## 1belea2023005

## Source details

**Canonical URL:** [1belea2023005](https://www.imf.org/-/media/files/publications/cr/2023/english/1belea2023005.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2023/english/1belea2023005.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2023/english/1belea2023005.pdf.json)

---

### The Twin Crises Have Worsened Public Finances — Key developments and current fiscal outlook
- Belgium entered the pandemic with debt-to-GDP "just below 100 percent in 2019."
- Timely and forceful fiscal measures in 2020-21 widened the fiscal deficit and increased public debt significantly; the energy crisis after February 2022 triggered a further structural deterioration of public finances.
- Among high-debt euro area countries (debt-to-GDP ratio above 100 percent), Belgium experienced the largest increase in the structural primary deficit, "by about 2 ppts" compared to a pre-pandemic counter-factual.
- Under staff’s baseline projections assuming unchanged policies:
  - The fiscal deficit (net lending/borrowing) is expected to rise from "3.5 percent of GDP in 2022" to "about 5½ percent of GDP in 2028."
  - Public debt will rise to "about 115 percent of GDP in 2028."
  - Debt service costs are expected to rise from "1.5 percent of GDP in 2022" to "1.8-2.7 percent of GDP in 2023-28."
  - Public gross financing needs are expected to increase to "21 percent of GDP in 2028" from "16 percent of GDP in 2022."
- Belgium’s government bonds had an average residual maturity of "10.9 years in 2022."

### Fiscal positions by government level and regional heterogeneity
- Federal government:
  - Fiscal deficit narrowed to "2.6 percent of GDP in 2022" from "7.1 percent in 2020," but remained above "1.9 percent in 2019."
  - Public debt moderated to "86 percent of GDP in 2022" from "93 percent of GDP in 2020," but remained "3.7 ppts higher than the pre-pandemic ratio in 2019."
- Communities and regions:
  - Overall deficit declined to "0.9 percent of GDP in 2022" from "2.2 percent of GDP in 2020," but remained above "0.2 percent of GDP in 2019."
  - Public debt of communities and regions: "17.3 percent of GDP or €95.8 billion" in 2022.
  - Communities and regions' share of total public debt rose to "16.6 percent of total public debt (104.3 percent of GDP or €578.1 billion) in 2022."
  - Measured by debt-to-total revenue ratio in 2022, debt burden ranged from "50-60 percent in Flanders and French Communities" to "205-210 percent in Wallonia and Brussels (Brussels-Capital Region)."
- Regional and community fiscal positions worsened due to the pandemic and energy price shock; Wallonia faced additional pressures from 2021 floods and reconstruction needs.

### Structural and institutional constraints to consolidation
- Fiscal decentralization progressed in 2015-19, with devolution of expenditure responsibilities outpacing revenue authority.
- Belgium’s institutional setting: no legal hierarchy among federal, regional, and community governments; governments at all levels are equal and have specific powers and competencies.
- A 2013 Cooperative Agreement to ensure budgetary coordination between levels of government "was not implemented in practice."
- The political and institutional context increases difficulty of budgetary efforts and complicates coordinated fiscal consolidation.

### Rationale for fiscal consolidation and strategic priorities
- Primary objectives:
  - Lower inflation: headline inflation fell "to 0.7 y/y in September 2023" while core inflation remained high at "6.7 percent y/y in September 2023."
  - Rebuild buffers eroded by the pandemic and energy crisis to address aging-related spending pressures and future shocks.
  - Reduce debt and vulnerabilities from rising debt service costs and financing risks.
  - Preserve Belgium’s social contract by safeguarding redistribution and the social safety net.
- Additional pressures and projections:
  - Aging costs projected at "+0.3 ppt of GDP per year from 2022-70" (based on FPB Study Committee on Aging projections).
  - Other rising spending demands include defense outlays and capital investment for the green transition.
  - Without policy change, WEO baseline projects the structural primary deficit falling only from "—3.1 percent of GDP in 2023" to "2.8 percent of GDP in 2028," insufficient to stabilize debt.
  - Compared to 2019, Belgium’s structural primary deficit widened by "2 percentage points of GDP," contributing to an increase in public debt-to-GDP of "about 8 percentage points by 2023."
- Strategic priorities for consolidation:
  - Be ambitious and ideally front-loaded to achieve a medium-term structural balance and reduce public debt toward the "60 percent debt threshold."
  - Share the burden across all federal entities in a coordinated manner with accountability at all levels.
  - Rely on comprehensive spending reviews to target budgetary savings.
  - Preserve public investment to mitigate short-term growth impacts and support potential growth.
  - Couple consolidation with structural reforms to increase labor force participation and productivity.

### Lessons from other large consolidations and implications for Belgium
- Success factors in other cases:
  - High income levels; favorable global and domestic environment; strong track record in fiscal management; broad-based political support; a credible medium-term fiscal framework; transparency with realistic macro-forecasts and public debate.
- Typical magnitude and duration:
  - Improving the cyclically-adjusted primary balance by 1-2 percent of GDP per year for 3-4 years appears relatively common.
- Composition:
  - Successful consolidations generally require both revenue and expenditure measures; case studies suggest they were driven more by spending cuts and to a lesser extent by revenue increases.
- Belgium’s past consolidations:
  - 1982-87: mainly cutting primary expenditures.
  - 1993-98: raising revenues and reducing the interest burden.
  - 2011-17: cutting expenditure and further reducing interest costs.
  - Debt peaked close to 140 percent of GDP in 1993 and declined to 87 percent of GDP in 2007.
- Near-term projection under unchanged policy:
  - Debt-to-GDP ratio is projected to increase in 2023-28, due largely to a high primary deficit (-2.6 percent of GDP).
  - Real GDP growth projected to slow to its potential of about 1.2 percent over the medium term.
  - Stabilizing the debt ratio implies reducing primary deficits to near zero (the debt stabilizing primary balance is -0.4 percent of GDP in 2028).

### Trade-offs, adjustment paths, and consistency with EU rules
- EC’s proposed 4- or 7-year horizons would require deficit below 3 percent of GDP and debt at the end of the adjustment period to be lower and continue on a downward path or stay at prudent levels for another 10 years; for Belgium this could leave debt above 60 percent of GDP.
- Ambitious adjustment to reach 60 percent of GDP:
  - Would require an adjustment of 0.6 percent of GDP in 2024 and 0.8 percent of GDP (or more) annually from 2025 to reach structural balance in 2030.
  - The adjustment translates into a cumulative reduction in the structural balance of about 5½ ppts of GDP in 2024-30.
  - Without revenue mobilization, this would require a cumulative permanent primary expenditure reduction of 5½ ppts of GDP.
  - Achievable by limiting nominal spending growth to an average of 1.3 percent annually in 2025-2030.
  - Growth implications: growth would be about 0.2 ppt lower than in the baseline for a small open economy with relatively large automatic stabilizers—absent reforms to increase productivity.
- Consistency with Belgium’s Stability Program:
  - Broadly consistent with the three-year adjustment path for 2024-26 in Belgium’s 2023-26 Stability Program, with additional adjustment to reach structural balance in 2030.
  - The cumulative adjustment would more than offset the estimated increase in aging outlays of 4 ppts of GDP (2022-41).
  - Debt-to-GDP ratio would decline steadily towards 60 percent of GDP by the early 2040s under this path.

