Press Release

DBRS Morningstar Changes the Trend to Negative, and Confirms the Kingdom of Belgium at AA (high)

August 14, 2020

DBRS Ratings GmbH (DBRS Morningstar) confirmed the Kingdom of Belgium’s Long-Term Foreign and Local Currency – Issuer Ratings at AA (high) and changed the trend to Negative from Stable. At the same time, DBRS Morningstar confirmed the Kingdom of Belgium’s Short-Term Foreign and Local Currency – Issuer Ratings at R-1 (high) with a Stable trend.


The Negative trend reflects DBRS Morningstar’s view that a combination of economic, fiscal and policy factors has tilted the risks to the ratings to the downside. Firstly, potentially lasting effects on the economy, brought about by the shock from the global Coronavirus Disease (COVID-19) pandemic, could lead to persistent large fiscal deficits and keep the government debt ratio at a very high level in the coming years. The economy is set to contract sharply in 2020 and the pace of the economic recovery is uncertain, in part due to the risk of resurgence in the number of coronavirus cases. Belgium also entered the crisis with limited fiscal space compared to some of its European peers and its public debt ratio is set to deteriorate substantially to close to 120% of GDP by the end of 2020.

Secondly, a federal government is still to be formed following the inconclusive May 2019 elections. While the absence of a fully functioning government has not affected the Belgian emergency response to the crisis, DBRS Morningstar considers that this may possibly prevent the adoption of additional support measures and could delay the implementation of a medium-term fiscal strategy as well as progress in reforms. This, in turn, could prolong some of the negative effect of the pandemic on the Belgian economy. The deterioration in DBRS Morningstar’s building blocks of ‘Fiscal Management and Policy’ and ‘Economic Structure and Performance’ are the key factors for the trend change.

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.


An upgrade of the ratings is unlikely in the near term. Over time, the ratings could be upgraded if a substantially improved budget position and sustained economic growth lead to a significant reduction in the public debt ratio. The trend could return to Stable if, supported by a fully functioning government, the economic recovery is stronger than anticipated, leading to a reduction in the fiscal deficit and government debt levels faster than currently expected. Conversely, the ratings could be downgraded if a deterioration in growth prospects or a significant deterioration in the budget position leads to a material worsening in the trajectory of the already high public debt.


The Belgian Economy Has Been Severely Hit by The Coronavirus Pandemic

Economic growth is set to contract sharply in 2020 before recovering only partially in 2021. Measures to contain the spread of the virus, imposed from mid-March to mid-May, together with disruptions to global trade, have had a severe impact on Belgium’s economic activity. Compared to the Netherlands and Germany, restrictive measures were more stringent in Belgium, similar to those in France albeit for a slightly shorter duration. After an average annual growth rate of 1.7% over the past five years, the National Bank of Belgium (NBB) is forecasting real GDP to contract by 9.0% in 2020, followed by growth of 6.4% in 2021 and of 2.3% in 2022.

These 2020-2021 forecasts are similar to those of the European Commission, and are broadly in line with those of the euro area of -8.7% in 2020 and of 6.1% in 2021. The NBB is currently projecting a persistent output loss of 4% by the end of 2022 compared to pre-crisis output forecasts. While the extent of the GDP drop –with a contraction of 12.2% in Q2 2020, after a 3.5% contraction in Q1– is severe, DBRS Morningstar points out that they are slightly better than initially anticipated, possibly implying a GDP output for 2020 marginally better than currently foreseen.

Nevertheless, the growth outlook remains subject to high uncertainty. As with other countries, it depends on many factors such as the rate of infection remaining contained, the effectiveness of the economic policy response and the recovery in global trade. While the spread of the virus was contained in May, allowing the easing of the lockdown, Belgium and other European countries have started to record a resurgence in infection cases more recently, prompting a tightening in localised physical distancing measures. At the same time, the government has provided support to affected businesses and households. While DBRS Morningstar views the initial fiscal policy response to the crisis as largely effective, the measures announced remain temporary and further support in coming weeks and months may prove necessary. Moreover, as the country is highly integrated into global value chains, Belgium is exposed to a weaker-than-expected recovery in global trade or in the Euro area, particularly in Germany – Belgium’s main trading partner. Furthermore, the UK’s departure from the EU could adversely impact the Belgian economy, as the UK is the country’s fourth-largest trading partner, accounting for about 9% of Belgium’s merchandise exports.

