Belgium: IMF Executive Board Concludes 2018 Article IV Consultation

March 8, 2018

On March 7, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Belgium.

The economic recovery is gaining momentum, with real GDP growth expected to approach 2 percent this year after an estimated 1.7 percent in 2017. It is driven by strong investment and solid consumption growth, and supported by favorable financial conditions as well as a strengthening recovery throughout Europe. Employment growth has picked up, thanks in part to past reform efforts. The fiscal position has improved, reflecting a mix of cyclical, structural, and one-off factors. The medium-term outlook, however, remains subdued in the absence of further structural reforms to raise potential growth, and subject to both external and domestic risks.

Against this favorable economic context, the governing center-right coalition is making another reform push, agreeing on a new package of tax and labor market measures. The centerpiece of the agreement is a reform of the corporate income tax system, designed to promote investment by lowering the comparatively high statutory rate while broadening the tax base to preserve revenue neutrality.

Looking ahead, Belgium faces challenges on several fronts. Notwithstanding the strong fiscal outturn in 2017, fiscal consolidation remains a priority given the high level of public debt that has only just started to decline. Achieving the government’s goal of structural balance will require significant efforts to make spending more efficient while safeguarding revenues. Another important challenge is raising Belgium’s productivity growth, which has lagged peers, in part reflecting sectoral shifts common to many advanced economies, but also underinvestment in infrastructure and lack of competition in some service sectors. Despite recent employment gains, the labor market remains fragmented, as evidenced by entrenched high unemployment among certain groups and significant regional disparities.

While the soundness of the financial sector has improved considerably since the crisis, cyclical vulnerabilities are rising, and there are pockets of vulnerability in the housing market. The banking sector faces the challenge of adapting to a changing economic, technological, and regulatory environment. The transition toward a full European Banking Union is another important issue to be navigated by banks and supervisors.

Executive Board Assessment [2]

The Executive Directors commended the Belgian authorities for their reform efforts which have contributed to a strengthening of economic recovery, a pickup in employment growth, and a significant reduction of the fiscal deficit. Directors encouraged the authorities to take advantage of the current favorable economic conditions to push ahead with additional reforms to enhance the resilience and long term growth potential of the economy.

Directors agreed that gradual fiscal consolidation remains a priority in light of the high level of public debt. They emphasized the need for deeper reforms to make public spending more efficient, which will require coordination and participation across all levels of government.

Directors welcomed the reform of the corporate income tax system, which should help boost investment while broadening the tax base. They saw scope for additional reforms to address remaining distortions in the tax system and safeguard revenues in the context of the next phases of the tax shift.

Directors stressed that raising Belgium’s rate of productivity growth is important to improve external competitiveness and mitigate the impact of population aging on potential growth. To this end, they encouraged the authorities to increase investment in transport infrastructure, enhance competition in services, and foster innovation.

Directors observed that the fragmentation of the labor market prevents Belgium from realizing its full employment and growth potential. To better integrate vulnerable groups, Directors highlighted the need to address educational gaps, improve on the job training, and reduce barriers to geographical mobility. They noted that the wage setting process should take into account not only comparator country wages but also productivity developments and broader labor market conditions in Belgium.

Directors welcomed the improved soundness of the financial sector, but noted that cyclical risks are rising, including growing pockets of vulnerability in the housing market and rising corporate debt. They supported enhancing the central bank’s ability to deploy macroprudential measures in a timely manner when warranted by rising balance sheet risks in the financial sector. Directors emphasized that the financial sector should continue to adapt to economic, technological, and regulatory changes. They encouraged the authorities to carefully navigate the transition to a full European Banking Union, including by continued close supervision of systemically important subsidiaries of euro area banks operating in Belgium.

Belgium: Selected Economic Indicators, 2014−19
Est. Projections
2015 2016 2017 2018 2019
(Percent change, unless otherwise indicated)
Real economy
Real GDP 1.4 1.5 1.7 1.9 1.7
Domestic demand 1.4 2.1 1.4 1.8 1.7
Private consumption 0.9 1.7 1.1 1.4 1.6
Public consumption 0.5 0.5 0.7 0.7 0.6
Gross fixed investment 2.7 3.6 1.1 3.7 3.2
Stockbuilding1 0.2 0.2 0.4 0 0
Foreign balance1 0 -0.6 0.3 0.1 0
Exports, goods and services 3.3 7.5 4.5 4.7 4
Imports, goods and services 3.3 8.4 4.3 4.6 4.1
Household saving ratio 11.9 11.2 11.6 12.3 12.3
Potential output growth 1.2 1.2 1.4 1.5 1.5
Potential output growth per working age person 1 1.1 1.1 1.4 1.5
Output gap (in percent) -0.8 -0.6 -0.3 0.1 0.3
Unemployment rate (in percent) 8.5 7.9 7.3 7 6.8
Employment growth 0.9 1.2 1.2 1.1 0.9
Consumer prices 0.6 1.8 2.2 1.6 1.8
GDP deflator 1.1 1.6 1.8 1.6 1.7
(Percent of GDP; unless otherwise indicated)
Public finance
Revenue 51.3 50.7 51.1 50.4 50.1
Expenditure 53.8 53.2 52.3 51.7 51.4
General government balance -2.5 -2.5 -1.2 -1.3 -1.3
Structural balance -2.2 -2.2 -1.1 -1.4 -1.5
Structural primary balance 0.8 0.7 1.5 0.9 0.7
Primary balance 0.6 0.4 1.4 1 0.8
General government debt 106 105.7 103.3 101.1 99.1
Balance of payments
Goods and services balance 1.7 1.3 1 1.1 1
Current account -0.1 0.1 0.1 0.3 0.2
Exchange rates
Euro per U.S. dollar, period average 2/ 0.9 0.9 0.8
NEER, ULC-styled (2005=100) 2/ 97.9 98.9 101.3
REER, ULC-based (2005=100) 2/ 98.3 98.5 105
Memorandum items
Gross national savings (in percent of GDP) 23.4 24 23.9 24.5 24.8
Gross national investment (in percent of GDP) 23.6 23.9 23.8 24.1 24.5
Nominal GDP (in billions of euros) 410.4 423 438.1 453.5 468.8
Population (in millions) 11.2 11.3 11.4 11.4 11.5
Sources: Haver Analytics, Belgian authorities, and IMF staff projections.
1 Contribution to GDP growth.
2 As of December 2017.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:

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