Press Release

DBRS Morningstar Downgrades the Kingdom of Belgium to AA, Trend Changed to Stable

August 12, 2022

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


The downgrade reflects DBRS Morningstar’s assessment that the government’s budgetary pressures will remain somewhat elevated over the next years, with the fiscal deficit keeping the debt ratio at a high level. Budgetary pressures, together with the absence of a clear fiscal strategy, pose a challenge to the medium-term fiscal outlook. While in the near-term the fiscal position has improved, reflecting the decrease of COVID-19-related budgetary pressures, the government’s budget deficits are projected to remain relatively large over the medium-term. The National Bank of Belgium (NBB) forecasts the general government’s budget deficit at 4.5% of GDP in 2023 and 5.0% in 2024 compared to 4.5% in 2022. The modest deterioration in the budget balance between 2022 and 2024 results largely from structural factors such as population ageing, rising public sector employment and increases in certain social benefits. Although the seven political parties in the coalition government have agreed to an annual fiscal adjustment of 0.2% of GDP in their coalition treaty, the government has not embarked on a medium-term fiscal strategy to address budgetary pressures in a structural manner. Deteriorations in DBRS Morningstar’s building blocks of “Fiscal Management and Policy” and “Debt and Liquidity” are the key factors for the downgrade.

DBRS Morningstar understands that the adoption of a clear fiscal consolidation strategy prior to the next general elections in 2024 is currently impeded by a lack of consensus within the heterogenous seven-party coalition government on the future path for fiscal policy. Current fiscal settings are unlikely to reverse the sharp increase in government debt after the COVID-19 shock. Instead, the NBB forecasts a moderate increase in the general government debt-to-GDP ratio to 110.9% by end 2024 from 108.2% at end 2021 and compared to a pre-Covid debt ratio of 97.7% at end 2019. Furthermore, similar to other EU economies, public finances in Belgium are currently exposed to the major downside risk of a prolonged gas supply shock which would likely necessitate additional energy-support measures beyond 2022.

Despite the challenging medium-term fiscal outlook, DBRS Morningstar regards the trend on the ratings as Stable. The ratings are supported at the current levels by important credit strengths. These include Belgium’s wealthy and diversified economy, its strong net external asset position, large household savings and a high institutional quality. 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 could occur if the government narrows its budget deficit in a structural manner and the public debt ratio starts to follow a clear downward path. A downgrade could occur if growth prospects or the budgetary outlook deteriorate markedly and the public debt ratio rises much faster than currently expected.


Government Budget Deficit Projected to Remain Large In The Medium-Term In the Absence of Additional Fiscal Consolidation

While public finances are being supported by temporary factors in 2022, the government’s structural budget deficit is projected to remain elevated over the next years. In terms of the ongoing fiscal year, economic projections released by the NBB in June 2022 forecast a moderate narrowing of the general government budget deficit to a still large 4.5% of GDP in 2022 from 5.5% in 2021. This narrowing results from an upswing in nominal tax revenues on the back of high inflationary pressures and still strong employment growth. Nominal tax revenues rose by a large 16.4% on a year-on-year basis during the first six months of 2022, driven by higher revenues from wage taxes and VAT. In addition, COVID-19-related budgetary pressures have further subsided in the ongoing fiscal year with the size of COVID-19-support measures projected to decrease to around 0.7% of GDP in 2022 from 2.7% in 2021. This decrease has more than offset higher energy-related support needs. In response to the strong increase of energy prices since early 2022, the government has adopted several fiscal measures which aim at lowering the energy price burden for households (e.g. temporary reduction of VAT on electricity and gas, reduction of excise duty on petrol and diesel, heating grants). The fiscal cost of these energy-support measures, which are currently planned to be phased out by the end of this year, is estimated at 0.7% of GDP in 2022.

Despite the moderate improvement of fiscal metrics in 2022, DBRS Morningstar views the medium-term fiscal outlook as challenging for two main reasons. First, the risks for public finances are tilted to the downside as a potential prolonged gas energy supply shock to EU economies might necessitate additional energy-related fiscal support measures beyond 2022. Second, current fiscal policy settings are unlikely to ease budgetary pressures in the medium-term. While the coalition agreement of the current seven-party government commits to an annual fiscal consolidation effort of 0.2% of GDP, projections by the NBB on the basis of currently implemented policies forecast the general government budget deficit at 4.5% of GDP in 2023 and 5.0% in 2024. The moderate widening of the deficit between 2022 and 2024 results primarily from structural factors such as population ageing (pensions, health care), rising public sector employment and increases in certain social benefits (minimum pensions, social assistance). Therefore, a lasting reduction of the government’s large structural deficit would require the implementation of additional fiscal consolidation measures. However, DBRS Morningstar understands that the adoption of more far-reaching fiscal consolidation measures is currently impeded by a lack of consensus on the future path on fiscal policy within the heterogenous government coalition.