Structural reforms adopted in recent years yielded results. The previous administration’s reform agenda focused on addressing both Belgium’s weak trade competitiveness and high tax burden, by implementing measures to moderate wage gains, shift taxes from labour to consumption (the “tax shift”), and reduce the nominal corporate tax rate. Strong job creation and higher employment levels followed the implementation of these reforms. Last year, the unemployment rate fell to 5.4%, the lowest in four decades. Still, some labour market rigidities and skill mismatches remain, including high unemployment 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. Moreover, the coronavirus crisis could have lasting effects on the economy, in terms of higher structural unemployment, reduced production capacity from bankruptcies in affected sectors, and lower global trade affecting global value chains. Exports and imports of intermediate goods as a percentage of GDP in Belgium is one of the highest in the Euro area, at 95%.

Nevertheless, 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. The aggregate net worth of Belgian households is above 640% 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.

The Budget Position Is Set to Deteriorate Sharply And Public Debt to Reach Higher Levels

Belgium entered the coronavirus crisis with more limited fiscal space, given its fiscal deficit and high government debt. Following small deficits in the previous two years, the fiscal deficit deteriorated to 1.9% of GDP in 2019. In 2020, the NBB is forecasting the deficit to reach 10.6%, as a result of the fiscal response to the crisis, automatic stabilisers and the sharp economic contraction. The fiscal measures taken by the caretaker government to limit the impact of the pandemic include the temporary unemployment scheme, a replacement income scheme for the self-employed, a liquidity support and compensation scheme for impacted sectors, and deferrals of taxes and social security contributions, amounting in total to 3.6% of GDP (including 1% for the Communities and Regions). Government-backed loan guarantees, equivalent to almost 12% of GDP, and to be burden-shared with the financial sector, have also been adopted. Most of the deterioration in the deficit is at the federal level, while the deficit at the regional level is expected to remain below 2% of GDP. As most of the fiscal measures are temporary, the deficit is expected to decline next year but it will likely remain large relative to recent years. In a no policy change scenario, the NBB forecasts the fiscal deficit to remain at 6.0% in 2021 and at 5.9% in 2022, mainly reflecting the persistent output loss from the lasting effects of the coronavirus crisis on the economy.

The government debt ratio is set to increase sharply. While DBRS Morningstar positively notes that the government debt-to-GDP ratio had been declining gradually from a recent peak of 107.0% 2014 to 98.6% in 2019, it remained among the highest in the euro area, exposing Belgium’s public finances to shocks. This year, the combination of a large deficit and sharp economic contraction are set to materially increase the government debt ratio. The NBB is forecasting the debt ratio to reach 118.1% in 2020, remaining high at 116.5% in 2021 and 119.0% in 2022, reflecting the large fiscal deficits. Government forecasts point to an even higher debt ratio in 2020 of 122.1%, based on assumptions of a sharper economic contraction and larger deficit.

A favourable public debt profile helps mitigate some of the risks from high debt. The government has taken advantage of low interest rates in recent years and extended debt maturities from 7.0 years in 2013 to an average of 10.25 years as of July 2020, one of the highest in the Euro area. Interest costs are low and a buy-back programme has also helped smooth the debt redemption profile. 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.

A Government At The Federal Level Is Yet To Be Formed

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 landscape. At the federal level, the right-wing New Flemish Alliance (N-VA) remains the largest party in parliament, but with fewer seats. The far-right Flemish Interest (VB) had higher-than-expected gains, while 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 a Federal government is still to be formed.

