which Belgium borrows on the markets (3% at 10 years) have followed the growth in market rates, without the difference with German rates (the reference) taking on large proportions. The spread (interest rate differential) amounts to approximately 0.6%.
Belgium’s public deficit is expected to peak at 40 billion euros in five years