Press Release

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

February 12, 2021

DBRS Ratings GmbH (DBRS Morningstar) confirmed the Kingdom of Belgium’s Long-Term Foreign and Local
Currency – Issuer Ratings at AA (high) and maintained the Negative trend. 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 continue to affect negatively Belgium’s ratings. Belgium, in line with most of its European peers has been substantially affected by the Coronavirus Disease (COVID-19) pandemic. The country has been particularly impacted by the first and second wave of the virus in March/April and October/November last year, but has since then recorded lower levels of infection than many other European countries. Nevertheless, the pandemic has taken its toll on Belgium’s economy in 2020 with the country’s real gross domestic product (GDP) expected to have decreased by -6.2%, an unprecedented decline in modern history. In addition, given the negative economic backdrop and the substantial support measures implemented by the Belgian authorities to limit the impact of COVID-19 on individuals and sectors most affected by the pandemic, Belgium’s fiscal results are expected to have substantially deteriorated in 2020. The deficit is estimated by the National Bank of Belgium (NBB) at -10.1% of GDP in 2020 and the fiscal accounts are expected to remain under pressure over the next two-to-three years.

Similarly, the country’s already high public sector debt is expected to have increased significantly due to the pandemic, at 115.1% of GDP at the end of 2020 from 98.1% at the end of 2019. The cost associated with this new debt remains nevertheless below historical trends, supporting a decrease in the overall interest costs borne by the federal government, despite the stock increase. The formation of a new federal government on 1 October 2020 was a positive development, but DBRS Morningstar considers that the seven-party coalition remains fragile and negotiating and implementing medium-to-long-term policy measures will likely remain a challenging task. Although clouded with uncertainty, DBRS Morningstar considers that the pace of the country’s economic and fiscal recovery will be critical for its analysis of Belgium’s creditworthiness over the next 12 months. The Negative trend continues to reflect a deterioration over the past year in Belgium’s “Fiscal Management and Policy”, “Debt and Liquidity” and “Economic Structure and Performance” building blocks as per DBRS Morningstar’s Global Methodology for Rating Sovereign Governments.

The ratings are supported by the country’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 and increasing public sector debt, relatively low potential output growth, 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 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 deterioration in the budget position leads to a further worsening in the trajectory of the already high public debt.


The COVID-19 Pandemic Has Significantly Affected the Belgian Economy in 2020

Flash estimate of economic growth for the country released by the NBB at the end of January 2021, reported a substantial economic contraction of -6.2% in 2020. This decline, although marginally outperforming earlier estimates from the NBB of negative growth of -6.7% in 2020, remains very significant and represents the largest GDP drop recorded by the Belgian economy since World War II. This estimate reflects a Q4 GDP quarter-on-quarter (qoq) growth of 0.2% for the Belgian economy, following a Q2 qoq contraction of -11.8% and a Q3 qoq rebound of 11.6%. The Q4 growth figure was once more affected by restrictions imposed by the federal government in October to tackle the second wave of COVID-19 cases across the country. DBRS Morningstar positively notes that while Belgium has had to implement stringent measures in October and November to reduce the spread of the virus, these have been successful and have allowed the country to reduce significantly the proliferation of the virus throughout the country. This subsequently allowed the Belgian authorities to lift a number of restrictions in December and to consistently maintain this somewhat softer restrictive level since then.

The beginning of 2021 is likely to remain affected by the level of restrictions in the country. While Belgium has so far withstood relatively well the so called third wave of infections experienced by a number of European countries also reflecting the new COVID-19 variants, the pressure on the Belgian healthcare system, particularly occupancy of acute care beds, will remain critical in coming weeks and months to limit casualties and to assess the potential economic fallout of the pandemic this year. Projections from the NBB, published in December 2020 anticipate, under a mild scenario with no renewed lockdown and further lifting of restrictions in Q2 that GDP would rebound by around 3.5% in 2021 and by 3.1% in 2022. This forecast remains clouded by a high degree of uncertainty. While it might get support from a slightly better carryover effect from Q4 2020, it could also be negatively affected by the slower rollout of vaccinations and prolonged country and Europe wide restrictions reflecting higher levels of cases compared with earlier assumptions.

