## 1. Belgium in the Global Value Chains ## Source details **Canonical URL:** [1. Belgium in the Global Value Chains](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1476.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1476.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1476.pdf.json) --- ### Economic and financial context and recent performance - Government term ends with elections in May 2014; federal elections will coincide with regional and European elections on a five year cycle. - During its 2½ year mandate the government took actions to stabilize and reform the economy and has put forth a major banking reform now before parliament. - Real GDP is now 1.3 percent above the pre-crisis peak. - Germany absorbs 17.4 percent of Belgium’s exports and anchors Belgian firms in supply chains of German chemical, pharmaceutical, and automobile industries. - Employment supported by subsidized job schemes has fared better than much of Europe. - Household debt is essentially mortgages, increased with real estate prices, but remains below the euro area average. - Non-financial corporate sector (NFC) relatively shielded by low debt. ### Recent macro dynamics (2008–13) - Recovery from 2012 slowdown proceeding slowly; inflation declined to around 1.2 percent. - Economy bottomed out in 2013Q1; since then growth averaged 1.1 percent in annualized terms. - Recovery drivers: modest private and public consumption growth and a significant contribution from net trade; investment remained weak. - Contribution of final domestic demand (excluding inventory changes) estimated flat in 2013. - CPI inflation declined faster than neighboring countries for the first time since 2009, aided by energy market reforms. ### Integration in Global Value Chains and value added - GVC integration around Germany: in 2011 exports of intermediate goods and services to Germany amounted to 8 percent of GDP (compared with 2 percent for France and 9 percent for the Netherlands). - On the import side, about 40 percent of Belgium’s consumption of intermediate goods and services was imported, compared with 27 percent average for France, Germany, and the Netherlands. - Half of imported inputs came from Belgium’s four largest European partners. - OECD/WTO data: value added content of Belgium’s exports of goods and services accounted for 34.5 percent of GDP while total exports amounted to 71.7 percent of GDP. - By value added metric, Belgium moves from 8th largest exporter to 18th (out of 58 countries with data). ### Competitiveness: cost and non-cost issues - Unit labor costs indicate a gradual loss of competitiveness since 2005; most of this stems from lower productivity growth rather than excessive wage growth. - Overall labor productivity in Belgium higher than France, Germany, and Netherlands but the gap has been narrowing. - Low productivity growth even in knowledge-intensive sectors points to gaps in innovation capacity, education, and limited exposure to competition. - Energy reforms since 2012 contributed to lower energy prices, but a large energy cost differential relative to the United States creates competitive pressures for energy-intensive sectors. - IMF External Balance Assessment (EBA) as of end–2013: Belgium’s real exchange rate is overvalued relative to the level consistent with medium-term fundamentals and desirable policy setting by about 3-8 percent. - EBA regression-based estimate puts cyclically-adjusted current account consistent with fundamentals at a surplus of 1.8 percent of GDP. - Net international investment position remains strong; gross asset and liability positions have been shrinking with bank deleveraging. ### Non-cost competitiveness: innovation, education, regulation - Innovation: - Belgian firms perform well in process innovation but poorly in product innovation. - R&D spending stable over the past decade but increasingly concentrated in the pharmaceutical sector, which accounts for a fourth of total R&D spending. - Belgium had fewer triadic patents in 2011 than in 1997. - Government subsidies for R&D jobs represent 9 percent of total labor subsidies; effectiveness unclear. - Research resources of public universities not fully leveraged to support private sector innovation. - Education: - Belgium has fewer students in science compared to European peers; student performance in science declined over the last decade. - Regional disparities within Belgium are very strong. - Training of the working age population is less developed than in other EU countries. - PISA performance declined between 