The former minority government has remained as caretaker government since December 2018. Although overall policymaking remains on pause, the Federal Parliament granted the caretaker government special powers until the end of June 2020 to deal specifically with the health and economic crisis. The government under Prime Minister Sophie Wilmès responded with temporary fiscal measures at the federal level to lessen the economic fallout. In the meantime, coalition talks between the leaders of the New Flemish Alliance and the Socialist Party are ongoing.

The current political situation has delayed additional progress on reforms and leads to policy uncertainty. Potentially lasting effects on the economy could lead to a persistent large fiscal deficit and a very high government debt ratio, especially in the absence of either additional economic measures or a prudent fiscal strategy. While DBRS Morningstar expects the next government to adopt prudent economic policies, clarity over economic policy and a medium-term fiscal strategy is crucial during this economic crisis, in case additional measures are needed to support a sustained recovery of the economy and bring public finances to a sound position over time. Deep political divisions leading to lengthy processes of government formation and policy uncertainty weigh on DBRS Morningstar’s qualitative assessment of the ‘Political Environment’ building block.

The Financial System is Sound and Financial Stability Risks Remain Contained

The Belgian banking sector has entered the crisis with a sound and resilient position. While low interest rates have weighed on banks’ interest margins in recent years, Belgian banks are well capitalised, have liquidity levels above the minimum requirements and their asset quality is good. Banks’ operating environment has now deteriorated amid the crisis but the full impact on asset quality remains uncertain. Nevertheless, the sound position of the banking sector underpins its capacity to absorb losses and allows it to support the economy. In response to the current economic crisis, the ECB Supervisory Board allowed in March 2020 the temporary relief of capital and liquidity buffers for euro area banks to increase their capacity to lend. Accordingly, the NBB released fully the countercyclical capital buffer, freeing up almost EUR 1 billion (0.2% of GDP). The authorities have also implemented loan moratoria to support households and corporates liquidity.

Overall, risks to financial stability remain moderate, although private sector debt is growing. Low interest rates have led to stronger credit growth in recent years. Rising household demand for house purchases is contributing to a steady, albeit moderate, rise in house prices. These factors have resulted in higher household debt, estimated at close to 115% of disposable income. Nevertheless, Belgian households’ net financial wealth positions are among the highest in Europe.

To address the potential build-up of vulnerabilities in the real estate market, the NBB has made use of its macroprudential policy in recent years. Intended to address the deterioration in mortgage lending standards, the NBB adopted the supervisory expectations for Belgian mortgage loans in October 2019, with recommendations on loan-to-value (LTV) limits and limits for pockets of risk. The NBB also increased the risk weighting coefficients on mortgage portfolios, with an additional capital surcharge proportional to the risk of the individual banks’ portfolios, in 2018. Although still in place, the NBB could release the macroprudential capital buffers for real estate risks, should credit losses start to materialise.

Belgium’s Net External Asset Position Remains Large

Belgium is a strong external creditor, which provides a buffer against external shocks. Averaging 48.4% of GDP over the past five years, Belgium’s net international investment asset position is one of the highest in Europe. After several years of surpluses driven by improved cost competitiveness, Belgium’s current account has turned into deficit, but the deficit is small, averaging 0.1% of GDP in the past five years.. While Belgium is a small economy, Belgium’s extensive trade linkages throughout Europe supports DBRS Morningstar’s positive qualitative assessment of the ‘Balance of Payments’ building block.


A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

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 (July 27, 2020).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

The sources of information used for this rating include Ministry of Finance (Stability Programme 2020), National Bank of Belgium NBB (Economic Projections for Belgium Spring 2020, Financial Stability Report 2020), Belgian Debt Agency (Updated 2020 financing requirements and funding plan), Federal Planning Bureau (Budget économique 2021 / juin 2020), 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.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

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 12-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:

The sensitivity analysis of the relevant key rating assumptions can be found at:

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Nicolas Fintzel, Vice President, Global Sovereign Ratings
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer, Global Financial Institutions and Sovereign Ratings Group
Initial Rating Date: November 11, 2011
Last Rating Date: February 14, 2020

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