### Composition of spending and where savings can be achieved
- Overall approach:
  - Adjustment will need to rely mostly on reducing spending rather than increasing revenues due to Belgium’s high level of taxation.
  - Efficiency-enhancing tax reforms should proceed, but high spending offers opportunities for savings and increases in efficiency.
- Current spending pressures and levels:
  - General government spending was 53 percent of GDP in 2022.
  - Major spending categories: social outlays (25 percent of GDP), the wage bill (12 percent of GDP), and subsidies (4 percent of GDP).
  - Primary expenditure in 2022 was higher by 1.7 percentage points of GDP compared to 2019; with no policy changes, primary expenditure is expected to increase by another 2.3 ppt in 2023-28.
  - Social benefits increased by 0.8 ppt of GDP in 2019-22 and likely to increase by another 2.0 ppt in 2023-28.
  - Compared to pre-pandemic projection (January 2020 WEO forecast), primary expenditure is about 1 ppt higher in 2022 and 2 ppt higher in 2025; a large part of the 2025 increase is social benefits at 0.9 ppt higher than pre-pandemic projection.
  - NBB (2023) indicates the inflation surge structurally increases fiscal deficits by about 1.4 percent of GDP by 2025; about one half of primary expenditure items are automatically linked to the rise in the health index following CPI increase.
- Cross-country comparisons:
  - Belgium spent more than the average of its EU-14 peers since 1996 across key functions and by spending type: social benefits, wages, and subsidies—three key areas for potential savings.
  - Heatmap finding: Belgium’s social benefits spending was 5.2 ppt of GDP higher in 2021 than the average of EU advanced economies; this positive gap is equivalent to one-fifth of Belgium’s current social benefits outlays (26 percent of GDP).

### Efficiency and targeted measures
- Social protection:
  - Social protection spending was 27 percent of GDP with a social protection efficiency score slightly above the peer average.
  - Scope exists to reduce spending to about 24 percent of GDP while maintaining current efficiency score.
  - Means-testing share of total social protection spending was 16.7 percent in Belgium as of 2017, among the lowest in Europe (comparators: U.K. 64.4 percent, Ireland 62.5 percent, Netherlands 59.5 percent).
  - Disability benefits recipients increased to about 5½ percent of the population in 2018 from slightly above 3 percent ten years earlier.
- Public wage bill:
  - Savings could be achieved via a review of automatic wage indexation, functional reviews, comparisons of the number of public employees to other countries, and examination of public-sector wages relative to the private sector.

### Regional level, decentralization, and policy implications
- With further decentralization since 2015, communities and regions now account for close to 40 percent of general government expenditure.
- By function, 90 percent of spending in education and more than half of spending in environmental protection, economic affairs, and housing and communities are implemented at the level of communities, regions, and local authorities.
- Four functions—education, social protection, economic affairs, and general public services—made up close to 90 percent of spending by state (regional and community) governments.
- Consolidation should focus on controlling increases in wage and social benefit outlays at the regional level and on reducing federal-regional duplication.

### Fiscal consolidation principles, governance, and tools
- Fiscal consolidation objectives and targets:
  - The federal government’s 2024 draft budget seeks to reduce the overall deficit to 4.2 percent of GDP for 2024.
  - Belgium’s 2023-26 stability program aims to reduce the deficit to 3.3 percent and 2.9 percent of GDP in 2025 and 2026, respectively.
  - The 2024 combined budget of regions and communities planned a deficit 0.4 ppt of GDP larger than the target of -1.1 percent of GDP.
- Coordination, burden sharing, and accountability:
  - Deficit reduction plans should be underpinned by concrete adjustment efforts by all federal entities.
  - Regions and communities should implement spending limits consistent with their deficits.
  - Regional governments targeting a return to balanced-budget positions should accompany this with concrete adjustment plans, a binding timeframe, and obligations to make up adjustment slippages in subsequent years.
  - Improving federal and regional coordination may require reinvigoration and implementation of the 2013 Cooperative Agreement.
- Multi-year consolidation plan:
  - Adopt a credible, multi-year consolidation plan to avoid ad hoc adjustments, reduce uncertainty, and limit costly measures.
  - A carefully-designed and committed multi-year plan would help secure buy-in of the population and markets and avoid abrupt, disorderly expenditure-cutting responses.
- Spending reviews:
  - Reviews rolled out since 2019 at federal and regional levels; pilot phase limited to 2-3 selected areas per year and narrow in scope.
  - Recommendation: move to comprehensive spending reviews covering a larger share of government spending to identify savings, create fiscal space, and identify inefficiencies.
- Public investment:
  - Public investment was 2.7 percent of GDP in 2022.
  - Authorities’ investment-spending target: 4 percent of GDP by 2030 (notwithstanding Next Generation EU (NGEU) grants).
  - Recommendation: preserve, and better yet, scale up public investment to mitigate growth impact of consolidation, boost potential growth, and facilitate the green transition.
- Complementary structural reforms:
  - Reforms in social benefits, pensions, and health are indispensable for containing aging costs and improving targeting.
  - Advancing tax reforms to reduce labor taxation and address work disincentives, along with labor market reforms and product-market reforms, would lift labor force participation and productivity.

### The fiscal cost of aging — magnitude, timing, and uncertainty
- Projected fiscal cost: "5.4 percent of GDP annually between 2019 and 2070."
- Under the reference scenario of the 2021 Ageing Report and the 2023 Study Committee on Aging, about half of the increase would be due to pensions and the other half to healthcare (including long-term care).
- Ageing Report alternative scenarios suggest projected increase in the fiscal cost of healthcare vary by "+/- 2 ppts."
- Timing:
  - Between 2/3 (Study Committee on Aging) and 2/5 (2021 Ageing Report) of the fiscal cost of aging for 2019-70 is expected to take place by 2030.
  - Study Committee of Aging: 1.2 ppt of the projected increase in the cost of aging between 2019-70 had already materialized by end 2022.
- Uncertainty is mainly attributable to healthcare, not pensions.
- Difference in healthcare drivers:
  - 2021 Ageing Report: healthcare cost of aging driven by long-term care.
  - Study Committee of Aging: healthcare cost driven by acute care.
  - Implication: reforms and fiscal burden distribution differ because regions are in charge of long-term care while acute care is financed by the federal government.

### Population aging facts and projections
- Over 2005-22, the number of Belgians 65 years and older increased almost three times faster than the population below 65 (+ 1.4 percent per year vs. + 0.5 percent per year).
- The population 65 and older grew nine times faster than the population below 65 during 2016-22 compared with 2005-11.
- Almost one Belgian out of five is now 65 or older.
- Table 1: Annual average population growth (Percent)
  - Total: 2005-2011 = 0.9; 2016-2022 = 0.4; 2005-2022 = 0.6
  - <65: 2005-2011 = 0.9; 2016-2022 = 0.2; 2005-2022 = 0.5
  - 65+: 2005-2011 = 0.8; 2016-2022 = 1.6; 2005-2022 = 1.4
- Projections vary (Europop 2019, Europop 2023, Federal Planning Bureau / Statbel (2023)), but key drivers concur:
  - Old age dependency will increase markedly.
  - The share of population 80 and older is projected to double by 2070; it increased from 3½ percent in 2000 to 5½ percent in 2022 and is projected to account for 40-42 percent of the elderly population in 2070.

