Press Release

DBRS Morningstar Confirms the Kingdom of Belgium at AA (high), Stable Trend

February 14, 2020

DBRS Ratings Limited (DBRS Morningstar) confirmed the Kingdom of Belgium’s Long-Term Foreign and Local Currency – Issuer Ratings at AA (high). At the same time, DBRS Morningstar confirmed the Kingdom of Belgium’s Short-Term Foreign and Local Currency – Issuer Ratings at R-1 (high). The trend on all ratings remains Stable.


The confirmation of the Stable trend reflects DBRS Morningstar’s view that risks to the ratings are balanced. The Belgian economy continues to grow at a relatively steady pace, with growth in 2019 just above the euro area, in part reflecting favourable labour market conditions. The government debt-to-GDP ratio is also estimated to have declined below 100% in 2019. Nevertheless, the more fragmented domestic political landscape, after the Belgian elections in May 2019, is currently posing some degree of uncertainty to the reform progress and the medium-term fiscal outlook. A federal government is yet to be formed. Under unchanged policies, the small fiscal deficit is projected to deteriorate and the government debt ratio is set to rise again, albeit modestly. Economic growth is also forecast to slow to 1.2% in 2020.

The ratings are supported by Belgium’s wealthy and diversified economy, its strong net external asset position reflecting healthy private sector balance sheets, and its robust and credible institutional framework. These credit strengths counterbalance the challenges associated with high public sector debt, relatively low growth of potential output, and the economy’s exposure to external shocks given its small size and openness.


Positive upward pressure on the ratings could emerge if an improved budget position and stronger economic growth lead to a significant reduction in the public debt ratio. Conversely, a sharp deterioration in growth prospects or a significant deterioration in the budget position, bringing about a material worsening in the public debt trajectory, could put negative pressure on the ratings.


The Belgian Political Landscape is More Divided and Policymaking Is On Pause

Belgium’s institutions are robust, but politics can be contentious given frictions between the main linguistic groups (Flemish and Walloon) and the distribution of power between federal and regional levels. The outcome of the federal and regional elections held in May 2019 led to a more fragmented political structure. At the federal level, the right-wing New Flemish Alliance (N-VA) remains the largest party in parliament, but with its seats down to 25 of the total 150 seats of the federal parliament. The far-right Flemish Interest (VB) had higher-than-expected gains, taking 18 seats. Smaller parties on the far left also gained seats. At the same time, the regional divide was clear, with the Flemish-speaking voters on the right and the French-speaking voters on the left of the political spectrum. The regional governments in Flanders, Wallonia and Brussels-Capital have been formed, while talks for the formation of the Federal government are ongoing. In the meantime, the former minority government remains as caretaker government. Deep political divisions leading to lengthy processes of government formation and some policy uncertainty weigh on DBRS Morningstar’s qualitative assessment of the “Political Environment” building block.

The current political situation is delaying additional progress on fiscal consolidation and reforms. The 2019 budget was not passed and the 2020 budget is still pending. Until a new federal government is in place, the budget is operating under the “provisional twelfths” system. Given Belgium’s degree of decentralisation, the regions carry out a significant share of public sector functioning, and their fiscal positions are sound. On the latest reforms, only a few of previously-agreed labour market measures (the “jobs deal”) have been passed. Despite policy uncertainty, DBRS Morningstar does not envisage major disruptions during the period of government formation and expects the next government to adopt prudent economic policies. (For further details, please see DBRS Morningstar commentary entitled “Belgium: More Fragmented Election Results Bring Challenges for Federal Government Formation”, available at

The Budget Position Is Set to Deteriorate But Lower Funding Costs Mitigate Risks From High Public Debt

The fiscal deficit declined in recent years, but it is widening again. In 2019, the deficit is estimated to have increased to 1.7% of GDP from 0.7% in 2018. The deterioration was the result of the last phase of the five-year “tax shift” reform (a tax relief already legislated), and the fading one-off effects on corporate revenues in 2018. Looking ahead, the deficit is set to deteriorate unless further spending cuts are implemented. Under a no-policy-change assumption, the National Bank of Belgium (NBB) is forecasting a deficit of 2.1% in 2020. The deterioration would increase the risk of a further delay in reaching a structural budget balance, which has already been postponed twice from 2019 to 2021. While not large, the fiscal deficit leaves Belgium with limited fiscal space, given its still high level of government debt.

The government debt-to-GDP ratio has declined but remains high. From a recent peak of 107.6% in 2014, the debt ratio is estimated to have fallen to 99.1% in 2019, still among the highest in the euro area. This leaves public finances vulnerable to shocks, particularly an adverse growth shock and a materialisation of contingent liabilities. A combination of nominal GDP growth and lower interest costs, projected to average 1.7% of GDP in 2020-2021 down from over 3% in 2014, bodes well for debt dynamics. However, additional fiscal consolidation efforts are needed to place debt firmly on a downward path. A faster debt reduction could also result from further divestment of government equity stakes in financial institutions – the state has, among others, a 100% ownership in Belfius. Based on a no-policy-change assumption, the debt ratio is projected to gradually rise again in coming years, as the primary surplus turns to deficit.