2003 and 2012 in mathematics, reading, and science relative to France, Germany, Netherlands. - Regulatory environment: - Belgium ranks 133 out of 144 countries on “burden of government regulation” (World Economic Forum). - OECD indicates regulations are significantly more widespread than in other countries. - Further liberalization of services sectors recommended; Bourlès et al. (2010) estimate total factor productivity would grow by 1.25 percent more per year over five years if regulatory burden reduced to best practice in the OECD. ### Financial sector: deleveraging, liquidity, solvency, profitability - Banking sector balance sheet reduced from 410 percent of GDP in 2008 to 268 percent in 2013Q2. - Deleveraging led by cutbacks in cross-border exposures and sales of foreign subsidiaries; legacy assets to be unwound gradually. - As of end-June 2013, aggregate Basel III Liquidity Coverage Ratio (LCR) for 13 Belgian banks stood at 116 percent. - Impaired claims stabilized at 3.8 percent of total claims. - Return to the repo market in 2013 and stable deposit base reduced reliance on central bank financing. - Basel 2.5 Common Equity Tier 1 ratio rose by 1.5 percentage points over 12 months to 15.1 percent in June 2013. - Core Tier 1 capital ratio increased by 6.1 percentage points since 2008; asset reduction accounted for 83 percent of solvency improvement, capital increases 20 percent, offset by a -3 percent increase in share of risky assets. - Profitability from domestic operations weak due to low interest margins and high operating costs. - Ample domestic deposit liquidity and shedding of foreign assets enabled positive credit growth throughout the crisis. - Banks channeled excess liquidity to foreign markets via upstreaming to foreign parents or funding foreign lending out of Belgium. ### Public finances, fiscal repair and outlook - Structural adjustment of 1.1 percent of GDP in 2012–13; deficit expected to come down to 2.7 percent of GDP in 2013, enabling exit from EU Excessive Deficit Procedure. - Government sale of 25 percent share in BNPP Fortis (0.9 percent of GDP) kept debt ratio just below 100 percent in 2013. - Financing conditions favorable; ratings confirmed at AA/Aa3. - Real GDP projected to grow by 1.1 percent in 2014, driven by gradual improvements in domestic and external demand. - Fiscal consolidation negative impulse expected to be limited at 0.5 percent of GDP in 2014. - Reduction of VAT on energy should keep headline inflation at 1.1 percent. - Short-term external risks: spillover from protracted low growth in Europe; potential re-emergence of sovereign-bank nexus; regulatory fragmentation. - Medium-term domestic risks: failure of structural reforms to respond to competitiveness pressures; banks’ ability to maintain capital buffers amid low profitability and potential asset quality deterioration. - Other risks: - State guarantees to banking sector sizable at 12 percent of GDP, mostly related to Dexia (in run-off mode). - Real estate: property prices rose 110 percent in real terms since 2000; overvaluation estimates range from 10–60 percent; interest-adjusted affordability regression suggests overvaluation of 5–15 percent. - High ownership rates (~70 percent) and persistent housing shortages likely prevent rapid price decline. - Prevalence of fixed-rate mortgages shifts interest-rate risk to banks. - Cross-border bank exposures to Ireland, Hungary, Spain and Italy reduced from EUR 105 billion in 2008 to EUR 21 billion in June 2013. ### Policy priorities and recommendations (summary) - Focus areas: activate unused labor resources, reinforce competitiveness, and anchor fiscal policy to medium-term structural targets. - Close competitiveness gap requires broader structural reforms to increase productivity, innovation, and improve resource allocation. - Financial sector: adjust bank business models to low structural profitability and evolving regulatory environment; consider consolidation in an overbanked system. - A. Raising Productivity, Adaptability, and Activation highlighted as policy priority. --- ### 2. Labor activation, wage policy, and structural reforms ### Employment activation target and measures - Authorities’ objective: 73.2 percent employment rate target by 2020; authorities noted the target may be overly ambitious in the wake of the crisis. - Measures and expected effects: - Tightening of unemployment, pension, and pre-pension benefits in the last two years expected to raise work incentives and lengthen working life. - Commission charged with preparing