### Pensions — recent dynamics, projections, and policy options
- Recent dynamics:
  - From 2008 to 2020, the pension-to-GDP ratio increased by 23 percent.
  - Belgium’s spending on pensions rose to the EU average of 13.6 percent of GDP.
  - Number of pension beneficiaries increased by 31 percent in Belgium between 2008 and 2020 (EU: 4 percent).
  - The increase in pension beneficiaries in Belgium is primarily driven by the increase in pension disabilities.
- Projections:
  - 2021 Ageing Report projects pensions spending will increase faster in Belgium than for peers; pensions projected to increase by about 3 percent of GDP between 2019 and 2070.
  - Table 2 drivers (Change in ppts of GDP, 2019-70): Belgium total 3.0 (Dependency ratio 7.2; Coverage ratio -1.8; Benefit ratio -1.8; Labor Market effect -0.3; Interaction Effect -0.2).
- Policy options to contain pension costs:
  - Increase labor force participation, notably of older workers.
  - Tighten eligibility to pensions (example: replace disability pension for civil servants with a system of allowances; modalities pending, expected adoption by Parliament by end-2023).
  - Avoid increasing the generosity of pensions.
  - Consider an increase in social contributions to ensure sustainability, though this may conflict with reducing labor taxation.
- NBB scenario estimates (deviation from baseline, in percent of GDP):
  - Coverage ratio towards euro area average: by 2030 -1.1; by 2050 -0.6; by 2070 -0.5
  - Average pension towards euro area average: by 2030 -0.3; by 2050 -2.0; by 2070 -2.1
  - Employment rate increases to 80 percent: by 2030 -1.4; by 2050 -1.6; by 2070 -1.7
  - Higher productivity by 0.2 percentage point: by 2030 -0.1; by 2050 -0.7; by 2070 -1.2
- Illustrative macro-simulations to stabilize pension-to-GDP:
  - Increase retirement age (starting in 2025): <1 year increase needed by 2030; 2 years by 2050.
  - Reduce benefit: ~7.0% by 2030; ~11.5% by 2050.
  - Increase social contributions: ~1.0% by 2030; ~4½% by 2050.
  - Staff simulations:
    - Scenario 1: Link retirement age to life expectancy gains starting in 2030 → reverse increase in pension spending starting in 2035; pension-to-GDP ratio near 2025 level by 2070 and about 2 points lower than baseline; retirement age in 2070 at 70.5 years.
    - Scenario 2: 10 percent reduction in benefits between 2025 and 2034 yields larger short-term savings but lower long-term savings than retirement-age linkage.

### Health system, efficiency potential, and preparing for aging
- Health outcomes:
  - Against most metrics, health outcomes compare well to EU averages; self-reported unmet needs are lower than for the EU as a whole.
- Health spending and structure:
  - Public health spending is relatively high as a share of GDP and per capita.
  - Since 2000, public health spending increased less than total health spending: "by 2.3 percent of GDP vs. 3.0 percent of GDP."
  - Prevention accounted for "1.6 percent of all spending in 2019" (EU average "2.9 percent"); prevention spending per capita "61 euros PPP per capita" in Belgium versus "102 euros PPP per capita" EU average.
  - People 65+ represent "1/5th of the population" but account for "half of healthcare expenses."
  - People with chronic (multi)morbidity represent "29 percent of population" and account for "65 percent of healthcare expenses."
- Efficiency potential:
  - Belgium could achieve the same outcomes "20 to 30 percent more cheaply" if as efficient as the EU and OECD average.
  - Table 5 headline: Healthy Life Expectancy "70.6" (2019); efficiency gaps shown as "-29%" and "-21%" in the source table.
- Priority efficiency-enhancing measures:
  - Increase prevention (breast cancer screening coverage sub-optimal; obesity/overweight annual healthcare cost "0.6 percent of GDP"; absenteeism costs "0.2 percent of GDP").
  - Foster more appropriate use of resources: reduce unjustified variations in medical practice and overuse of medical imaging.
  - Reduce cost of pharmaceuticals: low generics use (hospitals: generics "3.5 percent in value and 17.5 percent in volume" vs. "17.5 percent and 44.2 percent" in six other EU countries); MAEs share rose from "13 percent of expenditure in 2014 to 31 percent in 2018."
  - Reduce reliance on hospitals: in 2019, the difference versus EU27 was entirely due to hospital services; in 2021, "49 percent of public health spending was on hospital services" (7 ppts more than EU27).
- Hospital organization and long-term care:
  - Avoidable hospital admissions example: "632 hospital admissions per 100 000 inhabitants" in 2015 (down from "660" in 2012; EU15 average "621").
  - Belgium has higher density of hospital beds but under-capacity in geriatrics; in 2011 more than a quarter of hospitalized patients older than 75 were in non-geriatric acute care units and accounted for "43 percent of all hospitalization days on acute non-geriatric units."
  - Short-term option: reconvert pediatric, maternity, surgical or internal medicine beds into geriatric beds.
  - Long-term: projected geriatric bed needs and long-term care capacity will grow rapidly; additional fiscal costs for investment and staffing are likely unavoidable.
- Prevention policies and workforce:
  - Increasing prevention could mitigate the cost of aging; Belgium’s share of elderly needing care is among the highest in Europe.
  - Belgium faces a shortage of physicians and nurses with geriatric skills; training policies need rapid implementation despite short-term costs.
- Long-term care spending:
  - Public spending on long-term care is comparatively high and projected to increase significantly; OECD (2023) projects public long-term care spending would increase by about 2 percent of GDP by 2070 under 2021 Ageing report reference scenario.
- Reform focus:
  - Realizing efficiency gains requires significant reforms: more emphasis on prevention; reforming hospital organization and incentives; promoting generics; ensuring appropriate use of costly resources; preparing human resources for geriatric care.
  - Freed resources could help absorb part of projected increases in health and long-term care spending and prepare the health system for aging-related demands.

*Prepared by Yu Ching Wong (EUR); chapter content dated November 20, 2023.*

### 1. The Twin Crises Have Worsened Public Finances _______________________________________ 5

### 1. The Twin Crises Have Worsened Public Finances

### Key developments and current fiscal outlook
- Belgium entered the pandemic with debt-to-GDP "just below 100 percent in 2019."
- Timely and forceful fiscal measures in 2020-21 widened the fiscal deficit and increased public debt significantly.
- The energy crisis after February 2022 triggered a further structural deterioration of public finances.
- Among high-debt euro area countries (debt-to-GDP ratio above 100 percent), Belgium experienced the largest increase in the structural primary deficit, "by about 2 ppts" compared to a pre-pandemic counter-factual.
- Under staff’s baseline projections assuming unchanged policies:
  - The fiscal deficit (net lending/borrowing) is expected to rise from "3.5 percent of GDP in 2022" to "about 5½ percent of GDP in 2028."
  - Public debt will rise to "about 115 percent of GDP in 2028."
  - Debt service costs are expected to rise from "1.5 percent of GDP in 2022" to "1.8-2.7 percent of GDP in 2023-28."
  - Public gross financing needs are expected to increase to "21 percent of GDP in 2028" from "16 percent of GDP in 2022."
- Belgium’s government bonds had an average residual maturity of "10.9 years in 2022."

