Press Release

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

February 11, 2022

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 continues to reflect (1) the remaining uncertainty regarding the COVID-19 pandemic, although downside risks have recently receded; (2) new and rising inflationary pressures and their potential impact on the recovery; and (3) a better fiscal and debt position compared to earlier estimates but a medium-term outlook that remains challenging given the Belgian political context. DBRS Morningstar expects to obtain additional information on these risks and challenges in order to resolve its Negative trend on the ratings. This information could become available for example from developments in the health situation, inflation and wage data and/or Belgium's update of its Stability Programme.

Despite some more positive developments on the economic and fiscal fronts in recent months, DBRS Morningstar takes the view that Belgium’s medium-term fiscal outlook remains challenging. A further decline in the deficit after 2023 will require the Belgian government to implement credible measures to tackle rising structural expenditures, primarily related to the country’s ageing population and high and upward oriented social expenses. Implementing key policy decisions will remain a demanding task for the current seven-party coalition government. Despite these challenges, exacerbated by the country’s historical split between the Flemish northern and the Walloon southern linguistic groups and regions, Belgium benefits from a good track record of compromise-driven decision-making leading to sound budgetary consolidation and marked debt reductions. Historically, the country’s debt-to-gross domestic product (GDP) ratio decreased by about 50 percentage points (ppts) between 1993 and 2007 and by 9 ppts in the five years leading to the COVID-19 pandemic. While the gradual decline of the deficit remains the most likely scenario for DBRS Morningstar, gaining further clarity on Belgium’s medium-term economic and fiscal trajectory is among the factors needed for DBRS Morningstar to resolve its Negative trend on the country’s ratings.

The Negative trend continues to reflect some deterioration in Belgium’s “Fiscal Management and Policy”, “Debt and Liquidity” and “Economic Structure and Performance” building blocks of DBRS Morningstar’s Global Methodology for Rating Sovereign Governments. The ratings continue to be supported by the country’s wealthy and diversified economy, its strong net external asset position and its robust and credible institutional framework. These credit strengths counterbalance the challenges associated with high 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 strong economic recovery continues, 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.


Belgium’s Economic Recovery Has Been Strong

Belgium’s economic outlook has recently improved, given the stronger than anticipated recovery and a milder impact from the Omicron virus variant on activity. Nevertheless, uncertainty surrounding the COVID-19 pandemic remains, with the risk that new variants appear in coming quarters. After the economic contraction of 5.7% in 2020, Belgian GDP recorded a strong recovery last year of 6.1%, outperforming the National Bank of Belgium’s (NBB) real GDP growth forecast published in June 2021, which stood at 5.5%. For 2022, the NBB forecast from December foresees real GDP growth of 2.6% and 2.4% in 2023. Belgium’s growth is expected to be supported by a further increase in household consumption, while investment is likely to benefit from Next Generation EU (NGEU) programme funds over the coming years. The country is expected to receive close to EUR 6 billion from NGEU grants, 50% of which should be dedicated to the green transition. This direct support, together with expected spillovers to the private sector should provide a marginal boost to growth and could support the delivery of reforms over the medium-term.

The Labour Market Has Withstood Well the Shock But Wage Pressure Has Risen Significantly

The Belgian labour market entered the COVID-19 crisis on a solid footing, with the unemployment rate having fallen at the end of 2019 to 5.3%, its lowest level in four decades. While the impact of the pandemic on the labour market could have been very significant, it has so far remained limited. This relates to the strong economic recovery and the direct support measures implemented by the Belgian government. At the end of 2021, the unemployment rate reached 5.7%, only marginally higher than at the end of 2019. Nevertheless, some labour market rigidities and skills mismatches remain in Belgium, including the higher unemployment rate among non-EU immigrants and among young people, and a lower participation rate than in several neighbouring countries.

Over the last six months, wage pressures have dramatically increased in Belgium, driven by labour shortages, but also by the very swift increase in inflation in the second half of last year related to energy price increases and supply chain bottlenecks that added pressure on input prices. In December 2021 the annual inflation rate (HICP) reached 6.6% in Belgium and is estimated to have increased further to 8.5% on a year-on-year basis in January 2022. Most of the surge is energy driven, but core inflation which excludes food and energy, is also set to rise by 2.4% in 2022 according to the NBB, before decreasing thereafter. Higher inflation will translate into higher wages in Belgium – forecast to increase by 4.5% in 2022 by the NBB – which have a more direct transmission of price increases than its neighbouring countries, through the health index (a national benchmark for inflation). While this should support households’ purchasing power and maintain their propensity to consume throughout the year, it may also weigh on Belgium’s labour cost competitiveness. The NBB nevertheless expects part of the wage increase to be absorbed by firms’ profit margins, which should limit second round effects on core inflation and, under current assumptions, any wage gap with neighbouring countries should decline by 2024 as these countries implement, with some delays, inflation-linked pay rises. DBRS Morningstar takes the view that the level of inflation, and particularly that of energy prices, will remain key in coming months, as it may affect the economic recovery.

Public Finances Have Started to Improve But the Medium-Term Fiscal Outlook Remains Challenging

In line with the large fiscal stimulus implemented by the Belgian government to face the economic shock related to COVID-19, the country’s fiscal deficit widened significantly in 2020, to 9.1% of GDP from a deficit of 1.9% in 2019. In 2021, the strong economic recovery and the winding down of some of the fiscal measures implemented by the government to tackle the pandemic have prompted a marginally faster decline in the deficit than initially foreseen. The latest NBB projections anticipate a deficit of 6.3% of Belgian GDP, lower than the 6.8% expected six months ago, and decreasing further to 4.2% in 2022. While DBRS Morningstar views positively the expected pace of the fiscal rebalancing until the end of this year, it considers that most of the consolidation will be cyclical. As a result, significant uncertainty remains from 2023 onwards. In a no policy change scenario, the NBB anticipates that the deficit would stabilise at around 4.0% in 2023 before widening again from 2024 and in subsequent years, mainly reflecting the upward trend in structural expenditure related to healthcare and pensions.