A favourable public debt profile helps mitigate the risks from high debt. The government has taken advantage of low interest rates and extended debt maturities from 7.0 years in 2013 to an average of 9.8 years at end-2019, one of the highest in the Euro area. A buy-back programme has also helped smooth the debt redemption profile. Therefore, despite a higher fiscal deficit, borrowing requirements for 2020 are lower than in 2019 and the lowest since 2009. Moreover, almost 90% of debt is fixed rate, reducing risks from sharp rises in interest rates. A favourable public debt profile supports DBRS Morningstar’s qualitative assessment of the “Debt and Liquidity” building block.

Growth Is Set to Moderate, But Household Income Remains High and The Net External Asset Position Large

Economic growth is set to slow. After 1.5% in 2018, real GDP growth has been estimated at 1.4% in 2019, better than initial forecasts. Household spending has proved resilient, supported by employment growth and higher disposable incomes, while export growth has slowed. For 2020 the NBB is forecasting growth to slow to 1.2%. Private consumption is set to be the main growth driver, while the business investment cycle is set to normalise. Downside risks to the outlook are mainly external, as the country is highly integrated into global value chains. A further deterioration in euro area growth, particularly Germany – Belgium’s main trading partner – or an intensification of global trade tensions would affect exports and sentiment. The UK’s departure from the EU could adversely impact Belgium, as the UK is the fourth-largest trading partner, accounting for about 9% of Belgium’s merchandise exports. The pharmaceutical, automotive, and transport sectors appear the most vulnerable.

Structural reforms adopted in recent years have yielded results. The previous government’s reform agenda focused on addressing both Belgium’s weak trade competitiveness and high tax burden, by implementing measures aimed at moderating wage gains, shifting taxes from labour to consumption (the “tax shift”), and reducing the nominal corporate tax rate. Strong job creation and high employment levels followed the implementation of these reforms. Nevertheless, some labour market rigidities and skill mismatches remain. Inactivity and unemployment are high among non-EU immigrants and young people. This, together with a low effective retirement age, translates into relatively low participation rates, constraining Belgium’s GDP potential.

Belgium continues to benefit from a wealthy economy, with a GDP per capita level that is close to 20% higher than the euro area average. The level of private sector savings is also sizeable. Household net financial wealth, estimated at around 240% of GDP, is one of the highest in Europe. The aggregate net worth of Belgian households is above 700% of net disposable income, among the highest of OECD countries, comparable to Dutch households. Aggregate high incomes and savings provide the Belgian economy with an important degree of resilience.

Belgium is also a strong external creditor, which provides a buffer against external shocks. Averaging 48.8% of GDP over the past five years, Belgium’s net international investment position is one of the highest in Europe. After several years of surpluses, Belgium’s current account has turned into deficit, but the deficit is small averaging 0.6% of GDP in the past five years. Improved cost competitiveness led to an improvement in the current account in recent years. But, with wage growth less moderate, competitiveness could be affected, impacting the trade deficit. While Belgium is a small economy, Belgium’s extensive trade linkages throughout Europe supports DBRS Morningstar’s qualitative assessment of the “Balance of Payments” building block.

The Financial System is Sound Despite Some Risks from Strong Credit Growth

Risks to financial stability are moderate, although private sector debt is growing. Low interest rates have led to stronger credit growth, while banks have loosened lending standards. Rising household demand for house purchases is contributing to a steady, albeit moderate, rise in house prices. This all has resulted in higher household debt, estimated at close to 110% of disposable income.

To address the potential build-up of vulnerabilities, the NBB has adopted macroprudential measures. In May 2018, it required a 5% increase in the risk weighting coefficients on mortgage portfolios, with an additional capital surcharge on riskier real estate sub-segments, resulting in an additional three percentage points risk weight add-on. Moreover, in response to strong credit growth and to enhance the resilience of banks in Belgium, the NBB activated the countercyclical capital buffer at the end of June 2019, raising it to 0.5% of risk weighted assets, with a one-year implementation period. Intended to address the deterioration in mortgage lending standards, the NBB also presented its supervisory expectations for Belgian mortgage loans in October 2019, with recommendations on LTV limits and limits for pockets of risk.

Low interest rates have also weighed on banks’ interest margins. Nevertheless, Belgian banks are profitable, well capitalised, have liquidity levels above the minimum requirements and their asset quality is good, comparing favourably against the average of European banks. The sound position of the banking sector, together with one of the highest household net financial wealth positions in Europe, supports the resilience of the financial system to adverse shocks.

For more information on the Rating Committee decision, please see the Scorecard Indicators and Building Block Assessments:



All figures are in euro (EUR) unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is the Global Methodology for Rating Sovereign Governments, which can be found on the DBRS Morningstar website at The principal rating policies are Commercial Paper and Short-Term Debt, and Short-Term and Long-Term Rating Relationships, which can be found on our website at

The sources of information used for this rating include Belgian Debt Agency, Ministry of Finance, National Bank of Belgium (NBB), the Belgian statistical office (Statbel), OECD, ECB, European Commission, Eurostat, IMF, World Bank, UNDP, BIS, Haver Analytics. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS Morningstar had no access to relevant internal documents for the rated entity or a related third party.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Adriana Alvarado, Vice President, Global Sovereign Ratings
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer, Global Financial Institutions Group and Sovereign Ratings
Initial Rating Date: November 11, 2011
Last Rating Date: August 16, 2019

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