### Fiscal positions by government level and regional heterogeneity
- Federal government:
  - Fiscal deficit narrowed to "2.6 percent of GDP in 2022" from "7.1 percent in 2020."
  - Still above "1.9 percent in 2019."
  - Public debt moderated to "86 percent of GDP in 2022" from "93 percent of GDP in 2020," but remains "3.7 ppts higher than the pre-pandemic ratio in 2019."
- Communities and regions:
  - Overall deficit declined to "0.9 percent of GDP in 2022" from "2.2 percent of GDP in 2020," but remains above "0.2 percent of GDP in 2019."
  - Public debt of communities and regions: "17.3 percent of GDP or €95.8 billion" in 2022.
  - Communities and regions' share of total public debt rose to "16.6 percent of total public debt (104.3 percent of GDP or €578.1 billion) in 2022."
  - Measured by debt-to-total revenue ratio in 2022, debt burden ranged from "50-60 percent in Flanders and French Communities" to "205-210 percent in Wallonia and Brussels (Brussels-Capital Region)."
- The fiscal positions of regional and community governments worsened due to the pandemic and energy price shock; Wallonia faced additional pressures from 2021 floods and reconstruction needs.

### Structural and institutional constraints
- Fiscal decentralization progressed in 2015-19, with devolution of expenditure responsibilities outpacing revenue authority.
- Belgium’s institutional setting: no legal hierarchy among federal, regional, and community governments; governments at all levels are equal and have specific powers and competencies.
- A 2013 Cooperative Agreement to ensure budgetary coordination between levels of government "was not implemented in practice."
- The political and institutional context increases difficulty of budgetary efforts and complicates coordinated fiscal consolidation.

### Rationale for fiscal consolidation
- Primary objectives:
  - Lower inflation: headline inflation fell "to 0.7 y/y in September 2023" while core inflation remained high at "6.7 percent y/y in September 2023." A more ambitious fiscal consolidation would complement monetary policy and help avoid entrenched inflation and more forceful tightening.
  - Rebuild buffers eroded by the pandemic and energy crisis to address aging-related spending pressures and future shocks.
  - Reduce debt and associated vulnerabilities from rising debt service costs and financing risks.
  - Preserve Belgium’s social contract by safeguarding redistribution and the social safety net.
- Additional pressures and projections:
  - Aging costs projected at "+0.3 ppt of GDP per year from 2022-70" (based on FPB Study Committee on Aging projections).
  - Other rising spending demands include defense outlays and capital investment for the green transition.
  - Without policy change, WEO baseline projects the structural primary deficit falling only from "—3.1 percent of GDP in 2023" to "2.8 percent of GDP in 2028," insufficient to stabilize debt.
  - Compared to 2019, Belgium’s structural primary deficit widened by "2 percentage points of GDP," contributing to an increase in public debt-to-GDP of "about 8 percentage points by 2023."

### Implications and strategic priorities for consolidation
- A reduction of the elevated primary deficit is required to put debt on a downward path and reduce risks of rating downgrades and higher borrowing costs.
- Fiscal consolidation should aim to:
  - Be ambitious and ideally front-loaded to achieve a medium-term structural balance and reduce public debt toward the "60 percent debt threshold."
  - Share the burden across all federal entities in a coordinated manner with accountability at all levels.
  - Rely on comprehensive spending reviews to target budgetary savings.
  - Preserve public investment to mitigate short-term growth impacts and support potential growth.
  - Be coupled with structural reforms to increase labor force participation and productivity to offset near-term growth effects.

*Prepared by Yu Ching Wong (EUR); chapter content dated November 20, 2023.*

### 8.      Based on lessons from other cases of large fiscal consolidation, Belgium appears to

### 8.      Based on lessons from other cases of large fiscal consolidation, Belgium appears to

### Lessons from other large consolidations
- Factors increasing probability of success:
  - High income levels.
  - A favorable global and domestic environment.
  - A strong track record in fiscal management.
  - Broad-based political support and good communications.
  - A credible medium-term fiscal framework supported by sound institutions.
  - Transparency: realistic macro-forecasts and public debate.
- Typical magnitude and duration:
  - Improving the cyclically-adjusted primary balance by 1-2 percent of GDP per year for 3-4 years appears relatively common.
- Composition of successful consolidations:
  - Generally require both revenue and expenditure measures.
  - Case studies (Blöchliger et al. (2012)) suggest successful consolidations were driven more by spending cuts and to a lesser extent by revenue increases.
- Political economy observations:
  - Most consolidation episodes were implemented shortly after an election.
  - More than half of governments that started consolidation were re-elected; some strengthened consolidation efforts.

### Belgium’s past consolidation episodes and debt evolution
- Three major Belgian consolidations (NBB (2015)):
  - 1982-87: mainly through cutting primary expenditures.
  - 1993-98: by raising revenues and reducing the interest burden.
  - 2011-17: by cutting expenditure and further reducing interest costs.
- Debt outcomes:
  - Public debt peaked at close to 140 percent of GDP in 1993.
  - Debt declined over 14 years to 87 percent of GDP in 2007 (a large reduction of the debt ratio by 52 ppts of GDP).
  - By 1999, public debt had been lowered to 115 percent of GDP.
- Drivers of past debt reductions (Box 1):
  - 1994-2007: high primary surplus (4.5 percent of GDP) and real GDP growth (2.6 percent) were key drivers despite high real interest rates (positive r-g).
  - 2015-19: real GDP growth (1.8 percent) was a key driver; improvement in primary balance was 0.5 percent of GDP.
  - 2021-22: rapid recovery in real GDP growth (4.9 percent) and low real interest rates (negative r-g) more than offset an elevated primary deficit (-2.8 percent of GDP).
- Near-term projection under unchanged policy:
  - Debt-to-GDP ratio is projected to increase in 2023-28, due largely to a high primary deficit (-2.6 percent of GDP).
  - Real GDP growth projected to slow to its potential of about 1.2 percent over the medium term.
  - Stabilizing the debt ratio implies reducing primary deficits to near zero (the debt stabilizing primary balance is -0.4 percent of GDP in 2028).