On the debt front, while the country’s debt-to-GDP ratio was expected at the onset of the crisis to peak at close to 120% in 2020 from 97.7% in 2019, it ended up at 112.8% and is set to decline to around 107% by the end of 2022. Nonetheless, without firm policy actions from the government to reduce the deficit further in 2023, the country’s debt ratio would reverse its downward trend and start increasing from the end of next year. DBRS Morningstar will continue to monitor the ability of Belgium to place its debt-to-GDP ratio on a firm downward trend over the medium-term, a key feature to support the country’s credit profile.

Debt Profile and Affordability Metrics Remain Very Strong

Despite the marked increase in its debt levels in 2020, DBRS Morningstar highlights that, in line with other European countries, Belgium has fully benefited from the low interest rate environment supported by the ECB’s asset purchase programmes and pandemic emergency purchase programme (PEPP), to continue to reduce its overall interest rate costs. The federal government interest expenditure declined to an estimated new low of 1.4% of GDP in 2021, down from 3.2% in 2012 and from 1.8% in 2019. The government expects interest costs to decrease further in coming years falling to around 1.2% of GDP during the 2022-24 period, related to the expected continued increase in GDP and as bonds bearing higher cost mature while interest rates remain very low. DBRS Morningstar takes the view that despite the significant increase in the country’s debt metrics in 2020, Belgium’s debt affordability has remained very strong so far. Nevertheless, higher debt metrics, particularly when compared to some European peers, as well as the uncertainty surrounding the medium-term fiscal performance, limit the country’s future shock absorption capacity

Belgium maintains a sound public debt profile. The country extended the average life of its outstanding debt to more than 10.1 years in 2021, markedly longer than the 7.1 years recorded at the end of 2012 (2019: 9.8 years). 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.

Ability to Deliver Policy Measures Will be Key for the Relatively Fragile Coalition Government

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 2019 brought about a more fragmented federal parliament which took 493 days to form a new coalition government in October 2020. DBRS Morningstar considers that the current seven-party coalition government led by Mr De Croo is likely to remain fragile. Nevertheless, the government’s ability to implement key policy measures and reforms will be critical for Belgium to deliver on a gradual rebalancing of its public finances over the medium-term.

While the government’s COVID-related measures have been effective in supporting the economy and limiting the extent of the shock, negotiating and implementing medium-term fiscal policies is likely to prove a more challenging task. Overall, 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 Strong and Well Positioned to Continue to Weather the COVID-19 Fallout

While some uncertainty remains, the COVID-19 fallout on the Belgian banking sector’s asset quality has so far been limited and the relatively low exposure to sectors most affected by the pandemic as well as the sound starting position of the banking sector underpin its capacity to absorb potential future losses. Total non-performing loans (consolidated data) have remained very low at 1.6% as of September 2021, below the level recorded in the years leading to the pandemic. The level of loans to non-financial corporations with forbearance measures (loans for which there have been modifications of the contract or debt refinancing) has nevertheless increased to about 4% of total loans at the end of Q3 2021 from about 2% at the end of Q2 2020, reflecting the support provided by the banking sector to Belgian firms. In addition, Belgian prudential authorities have released EUR 6 billion of capital buffers for Belgian banks since the beginning of the crisis to support the build-up of provisions in the sector, maintain ongoing lending activities and provide sustainable solutions to borrowers facing difficulties. At the end of September 2021, Belgian banks had around EUR 23.5 billion of usable (free) capital, substantially higher than the EUR 14.9 billion at the end of 2019.

Overall, risks to financial stability remain moderate, although private sector debt, particularly mortgages have continued to increase since the beginning of 2020. Increasing household demand for house purchases contributed to a steady rise in house prices. The NBB’s model suggests that the residential real estate market had an average level of overvaluation of 14% in 2020. These factors have resulted in marginally higher household debt, at 63% of GDP at the end of Q3 2021, up from 61% at the end of 2019. 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. The NBB adopted supervisory expectations for Belgian mortgage loans, with recommendations on loan-to-value (LTV) limits and limits for pockets of risk. Following these recommendations, LTVs above 80% at origination continued to decrease throughout 2020 and H1 2021 while similarly, the share of new mortgage loans with maturities at origination greater than twenty five years was also reduced.

Belgium’s Net External Asset Position Remains Significant

Belgium is a strong external creditor, which provides a buffer against external shocks. Averaging 47% of GDP over the past five years, Belgium’s net international investment asset position is one of the highest in Europe. According to the NBB, Belgium’s current account remained slightly positive in 2020 with a surplus of 0.8% of GDP and is expected to amount to around 1% of GDP over the 2021-24 period. 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.


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 9, 2021). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021).

The sources of information used for this rating include the National Bank of Belgium (Financial Stability Report 2021, Economic Projections for Belgium December 2021), Belgian Debt Agency (Economy & Public Finances Debt Management Strategy in 2022), the European Commission (EU Climate Action Progress Report), the Belgian statistical office (Statbel), the Social Progress Imperative (2020 Social Progress Index), Vision of Humanity (Institute for Economic and Peace: 2021 Global Peace Index), OECD, ECB, 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.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit 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 13, 2021

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