Government Debt is High And Projected To Increase Over The Next Years

The government’s high debt burden is an important credit weakness. Furthermore, after benefiting from favourable one-off factors in 2021 and 2022, the government debt-to-GDP ratio is projected to start rising again from 2023 onwards due to the government’s large primary budget deficits. The government debt burden had increased markedly due to the COVID-19-shock from 97.7% of GDP at end 2019 to 112.8% at end 2020. This increase was partially reversed over the past year as the economy’s strong growth rebound boosted nominal GDP. As a result, the debt-to-GDP ratio decreased to 108.2% at end 2021, notwithstanding a still large government budget deficit. In a similar vein, the NBB currently forecasts a further decrease of government debt to 105.3% at end 2022 as the strong increase in the economy’s GDP deflator is projected to raise nominal GDP markedly. From next year onward, however, government debt dynamics are expected to reverse as the government’s budget deficits are projected to remain large and the temporary impacts of the COVID-growth rebound and high inflation fade. NBB forecasts government debt to rise to 107.9% of GDP at end 2023 and 110.9% at end 2024.

Over the past years, debt affordability has been supported by a low interest rate environment. While the recent increase in nominal interest rates is projected to raise interest expenditures modestly to 1.7% of GDP in 2024 from 1.5% in 2022, the overall size of the interest burden remains moderate. In terms of interest rate risk, the government also benefits from a comparatively long average tenor of government debt. The government has extended debt maturities in recent years in order to lock in historically low rates. The average maturity of the central government debt was 10.6 years in July 2022 up from 8.0 years in December 2015.

Economy Recovered Strongly From COVID-19-Shock But Economic Headwinds Have Increased In Recent Months

The Belgian economy recovered strongly from the COVID-19 pandemic over the past year. Real GDP expanded by 6.2% in 2021 following a contraction of 5.7% in 2020 as the reopening of the economy bolstered private consumption and investment. Furthermore, the increase in global economic activity raised external demand for Belgium’s exports. On the supply side, growth was driven by manufacturing, wholesale and retail trade and business services. Over the past months, however, the economy’s growth performance has weakened. Russia’s invasion of Ukraine and the accompanying increase in inflationary pressures weighed on the economic sentiments of consumers and, to a lesser extent, businesses. Annual inflation (flash estimate HICP) stood at a high 10.4% in July 2022, driven by large increases in energy prices (+55.1%). According to flash estimates by the NBB, real GDP increased by a mere 0.2% in Q2 2022 on a quarter-on-quarter basis compared to a growth rate of 0.5% in Q1 2022.

Economic projections by NBB from June 2022 forecast annual real GDP growth of 2.4% in 2022 and 1.5% in 2023. The 2022 real GDP growth forecast, however, largely reflects a positive carry-over effect due to last year’s low bases particularly during the first half of the year. Instead, current growth dynamics are assumed to be sluggish during much of the remainder of 2022 and to pick up modestly in 2023 on the back of rising purchasing power by households. The latter results from the (time-delayed) indexation of wages to the health index, a measure of consumer price inflation, which is projected to raise real wages markedly in 2023. While the indexation of wages supports private consumption, it is likely to weaken the external price competitiveness of Belgian exporters due to a comparatively large increase in labour costs. Furthermore, similar to other EU economies, the Belgian economy is exposed to the major downside risk of a potential prolonged cutoff of Russian gas supplies to EU countries particularly during the upcoming winter. Although Belgium imports gas primarily from the Netherlands and Norway, a potential cutoff in Russian gas supplies would likely lead to adverse spillover effects for the Belgian economy by aggravating energy price inflation and curtailing industrial production in important trading partner economies.