### Trade-offs and adjustment paths
- EU governance reform context:
  - EC’s proposed 4- or 7-year horizons would require fiscal deficit below 3 percent of GDP and debt at the end of the adjustment period to be lower and continue on a downward path or stay at prudent levels for another 10 years.
  - For a high-debt country like Belgium, the resulting debt path would remain above a 60 percent of GDP threshold—implying trade-offs between growth impacts and lasting vulnerability.
- Ambitious adjustment to reach 60 percent of GDP:
  - Would require an adjustment of 0.6 percent of GDP in 2024 and 0.8 percent of GDP (or more) annually from 2025, to reach structural balance in 2030 (Belgium’s previous MTO).
  - The adjustment translates into a cumulative reduction in the structural balance of about 5½ ppts of GDP in 2024-30.
  - Assuming no policy changes leading to greater revenue mobilization, this would require a cumulative permanent primary expenditure reduction of 5½ ppts of GDP.
  - Achievable by limiting nominal spending growth to an average of 1.3 percent annually in 2025-2030 (Figure 4).
  - Growth implications: growth would be about 0.2 ppt lower than in the baseline for a small open economy with relatively large automatic stabilizers—absent reforms to increase productivity.
- Consistency with Belgium’s Stability Program:
  - Broadly consistent with the three-year adjustment path for 2024-26 in Belgium’s 2023-26 Stability Program, with additional adjustment to reach structural balance in 2030.
  - The cumulative adjustment would more than offset the estimated increase in aging outlays of 4 ppts of GDP (2022-41).
  - Debt-to-GDP ratio would decline steadily towards 60 percent of GDP by the early 2040s under this path.
  - Additional savings needed to facilitate higher investment spending to boost medium-term growth.

### Where savings can be achieved (composition and magnitude)
- Overall approach:
  - Adjustment will need to rely mostly on reducing spending rather than increasing revenues.
  - Given the high level of taxation, room for mobilizing additional tax revenue appears limited, although efficiency-enhancing tax reforms should proceed.
  - High level of spending offers opportunities for savings and increases in efficiency.
- Current spending pressures:
  - General government spending is elevated—53 percent of GDP in 2022.
  - Major spending categories: social outlays (25 percent of GDP), the wage bill (12 percent of GDP), and subsidies (4 percent of GDP).
  - Primary expenditure in 2022 was higher by 1.7 percentage points of GDP compared to 2019 (impact of high inflation indexation on social benefits and public wages and permanent measures taken during COVID-19).
  - With no policy changes, primary expenditure is expected to increase by another 2.3 ppt in 2023-28.
  - Social benefits increased by 0.8 ppt of GDP in 2019-22 and likely to increase by another 2.0 ppt in 2023-28 via increases in pensions and health spending.
  - Compared to pre-pandemic projection (January 2020 WEO forecast), primary expenditure is about 1 ppt higher in 2022 and 2 ppt higher in 2025; a large part of the 2025 increase is social benefits at 0.9 ppt higher than pre-pandemic projection.
  - Analysis by the NBB (2023) indicates the inflation surge structurally increases fiscal deficits by about 1.4 percent of GDP by 2025; about one half of primary expenditure items are automatically linked to the rise in the health index following CPI increase.
- Cross-country spending comparisons:
  - Belgium consistently spent more than the average of its EU-14 peers since 1996.
  - In 2021, Belgium’s expenditures in the largest 5 functions—social protection, health, economic affairs, general public services, and education—were all higher than the EU-14 median and its neighbors (except for health).
  - By spending type, Belgium spent more than peers in social benefits (notably health and social protection), wages (largely on general public services), and subsidies—three key areas for potential savings.
  - The heatmap in Figure 8: Belgium’s social benefits spending was 5.2 ppt of GDP higher in 2021 than the average of EU advanced economies; this positive gap is equivalent to one-fifth of Belgium’s current social benefits outlays (26 percent of GDP).

### Efficiency and targeted measures
- Social protection efficiency:
  - Belgium had social protection spending of 27 percent of GDP and a social protection efficiency score slightly above the peer average.
  - There is scope for efficiency gains by moving to the efficiency frontier; Belgium could reduce spending to about 24 percent of GDP while maintaining its current efficiency score.
- Targeting social benefits:
  - The wide-reaching social-benefit system—unlimited-duration unemployment benefits and generous disability support—should be made more efficient.
  - Disability benefits: the share of disability benefits recipients increased rapidly to about 5½ percent of the population in 2018 from slightly above 3 percent in 10 years.
  - Means-testing: the share of total social protection spending that is means-tested was 16.7 percent in Belgium as of 2017, among the lowest in Europe.
    - Comparators: U.K. 64.4 percent, Ireland 62.5 percent, Netherlands 59.5 percent.
  - Many high-spending countries have increased their use of means testing over recent decades.
- Public wage bill:
  - Savings could be achieved via a review of automatic wage indexation, functional reviews, comparisons of the number of public employees to other countries, and examination of public-sector wages relative to the private sector.

### Regional (state) level and decentralization issues
- Size and composition:
  - With further decentralization since 2015, spending by communities and regions now accounts for close to 40 percent of general government expenditure.
  - By function, 90 percent of spending in education and more than half of spending in environmental protection, economic affairs, and housing and communities are implemented at the level of communities, regions, and local authorities.
  - Four functions—education, social protection, economic affairs, and general public services—made up close to 90 percent of spending by state (regional and community) governments.
  - Spending is largely in public wages (mainly education), social benefits (mainly social protection), and other spending per COFOG breakdown.
- Policy implications:
  - Consolidation should focus on controlling increases in wage and social benefit outlays at the regional level and on reducing federal-regional duplication.

*Source: Extract from IMF chapter text (1belea2023005).*

### 0.7 percent of GDP was in the other spending category (Figure 10).  Overall, real primary expenditure

### F.   What Principles?

### Fiscal consolidation objectives and targets
- The federal government’s 2024 draft budget seeks to reduce the overall deficit to 4.2 percent of GDP for 2024.
- Belgium’s 2023-26 stability program aims to reduce the deficit to 3.3 percent and 2.9 percent of GDP in 2025 and 2026, respectively.
- The 2024 combined budget of regions and communities will deviate from the stability program with a planned deficit that is 0.4 ppt of GDP larger than the target of -1.1 percent of GDP.

### Findings on expenditure and past dynamics
- 0.7 percent of GDP was in the other spending category (Figure 10).
- Overall, real primary expenditure grew by 1.7 percent during 2015-23, exceeding real GDP growth of 1.5 percent (Figure 11).
- Note that spending on social protection accounts for one-third of general government expenditure, of which old age and sickness and disability accounted for one-half.
- The rapid increase in public expenditure during 2019-20 was largely in health and social protection, functions borne by the federal government and federal social security funds.

### Coordination, burden sharing, and accountability (Policy recommendations)
- Deficit reduction plans should be underpinned by concrete adjustment efforts by all federal entities.
- Coordination, burden sharing, and accountability for all federal entities should be strengthened.
- Regions and communities should implement spending limits consistent with their deficits.
- Regional governments targeting a return to balanced-budget positions over the medium term should accompany this with:
  - concrete adjustment plans,
  - a binding timeframe,
  - obligations to make up adjustment slippages in subsequent years.
- Improving federal and regional coordination and burden sharing will require political agreement to work within the institutional setting of no hierarchy among the federal government, regions, and communities.
- This could involve reinvigoration and implementation of the 2013 Cooperative Agreement.

### Multi-year consolidation plan (Policy recommendations)
- Adopting a credible, multi-year consolidation plan will be critical to:
  - avoid ad hoc adjustments year-by-year,
  - reduce uncertainty,
  - limit risks of adopting reduction measures that could be more costly over the long run.
- Given the large size and long duration of the proposed fiscal adjustment, a carefully-designed and committed multi-year plan would provide a clear, transparent and accountable roadmap to help secure buy-in of the population and markets.
- An abrupt, disorderly expenditure-cutting response—possibly triggered by sharply-widening spreads—would be costly and should be avoided.