pension reform proposals for the next government. - Job subsidy schemes amounting to nearly 3.2 percent of total labor costs to activate low-skilled workers. - Minimum wage roughly EUR 1,500 a month seen as employment barrier for low-skilled workers. - Service voucher system covers some 109,000 workers; budgetary cost of 0.4 percent of GDP in 2011. Under the system households purchase vouchers for domestic work from contractual workers at 60 percent of the minimum wage, with the state (and from 2015 the regions) filling the gap and other costs. - Other active labor market policies cited as successful: subsidized apprenticeships. - Policy preference: transition from passive support to in-work benefit schemes. - Empirical note: employment rates for senior workers have been increasing. ### Restoring cost competitiveness and wage norm - 1996 law on competitiveness establishes a “wage norm” aligning wage developments with partner countries despite indexation. - Historical: 2007–08 wages in Belgium rose 2.2 percent above those of partners, mostly due to forecast errors. - Government actions: (i) imposing a real wage freeze in 2013–14; (ii) adjusting the price index, lowering wage growth by 0.2 percent; (iii) reducing energy prices through structural reforms, affecting indexation. - Outcome: wage handicap relative to partners stabilized at 4.8 percent in 2013, and should decline by 1 percentage point in 2014. - Additional November 2013 measures: - Commitment to reduce labor taxes by the equivalent of 0.4 percent of GDP over the next five years. - Lowering VAT on electricity from 21 to 6 percent, effective April 2014, with an estimated impact of 0.4 percent on prices and, through indexation, on wages. - Staff recommendations and concerns: - Secure social partners’ agreement that labor tax reductions would go to reducing labor costs rather than increasing wages. - Questioned merits of lowering VAT on energy; suggested cutting labor taxes would be more efficient. - Wage indexation detail: national wage norm guides sectoral wage negotiations covering 90 percent of employees. ### Remaining challenges: redistribution, wage formation, labor adaptability, product markets - Inefficient redistribution mechanisms produce the largest degree of redistribution in the OECD; taxes and cash transfers reduce inequality by about 15 percentage points (GINI) but create inactivity traps. - Need to make automatic corrections for past deviations from the wage norm more explicit; staff recommended introducing corrections for observed deviations in labor productivity growth and removing terms-of-trade effects from indexation mechanisms. - Labor market adaptability: dismissal procedures lengthy and costly; 2013 reform eliminated differences between blue collar and white collar treatments but system remains costly; staff suggested reallocating resources to in-work training. - Product market efficiency: regulation and administrative burdens more cumbersome than in other European countries; liberalization recommended in transport industries, retail distribution, and professional services. - 2013 reform of the competition authority increases capacity to sanction anti-competitive practices. --- ### 3. Fiscal policy, decentralization, and the Sixth Reform of the State ### Medium-term fiscal adjustment needs and timing - Required structural fiscal adjustment: 3.3 percent of GDP still required to meet the authorities’ medium-term structural surplus objective of 0.75 percent of GDP. (Based on the authorities’ estimate of potential GDP, the needed effort is 2½ percent.) - April 2013 Stability Program envisioned reaching the objective in 2016; staff view: average structural adjustment of 0.75 percent a year appropriate going forward. - Staff baseline assumes about 0.5 percent per year, achieving objective in 2019. - Risks: under baseline, public finances remain fragile; modest economic changes could push public debt above 100 percent. Major risks include a negative growth shock and realization of contingent fiscal liabilities from bank support. ### Composition and role of governments - Staff stressed need to identify upfront sources of medium-term adjustment; rebalance consolidation toward expenditure measures given most adjustment to date has come from revenue measures. - Federal government: reduce current spending and rationalize subsidies and social transfers, consistent with activation objectives. - Tax policy: integrate planned reductions in labor taxes into a comprehensive tax shift toward indirect, environmental, and capital