High Institutional Strength But Fragmentation of Domestic Political Landscape Impedes Structural Policy Changes

Belgium’s ratings are supported by a high institutional strength as the country is characterised by a high rule of law, low levels of corruption and stable political and economic institutions. At the same time, the domestic political landscape is fragmented between the main linguistic groups (Flemish and Walloon) and across the political spectrum. This fragmentation has delayed government formation in the past. The current seven-party coalition government was formed in October 2020, 17 months after the May 2019 federal elections. DBRS Morningstar considers that the current seven-party coalition led by Mr De Croo is likely to remain fragile in the runup to the next federal elections in 2024 as it comprises parties from a broad range of the political spectrum. This heterogenous political composition of the government has impeded the implementation of structural reforms over the past years particularly with regard to fiscal policy (e.g. tax reform, fiscal consolidation). Overall, the deep and structural political divisions in the country, leading to lengthy processes of government formation and a gridlock in certain policy areas weigh negatively on DBRS Morningstar’s qualitative assessment of the ‘Political Environment’ building block.

Financial Stability Supported By Sound Financial Condition of Banking Sector And Large Household Savings

The financial condition of the domestic banking sector is sound. The COVID-19 shock has led to pockets of vulnerability but overall asset quality remains strong. The sector-wide NPL ratio decreased to 1.5% in March 2022 from 2.1% in December 2019. This can partially be ascribed to large government COVID-19 support measures which aided the financial positions of households and businesses. A weakening of asset quality has been observable for selected non-financial industries (e.g. food and accommodation, entertainment). The stock of (performing) loans to non-financial corporates which have been subject to forbearance measures (e.g. payment holidays, rescheduling) rose to 2.6% in March 2022 from 0.6% in December 2019. These loans could present a risk to future asset quality as part of these loans might translate into non-performing exposures in the future. DBRS Morningstar takes a conservative approach to the financial risks faced by the banking sector and applies a negative qualitative assessment to the ‘Monetary Policy and Financial Stability’ building block.

At the same time, DBRS Morningstar views the banking sector’s good capital buffers as an important cushion against some weakening in asset quality. The average Tier 1 capital ratio stood at a strong 17.9% in March 2022, up from 16.7% in December 2019. With household mortgage loans representing 34% of total domestic loans, a potential correction of housing prices constitutes an important asset quality risk. However, DBRS Morningstar notes that the increases in residential housing prices in Belgium over the past years has been much less pronounced than in most other advanced economies. According to the OECD, residential housing prices in Belgium rose by 30.3% between December 2015 and March 2022 compared to an average growth of rate of 55.0% among OECD countries. Furthermore, the repayment capacity of most household borrowers is supported by large household assets. The aggregate net worth of households in Belgium stood at a large 238% of GDP at end 2021 compared to an average of 170% for the total Euro area.

External Finances Benefit From A Large Net External Asset Position

The terms of trade for the Belgian economy have deteriorated in recent months due to the strong price increases of energy imports, particularly oil and gas. As a result, the Federal Planning Bureau forecasts the current account deficit to widen from 0.4% of GDP in 2021 to 3.1% in 2022 before moderating to 1.8% in 2023. Despite this temporary widening of the current account deficit, DBRS Morningstar continues to view Belgium’s external position as strong due to the economy’s large net external creditor position. Belgium’s net international investment position amounted to 53.1% of GDP in March 2022 which is one of the highest among EU countries. Belgium’s net external creditor position results primarily from large net assets in portfolio investment (39.1% of GDP) and, to a lesser extent, direct investment (16.0%). 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.


There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis

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 at:


All figures are in 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 (9 July 2021) Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022)

The sources of information used for this rating include Belgium Ministry of Finance (Belgian Stability Programme 2022-2025), Belgian Debt Agency (Economy & Public Finances Debt Management Strategy in 2022), Federal Planning Bureau (Economische vooruitzichten 2022-2027, Juni 2022), National Bank of Belgium (Economic projections for Belgium – June 2022, Financial Stability Report 2022, Database), Statbel, Eurostat, European Commission (European Economic Forecast, Summer 2022), Statistical Office of the European Communities, European Central Bank, OECD (Housing Prices), BIS, IMF (World Economic Outlook April 2022), IMF (International Financial Statistics), World Bank, Global Carbon Project, Social Progress Index, Global Peace Index, World Economic Forum, 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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: Yesenn El-Radhi, Vice President, Global Sovereign Ratings
Rating Committee Chair: Nichola James, Managing Director, Co-Head of Sovereign Ratings, Global Sovereign Ratings
Initial Rating Date: 11 November 2011
Last Rating Date: 11 February 2022

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