### Spending reviews (Findings and recommendations)
- Spending reviews have been rolled out since 2019 at the federal and regional government levels.
- In the pilot phase, reviews have been limited to 2-3 selected areas per year and narrow in scope.
- Building on these experiences, moving to comprehensive spending reviews covering a larger share of government spending would be beneficial.
- Reviews should be designed to meet multiple objectives, including:
  - fiscal consolidation by identifying savings measures that reduce the rate of growth or the level of public expenditure,
  - creating fiscal space to accommodate new policy priorities or address emerging fiscal pressures,
  - identifying areas of inefficient or redundant spending for better value for money or to free up resources for higher priorities.

### Public investment (Findings and recommendations)
- Public investment remains relatively low at 2.7 percent of GDP in 2022, despite some increases in recent years.
- There is scope to enhance public investment—mostly a regional government competence.
- Authorities’ investment-spending target: 4 percent of GDP by 2030 (notwithstanding Next Generation EU (NGEU) grants).
- Recommendation: preserve, and better yet, scale up public investment to mitigate the growth impact of consolidation, boost potential growth, and facilitate the green transition.

### Complementary structural reforms (Findings and recommendations)
- Fiscal consolidation needs to be complemented with structural reforms.
- Further reforms in social benefits, pensions, and health are indispensable for containing the rise of aging costs and for improving benefits targeting.
- Advancing proposed tax reforms that would reduce the tax burden on labor and address work disincentives via changes to tax rates and brackets and better alignment with social benefits, along with labor market reform measures, would help lift the labor force participation rate.
- Product-market reforms would help increase productivity and boost potential growth, thereby increasing tax revenues and job opportunities.

### The fiscal cost of aging — overview
- Belgium faces a fiscal consolidation challenge at a time when the fiscal cost of aging—primarily related to pension and health outlays—is mounting.
- This Selected Issues Paper documents the magnitude of the fiscal cost of aging focusing on pensions and healthcare and discusses policies to contain the increase while preserving adequacy of pensions and health outcomes.
- The net macroeconomic impact of aging is uncertain; the cost of aging (as a share of GDP) could increase further if growth is reduced due to reduced labor.
- Kotschy and Bloom (2023) estimate that annual growth rate of Belgium could be reduced by 2050 by 1/10 to 2/3 ppt.

### Population aging: facts and projections (Key statistics)
- Over 2005-22, the number of Belgians 65 years and older increased almost three times faster than the population below 65 (+ 1.4 percent per year vs. + 0.5 percent per year).
- The population 65 and older grew nine times faster than the population below 65 during 2016-22 compared with 2005-11.
- Almost one Belgian out of five is now 65 or older.
- Table 1: Annual average population growth (Percent)
  - Total: 2005-2011 = 0.9; 2016-2022 = 0.4; 2005-2022 = 0.6
  - <65: 2005-2011 = 0.9; 2016-2022 = 0.2; 2005-2022 = 0.5
  - 65+: 2005-2011 = 0.8; 2016-2022 = 1.6; 2005-2022 = 1.4
- Projections vary:
  - Europop 2019 projects population will start declining in 2048 and the share 65+ increasing by over 8 ppts to 28 percent in 2070 (with population 80+ up by + 6 ppts).
  - Europop 2023 projects an increase in total population throughout the projection period with similar increase in share 65+ as Europop 2019.
  - Federal Planning Bureau / Statbel (2023) projects a faster increase in total population (+ 9.2 percent between 2022 and 2070 vs + 3.6 percent for Europop 2023) and a smaller increase in share 65+ (6½ ppts versus 8½ ppts).
- Despite projection differences, all concur on key drivers:
  - Old age dependency will increase markedly (Figure 2).
  - The share of population 80 and older is projected to double by 2070; it increased from 3½ percent in 2000 to 5½ percent in 2022 and is projected to account for 40-42 percent of the elderly population in 2070.

### Aging intensity and healthcare needs (Findings)
- Health needs grow more than proportionally with age.
- Kotschy and Bloom (2022) estimate the number of Belgians older than 65 with at least two limitations in activities of daily living (ADL) or instrumental activities of daily living (IADL) will increase from 3 percent of population to 4½ percent of population between 2020 and 2040.
- OECD evidence shows care needs and long-term care use rise sharply with age; use of long-term care in Belgium (2016) is distributed between in institution and at home across older age groups.

### Fiscal implications (Findings)
- As health and pension spending is mostly financed publicly, the cost of aging is a fiscal challenge.
- Belgium is among the few EU Members facing both a high debt level and a significant projected increase in the cost of aging.
- In the 2022 fiscal sustainability report, the European Commission estimates that half the fiscal adjustment needed in 2023 to stabilize in the long run the debt-to-GDP ratio is related to the expected increase in aging cost.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1belea2023005.pdf*

### 5.4 percent of GDP annually between 2019 and

### 1belea2023005 - 5.4 percent of GDP annually between 2019 and

### Aging fiscal cost and timing
- The projected fiscal cost of aging is "5.4 percent of GDP annually between 2019 and 2070."
- Under the reference scenario of the 2021 Ageing Report and the 2023 report of Belgian Study Committee on Aging, about half of the increase would be due to pensions and the other half to healthcare (including long-term care).
- The Ageing Report’s alternative scenarios suggest that the projected increase in the fiscal cost of healthcare cost vary by +/- 2 ppts.
- A large share of the fiscal cost of aging will take place in the current decade:
  - Between 2/3 (Study Committee on Aging) and 2/5 (2021 Ageing Report) of the fiscal cost of aging for 2019-70 is expected to take place by 2030.
- According to the Study Committee of Aging, 1.2 ppt of the projected increase in the cost of aging between 2019-70 had already materialized by end 2022.
- The uncertainty in the estimated increase in spending by 2030 is attributable mainly to healthcare, not pensions.
- The Study Committee of Aging projects that healthcare cost would increase faster than both the Ageing Report’s baseline scenario and adverse health risk scenario.
- Difference in drivers:
  - 2021 Ageing Report: healthcare cost of aging is driven by long-term care.
  - Study Committee of Aging: healthcare cost of aging is driven by acute care.
  - Implication: reforms and fiscal burden distribution differ because regions are in charge of long-term care while acute care is financed by the federal government.

### Recent pension spending dynamics
- From 2008 to 2020, the pension-to-GDP ratio increased by 23 percent.
- Belgium’s spending on pensions rose to the EU average of 13.6 percent of GDP.
- The number of pension beneficiaries increased by 31 percent in Belgium between 2008 and 2020 while it increased by 4 percent in the EU as a whole.
- In slightly over a decade, the share of pension beneficiaries in total population increased by almost 5 ppts in Belgium while it increased by 1 ppt in the EU.
- The increase in pension beneficiaries in Belgium is primarily driven by the increase in pension disabilities (ESSPROS definition), rather than old-age and survivor pensions which drive the EU increase.
- Policy measures in the 2010s tightened eligibility to early retirement, producing a sharp decline in early retirement spending; this tightening and higher labor force participation of older workers contributed to increased real spending on sickness and disability.