The Labour Market Has So Far Remained Relatively Strong Thanks To Previous Reforms And Government Support

The previous administration’s reform agenda was focused on addressing both Belgium’s weak trade competitiveness and the 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. At the end of 2019, the unemployment rate had fallen to 5.4%, its lowest level 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, somewhat constraining Belgium’s GDP potential. Possible lasting effects of the coronavirus crisis on the economy will also remain a critical theme going forward, particularly with regard to potentially higher structural unemployment or reduced production capacity derived from the likely rise in bankruptcies in the most affected sectors. However, such impact is only likely to start materialising from the second half of 2021, as until then, government funded temporary and targeted measures are likely to continue to support firms and households.

The government’s support measures, and particularly the temporary unemployment benefits for workers as well as the replacement income scheme for the self-employed, together with support measures for firms, have so far contained the transmission of the economic fallout to the labour market. The unemployment rate at the end of 2020 reached 5.8%, only marginally higher than a year before, and is expected by the NBB to peak at 7.4% at the end of 2021 before decreasing thereafter. Similarly, bankruptcy procedures have so far remained limited, with a decrease of 32% in 2020 compared to 2019, according to recently published data from the Belgian statistical office (Statbel). These are, nevertheless, likely to increase in coming quarters, as government measures continue to be wound down.

Belgium continues to benefit from a wealthy economy, with a GDP per capita level that is around 15% higher than the euro area average. The level of private sector savings is also sizeable. The aggregate net worth of Belgian households was above 650% of net disposable income at the end of 2019, among the highest of OECD countries, while their net financial assets represented 242% of GDP at the end of Q3 2020, the second highest level in Europe, behind the Netherlands. Aggregate high incomes and savings provide the Belgian economy with an important degree of resilience.

Fiscal and Debt Positions Have Deteriorated Significantly And Will Likely Remain Under Pressure For Some Time

Belgium entered the COVID-19 crisis with less fiscal space than many of its European peers, given its already high government debt level. The country’s fiscal deficit at the end of 2019 represented -1.9% of GDP, and left aside the negative effects of the pandemic was set to continue to deteriorate slowly in 2020 and 2021 without new fiscal measures being implemented. Given the economic contraction recorded in 2020, the automatic stabilisers and the additional fiscal measures implemented by the government throughout the year to limit the negative effect of COVID-19, the NBB considers that Belgium is likely to have recorded during the year a large fiscal deficit close to -10.1% of GDP.

Given that most of the fiscal measures implemented in 2020 and representing close to 5% of GDP are temporary, the deficit is expected to decline in 2021. Nevertheless, longer than anticipated economic restrictions and the likely supportive fiscal measures they will trigger, are likely to maintain pressure on fiscal accounts for longer than initially planned. In a no policy change scenario, the NBB’s latest December forecasts anticipate the fiscal deficit to remain at -6.8% in 2021 and at -5.7% in 2022, before widening again to -5.9% in 2023, mainly reflecting the persistent output loss from the pandemic and the possible lasting effects of the coronavirus crisis on some sectors of the economy, such as a structurally higher level of healthcare expenditure. Similarly, the government debt ratio is expected to have sharply increased in 2020. The NBB expects the debt ratio to have reached 116% in 2020, up from 98.1% in 2019 and to continue to increase slowly, up to 120% in 2023, in line with persistent deficits.

Despite this sharp deterioration, DBRS Morningstar highlights that Belgium, in line with other European countries, has fully benefited from the low interest rate environment supported by the European Central Bank’s (ECB) asset purchase programmes and more recently the pandemic emergency purchase programme, to continue to reduce its overall interest rate costs. The federal government interest expenditure represented a low 1.8% of GDP in 2020, down from 2.6% in 2015. This level is expected to decrease further in coming years, given the expected pickup in GDP and as bonds bearing higher cost mature while interest rates remain at a lower level for longer. DBRS Morningstar considers that despite the significant increase in the country’s debt metrics, Belgium’s debt affordability did not deteriorate in 2020. Nevertheless, higher debt metrics, particularly when compared to some European peers as well as the expected weaker fiscal performance limit the country’s future shock absorption capacity even if the country’s current debt structure limits interest volatility.

Belgium also maintained a sound public debt profile in 2020, maintaining the average life of its outstanding debt above 9.7 years, markedly longer than the 8.0 years recorded at the end of 2015. The country’s overall favourable public debt profile and sound debt structure continue to support DBRS Morningstar’s positive qualitative assessment of the ‘Debt and Liquidity’ building block.