### Generosity and support ratio
- Belgium has not reduced the generosity of its pension system compared to EU peers.
- The support ratio measure (pension benefit per person over 65 divided by GDP per person of working age 18-64) in Belgium is now the highest among peers (except France), and the pension-to-GDP ratio has grown steadily.
- The rebound in support ratios during the pandemic is noted as due to a denominator effect and in some countries increased pensions to support demand.

### Projections and comparative outlook
- The 2021 Ageing Report projects that pensions spending will continue to rise and Belgium’s spending on pensions is projected to increase faster than for peers.
- Example projection: pensions projected to increase by about 3 percent of GDP between 2019 and 2070, while for the EU the change would remain broadly stable (+0.1 percent of GDP).
- As a result, the pension-to-GDP ratio would increase from EU level in 2020 to the third highest in the EU in 2070.
- Aging (dependency ratio) is projected to increase pension spending by about 7 percent of GDP for Belgium (Table 2: Dependency ratio contribution = 7.2 ppts).

### Drivers of projected pension increase (Table 2, Change in ppts of GDP, 2019-70)
- Belgium: Dependency ratio 7.2; Coverage ratio -1.8; Benefit ratio -1.8; Labor Market effect -0.3; Interaction Effect -0.2; Total 3.0
- EU: Dependency ratio 6.4; Coverage ratio -1.5; Benefit ratio -3.7; Labor Market effect -0.8; Interaction Effect -0.3; Total 0.1
- France: Dependency ratio 7.1; Coverage ratio -2.0; Benefit ratio -5.9; Labor Market effect -1.0; Interaction Effect -0.4; Total -2.2
- Germany: Dependency ratio 4.9; Coverage ratio -0.9; Benefit ratio -1.4; Labor Market effect -0.2; Interaction Effect -0.3; Total 2.1
- Netherlands: Dependency ratio 4.3; Coverage ratio -1.2; Benefit ratio -0.3; Labor Market effect -0.4; Interaction Effect -0.1; Total 2.3

### Policy options to contain pension costs
- Increase labor force participation:
  - The Ageing Report projects that the change in employment rate will account for only 1/3 of the small labor market effect in Table 2.
  - Measures to increase labor force participation of older workers and to work longer could reduce the coverage ratio and materially lower spending.
  - National Bank of Belgium (NBB) estimate: if employment rate increases to 80 percent, pension cost will decrease rapidly and strongly (Table 3).
- Tighten eligibility to pensions:
  - Tightening eligibility to disability pensions or further increasing the retirement age can increase the containment role of the coverage ratio.
  - Government decision noted: replace the disability pension for civil servants with a system of allowances (modalities pending, expected adoption by Parliament by end-2023).
- Avoid increasing the generosity of pensions:
  - The gross replacement rate is projected to increase in the current decade and remain above its 2019 level until the early 2050s.
  - Avoiding such an increase would help contain pension spending, especially combined with measures to accelerate reduction in the benefit ratio.
  - Recent measures (increase in minimum pension, increase in upper wage limit used to calculate pension entitlement) will make the decline of the benefit ratio smaller than projected by the Ageing Report.

### NBB scenario estimates (Table 3: deviation from baseline, in percent of GDP)
- Coverage ratio towards euro area average: by 2030 -1.1; by 2050 -0.6; by 2070 -0.5
- Average pension towards euro area average: by 2030 -0.3; by 2050 -2.0; by 2070 -2.1
- Employment rate increases to 80 percent: by 2030 -1.4; by 2050 -1.6; by 2070 -1.7
- Higher productivity by 0.2 percentage point: by 2030 -0.1; by 2050 -0.7; by 2070 -1.2

### Illustrative macro-simulations to stabilize pension-to-GDP (Table 4 and staff simulations)
- Table 4 illustrative scenarios to maintain pension spending at 2020 level (results are illustrative; model simplified and calibrated for Belgium):
  - Increase retirement age (starting in 2025 for both male and female):
    - <1 year increase needed by 2030; 2 years by 2050
  - Reduce benefit:
    - ~7.0% by 2030; ~11.5% by 2050
  - Increase retirement age & reduce benefit:
    - 1 year & 6½ percent (by 2050)
  - Increase in social contributions:
    - ~1.0% by 2030; ~4½% by 2050 (2)
  - Increase retirement age & social contributions:
    - 1 year & 2½%
  - Reduce benefits & increase social contributions:
    - 1.0% & 0.8% by 2030; 4.0% & 3.0% by 2050
- Staff macro-simulations:
  - Scenario 1: Link retirement age to life expectancy gains starting in 2030 (after current measure raising retirement age from 65 to 67 completes). Result: reverse increase in pension spending starting in 2035; pension-to-GDP ratio near 2025 level by 2070 and about 2 points lower than baseline; requires retirement age in 2070 at 70.5 years.
  - Scenario 2: 10 percent reduction in benefits between 2025 and 2034 (1 percent each year) for all pensioners (no grandfathering) or only for new pensioners (grandfathering). Short-term savings larger than retirement age scenario but long-term savings lower than retirement age scenario.

### Summary conclusion on pensions and fiscal policy
- Due to aging, Belgium spending on pensions will continue to increase significantly and rapidly, requiring additional policy measures.
- EC (2021 Ageing Report) and the 2023 Study Committee on Aging concur that pension spending during the current decade will increase by 1¾ percent of GDP.
- Additional spending containment measures are needed to avoid crowding out productive public spending and to support fiscal consolidation.
- An increase in social contributions could be considered to ensure sustainability, though it would risk conflicting with the objective of reducing labor taxation.

*Source: Excerpt from IMF staff report content unit 1belea2023005.*

### 18.      Health outcomes are good in relation to peers. Against most metrics, health outcomes

### 18. Health outcomes are good in relation to peers. Against most metrics, health outcomes

### Health outcomes and unmet needs
- Against most metrics, health outcomes compare well to EU averages.
- Self-reported unmet needs are lower than for the EU as a whole, although higher than in Germany and The Netherlands.
- Self-perception of health is, for all income quintiles, better than for the EU, France, Germany, or The Netherlands.

### Health spending: levels and trends
- Belgium public health spending is relatively high both as a share of GDP and per capita—significantly larger than EU, OECD, or advanced economies averages.
- Since 2000, public health spending increased less than total health spending: "by 2.3 percent of GDP vs. 3.0 percent of GDP."
- From the Global Financial Crisis to the COVID-19 pandemic, public health spending ratios (to GDP and to general government spending) have remained broadly constant and in line with EU peers.
- Prevention spending:
  - Prevention accounted for "1.6 percent of all spending in 2019," below the EU average of "2.9 percent."
  - Prevention spending per capita: "61 euros PPP per capita" in Belgium versus "102 euros PPP per capita" EU average.

### Population structure and expenditure concentration
- People 65 years and over represent "1/5th of the population" but account for "half of healthcare expenses."
- People with chronic (multi)morbidity:
  - Represent "29 percent of population."
  - Account for "65 percent of healthcare expenses."