The Formation Of A Government At The Federal Level Is Positive But Challenges Remain

Belgium’s institutions are robust, but forming a federal government has often proved difficult given existing frictions between the main linguistic groups (Flemish and Walloon) and the distribution of power between federal and regional levels. The federal elections held in May 2019 brought about a more fragmented federal parliament which took 493 days to form a new coalition government. DBRS Morningstar commented in October last year on the government formation. Please see the Commentary “Belgium: New Federal Government to Face Difficult Challenges” for more information.

The current seven-party coalition government led by Mr De Croo is likely to remain fragile going forward and its ability to deliver key reforms, particularly in the context of the Next Generation EU programme will be critical. DBRS Morningstar views positively decisive measures taken by the new government early on to curb the second wave of infections in the country, but negotiating and implementing medium and long-term policy measures is likely to prove a more challenging task. The deep and structural political divisions in the country, leading to lengthy processes of government formation and policy uncertainty weigh negatively on DBRS Morningstar’s qualitative assessment of the
‘Political Environment’ building block.

The Banking Sector Remains Well Positioned to Weather the COVID-19 Fallout

The Belgian banking sector entered the crisis with a generally resilient position. While low interest rates have weighed on banks’ interest margins in recent years, Belgian banks remain well capitalised, with liquidity levels well above the minimum requirements and their asset quality is sound. Despite the deterioration in banks’ operating environment in 2020 the full impact on asset quality remains uncertain. Nevertheless, relatively low exposure to sectors most affected by the pandemic and the sound starting position of the banking sector underpin its capacity to absorb potential future losses. In response to the current economic crisis, the NBB also released in March 2020 the countercyclical capital buffer, freeing up around EUR 1 billion (0.2% of GDP) worth of capital buffers to Belgian banks to cover potential credit risks. Nevertheless, so far and thanks to the government’s policy response, non-performing loans have remained low for the sector, at 2.0% of assets as of September 2020 (on a consolidated basis, i.e., including foreign exposures), below the level recorded in recent years.

Overall, risks to financial stability remain moderate, although private sector debt has continued to grow in 2020. Rising household demand for house purchases contributed to a steady, albeit moderate, rise in house prices. These factors have resulted in higher household debt, estimated at close to 67% of GDP at the end of Q3 2020. Nevertheless, Belgian households’ net financial assets position, at 312% of GDP during the same period, is 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 supervisory expectations for Belgian mortgage loans in 2019 (effective from 1 January 2020), with recommendations on loan-to-value (LTV) limits and limits for pockets of risk. Following these recommendations, LTVs above 90% at origination decreased throughout the first semester of 2020 while similarly, the share of new mortgage loans with maturities at origination greater than twenty years was also successfully reduced.

Belgium’s Net External Asset Position Remains Significant

Belgium is a strong external creditor, which provides a buffer against external shocks. Averaging 49% of GDP over the past five years, Belgium’s net international investment asset position is one of the highest in Europe. Belgium’s current account remained close to equilibrium in recent years with a small deficit in 2018-19 following a slight surplus in previous years. For 2020, the International Monetary Fund expects Belgium’s current account to be close to balance, improving slightly from the -1.2% deficit in 2019. While Belgium is a small economy, its extensive trade linkages throughout Europe continue to support 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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at:

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


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

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) Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021)

The sources of information used for this rating include the Ministry of Finance (Draft Budgetary Plan for 2021), National Bank of Belgium (Report 2020 - Economic and Financial developments, Economic Projections for Belgium Autumn 2020, Financial Stability Report 2020), Belgian Debt Agency (Updated 2021 financing requirements and funding plan), Federal Planning Bureau (Perspectives économiques 2020-2025, September 2020), the Belgian statistical office (Statbel), OECD, ECB, European Commission, Eurostat, IMF, World Bank, UNDP, BIS, Haver Analytics. The Social Progress Imperative (2020 Social Progress Index), Vision of Humanity (Institute for Economic and Peace: 2020 Global Peace Index). 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: DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage:

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

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Nicolas Fintzel, Senior Vice President, Global Sovereign Ratings
Rating Committee Chair: Nichola James, Managing Director, Co-Head of Sovereign Ratings, Global Sovereign Ratings
Initial Rating Date: November 11, 2011
Last Rating Date: August 14, 2020

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