### Efficiency potential and gains
- Belgium achieves a healthy life expectancy only marginally higher than the EU or the OECD but at substantially higher spending per capita.
- If Belgium’s healthcare system were as efficient as the EU and OECD average, it could achieve the same outcome "20 to 30 percent more cheaply."
- Table 5 headline figures (as presented): Belgium Healthy Life Expectancy "70.6" (2019) and Total health expenditure per capita, PPP$ "2,019?" / 70.6/2019 and EU/OECD comparative entries as shown; efficiency gains shown as "-29%" and "-21%". (Values shown in source table.)

### Key efficiency-enhancing measures (four priority areas)
- Increase prevention:
  - Example: breast cancer screening is "sub-optimal" with coverage below the threshold for acceptable cost/effectiveness.
  - Obesity/overweight: additional annual healthcare cost estimated at "0.6 percent of GDP"; absenteeism costs estimated at "0.2 percent of GDP."
- Foster more adequate use of resources:
  - Reduce unjustified variations in medical practice (e.g., overuse of antibiotics and psychotropics; incorrect prescriptions of antidepressants and anticholinergic drugs).
  - Medical imaging appears used more than in peers and sometimes medically unnecessary (example: scanner of lumbar spine).
- Reduce cost of pharmaceuticals:
  - Use of generics remains low both in volume and value relative to other countries.
  - In hospitals, generics account for "3.5 percent in value and 17.5 percent in volume" compared to "17.5 percent and 44.2 percent, respectively, in six other EU countries" (data as reported).
  - The share of pharmaceuticals under managed entry agreements (MAEs) rose from "13 percent of expenditure in 2014 to 31 percent in 2018."
- Reduce reliance on hospitals:
  - In 2019, the difference in public health spending between Belgium and the EU27 was entirely due to hospital services.
  - In 2021, "49 percent of public health spending was on hospital services"; this is "7 ppts more than in the EU27 and 3 ppts more than in the EU14."
  - More than half of the increase in public healthcare spending during the pandemic was related to hospital services (Belgium) compared with "slightly over 35 percent in the EU and 27 percent in the EU14."

### Appropriate use of resources (examples and findings)
- Breast cancer screening coverage is insufficiently widespread to be cost effective and includes overrepresentation of non-target age groups.
- Overuse areas include antibiotics, psychotropics, and medical imaging.
- Reducing unjustified variation in practice could lower costs without harming—and in some cases improving—health outcomes.

### Pharmaceuticals: market structure and pricing
- Community and hospital pharmacies have monopolies on distribution; supermarkets cannot supply pharmaceuticals and internet sale is limited to pharmacy-owned websites.
- Increasing retail competition could reduce drug costs and improve access because pharmaceuticals form an important share of out-of-pocket spending.
- Confidential financial compensation mechanisms in MAEs have expanded, raising concerns about price transparency and the sustainability of financing innovative treatments.

### Hospital reliance, incentives, and organization
- Avoidable hospital admissions remain higher than in many EU countries; example: in 2015 at least "632 hospital admissions per 100 000 inhabitants" could have been avoided (down from "660 per 100 000 inhabitants" in 2012) and slightly over EU15 average of "621 per 100 000 inhabitants."
- Financial incentives and reimbursement arrangements encourage higher hospital use.
- Policies recommended include developing integrated care, removing financial obstacles to day-hospitalization, and simplifying complex payment rules, which would help reduce average length of stay and per-discharge cost.

### Preparing the health system for aging: capacity and care organization
- Elderly patients already use hospital services intensively and are expected to increase future demand.
- Belgium has a higher density of hospital beds than most EU countries but under-capacity in geriatrics:
  - In 2011, more than a quarter of hospitalized patients older than 75 were in non-geriatric acute care units and accounted for "43 percent of all hospitalization days on acute non-geriatric units."
- Short-term policy option: reconvert pediatric, maternity, surgical or internal medicine beds into geriatric beds to reduce fiscal cost of increasing geriatric capacity.
- Long-run: the projected need for geriatric beds will grow too rapidly to be met solely by reconversion or by increased home care; additional fiscal costs for investment in geriatric and long-term care facilities seem unavoidable.
- Elderly patients present higher risk of emergency admissions and longer hospital stays; their multimorbidity requires reorganization of medical processes and stronger coordination with rehabilitation institutions and nursing homes to avoid prolonged hospital stays.

*Source: IMF staff summary of chapter content.*

### 36.      Prevention policies could

### 1belea2023005 - 36.      Prevention policies could

### Prevention and the cost of aging
- Increasing spending on prevention could help mitigate the cost of aging if it allows the elderly to maintain healthier living for longer.
- Belgium has room for improvement as the share of elderly population in need of care is among the highest in Europe (Figure 30).
- The health status of an elderly at a certain age may be better in several decades than it is now, which could significantly lower the cost of aging (Kotschy and Bloom, 2023).

### Ensuring an adequate geriatric-support workforce
- The health need of an aging population will require different skills from physicians and nurses.
- Belgium already faces a shortage of physicians and nurses with geriatric skills and expertise in elderly care; this shortage will grow as the number of elderly patients increases and aging intensity rises (Figure 3).
- Training policies need to be implemented rapidly despite short-term costs so that:
  - the increase in geriatric demand is met, and
  - increased hospital capacity is staffed by a sufficient and qualified geriatric workforce (Van de Voorde and others, 2017).

### Long-term care spending and capacity
- Public spending on long-term care is already comparatively high and projected to increase significantly.
- Despite more prevalent informal long-term care and a long-standing policy to develop at-home care services (HealthyBelgium, 2022), public spending on long-term care is among the highest in Europe (Figure 31).
- Based on the reference scenario of the 2021 Ageing report, the OECD (2023) projects that public spending on long-term care would increase by about 2 percent of GDP by 2070.
- Such an increase poses fiscal and operational challenges to increase long-term capacities both in terms of beds and in terms of adequate staffing.

### Fiscal implications and pension policy
- Belgium’s rapid population aging constitutes an important fiscal challenge; all available projections point to a substantial increase in the cost of aging in the current decade.
- Belgium spending on pension is increasing significantly and rapidly, requiring additional policy measures.
- EC and national projections concur that pension spending during the current decade will increase by 1¾ percent of GDP.
- Policy responses needed now to allow meaningful fiscal consolidation include:
  - increase labor force participation, notably of older workers;
  - tighten eligibility conditions;
  - avoid an increase in the generosity of pensions.
- To ensure sustainability, an increase in social contributions could also be considered though it would run against the policy of reducing labor taxation.

### Health system efficiency and reforms
- Aging is a significant challenge for the healthcare system, but efficiency gains could help absorb part of the aging cost.
- Access to healthcare and health outcomes are comparatively good in Belgium but achieved at a relatively high cost, indicating large potential efficiency gains.
- Realizing these efficiency gains will require significant reforms, including:
  - more emphasis on prevention;
  - reforming the organization and role of hospitals;
  - promoting the use of generic drugs;
  - ensuring a more appropriate use of costly healthcare resources.
- Freed resources could help absorb part of the projected increase in fiscal spending on health (including long-term care) and prepare the health system for medical challenges related to aging patients.
- Main reform priorities: hospital organization and human resources, and preparing for increased demand for long-term care.

*Source: IMF — Belgium country chapter (excerpts provided).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1belea2023005.pdf_