income taxation—income from capital is subject to different and favorable tax regimes relative to labor income. - Regions and communities: responsible for roughly 1/3 of the remaining adjustment; enhanced competencies under the sixth reform of the state provide scope for both revenue and expenditure measures. - For regions: focus adjustment on current spending and tax expenditures to preserve fiscal space for productivity-enhancing spending in education and transport infrastructure. ### Sixth Reform of the State — burden sharing (Box 3 summary) - Timeline and scope: - Negotiated October 2011; finalized December 2013 with revised Special Finance Act; reform enters into force in July 2014; new financing rules applied in 2015. - Decentralized responsibilities should amount to nearly 5 percent of GDP in 2015. - Redistribution of adjustment burden: - Regions gain tax autonomy: responsibility for around 25 percent of the personal income tax (2.9 percent of GDP); share of own taxes in regions’ total revenue increases from 43.9 percent to 73.3 percent. - New federal grants (1.3 percent of GDP) and new traffic related revenue (0.2 percent of GDP); overall total new resources increase by 4.4 percent of GDP in 2015. - Residual gap of about 0.6 percent of GDP as of 2016 is Regions and Communities’ contribution to consolidation. - Additional adjustment of 0.4 percent of GDP over the medium term via decreased indexation of some grants and gradual increase of Regions’ contribution to civil servants’ pension plans to 8.86 percent of wages in 2030 (0.2 percent of GDP). - Redistribution between regions scaled back: national solidarity allowance compensation reduced from 100 percent to 80 percent of per capita income differences, yielding 0.1 percent of GDP savings for the federal government. - Calculations based on end-2012 data. --- ### 4. Banking law, macroprudential measures, and NBB actions ### Draft banking law (Box 4 key features) - Objective: improve recovery and resolution frameworks, reduce contagion from risky trading activities to retail banking, and reinforce depositor protection. - Trading activities: - Bans banks from proprietary trading while allowing trading operations deemed beneficial for the real economy. - Trading activities limited to 15 percent of the balance sheet or 10 percent of the regulatory capital; subject to capital surcharges beyond those thresholds. - Forbidden trading activities must be transferred to a separate entity. - Recovery and resolution framework: - Requires all domestic financial institutions to have recovery and resolution plans. - Recognizes the National Bank as the resolution authority and empowers it with flexible instruments (selling part or all of a failing bank, using bridge institutions, separating assets via asset management vehicles). - Seeks to speed up judiciary decisions to resolve banks and extend the requirement to submit strategic decisions for regulatory approval to all banks. - Depositor protection: - Establishes depositor preference over unsecured creditors for all deposits eligible for coverage by the deposit guarantee scheme. - Banks required to provide information on asset encumbrance; failure to comply with thresholds will trigger corrective action. - Macro-prudential policies: - Designates the NBB as macro-prudential authority with "act or explain" powers and an array of instruments. - Federal government retains responsibility for setting limits on loan-to-value and debt-to-income ratios; NBB can recommend use of these instruments. ### NBB mortgage-sector measures and vulnerabilities - NBB raised risk weights for domestic mortgages by 5 percentage points above banks’ own internal risk weighting models. - Authorities presented the measure as mostly preemptive, motivated by risks of continued upward pressures on housing prices. - Loan impairment of domestic mortgages (around 15 percent of the consolidated balance sheet) remains low. - Latest vintages of mortgage loans do not show any increase in default rates. - Pockets of vulnerability remain: 10 percent of mortgages combine loan-to-value ratios of over 90 percent with debt service ratios of over 50 percent. ### Reform of taxation of savings - Tax advantage to bank savings accounts contributed to strong liquidity position of banks but distorts financial intermediation. - Authorities proposed extending tax benefit to all financial instruments, capping it at current level to be revenue neutral, and phasing it gradually. - Context: declining interest rates and a high cap on exempt interest income (EUR 1,880 in 2013) resulted in a massive shift of saving toward savings accounts. - Proposal encountered public and political opposition partly due to increased reporting requirements. ### Financial-sector supervision and FSAP follow-up - Supervisor stepped up monitoring of banks’ business models and profitability; consolidation in an overbanked system might be needed. - NBB designated as macro-prudential authority; supervisory processes strengthened, and memoranda of understanding with FSMA signed. - Stress testing to be routine; cooperation with ECB/EBA for asset quality review and stress tests ongoing. - Recommendations include further cost-cutting by banks and continued monitoring as banks adapt to Basel III and evolving regulatory environment. --- ### 5. Macrofinancial risks, DSA and stress tests, and projections ### Key macroeconomic projections (selected table and series) - Real GDP (percent change): -2.8 (2009), 2.3 (2010), 1.8 (2011), -0.1 (2012), 0.2 (2013), 1.1 (2014), 1.2 (2015), 1.3 (2016), 1.4 (2017), 1.4 (2018), 1.5 (2019). - Unemployment rate (percent): 7.8 (2009), 8.2 (2010), 7.3 (2011), 7.6 (2012), 8.6 (2013), 9.1 (2014), 9.0 (2015), 8.8 (2016), 8.6 (2017), 8.3 (2018), 8.1 (2019). - Household saving ratio (percent): 18.0 (2009), 15.1 (2010), 14.0 (2011), 15.1 (2012), 15.2 (2013), 15.6 (2014), 15.7 (2015), 15.9 (2016), 16.0 (2017), 16.1 (2018), 16.2 (2019). - Consumer prices (percent): 0.0 (2009), 2.3 (2010), 3.4 (2011), 2.6 (2012), 1.2 (2013), 1.1 (2014), 1.2 (2015), 1.3 (2016), 1.4 (2017), 1.4 (2018), 1.4 (2019). - Nominal GDP (billions of euros): 341 (2009), 356 (2010), 369 (2011), 376 (2012), 382 (2013), 391 (2014), 401 (2015), 411 (2016), 423 (2017), 435 (2018), 447 (2019). ### External position and balance-sheet indicators - Current account balance (percent of GDP): -0.6 (2009), 1.9 (2010), -1.1 (2011), -2.0 (2012), -1.7 (2013), -1.3 (2014), -1.0 (2015), -0.7 (2016), -0.4 (2017), -0.1 (2018), 0.2 (2019). - Exports of goods and services (percent of GDP): 72.1 (2009), 78.9 (2010), 84.0 (2011), 85.6 (2012), 81.6 (2013), 77.5 (2014), 75.5 (2015), 74.2 (2016), 73.4 (2017), 73.1 (2018), 73.1 (2019). - Share of public debt held by foreigners: about 47 percent of total. ### Debt dynamics, DSA baseline and stress tests (selected figures) - Public debt: reached 99.8 percent of GDP in 2012; projected to stay just below the 100 percent mark in 2014. - Gross financing needs: estimated at 18 percent of GDP in 2014 and expected to remain around 14–18 percent in the medium term. - Primary surplus projected to strengthen from 0.4 percent of GDP in 2013 to 3.9 percent of GDP in 2018. - Staff-recommended fiscal effort: average structural effort of 0.75 percent of GDP a year until medium-term surplus objective in 2019; under this scenario debt ratio falls to 88 percent of GDP in 2019. - Combined macro-fiscal stress scenario: debt would reach 108 percent of GDP in 2016 and remain above 100 percent until 2019; financing needs averaged 20 percent of GDP in 2015–19. - Contingent fiscal shock: assumption that 50 percent of state guarantees to the financial sector are called upon in 2015 would produce a large debt and financing-needs impact; Belgian state could cover some costs by selling assets estimated worth 10 percent of GDP. ### Stress-test shock magnitudes and outcomes (selected) - Growth shock: one standard deviation = 1.8 percentage points lower growth; debt-to-GDP ratio increases to 106.6 percent of GDP in 2016. - High interest rate scenario: increase in spreads by 200 basis points throughout the projection period; impact on financing needs is 1.3 percent of GDP in 2019; debt ratio 2.0 percentage points higher than baseline by 2019. - Real exchange rate shock: 15 percent devaluation in 2014 produces a slight decrease in debt and gross financing needs through the inflation channel. - Primary balance shock: cumulative 2.3 percentage points of GDP deterioration leads to a 2.5 percentage point worse debt ratio relative to baseline in 2019. ### Risk Assessment Matrix (selected risks and likelihood/impact) - Protracted slower European growth: Relative likelihood High; Impact High; Policy response: coordinated fiscal policy response at European level where space available. - Financial stress re-emergence in euro area: Relative likelihood Medium; Impact Medium; Policy response: euro area monetary policy first line of defense, backed by backstop and resolution institutions. - Incomplete regulatory reforms: Relative likelihood Medium; Impact Medium; Policy response: accelerate EU regulatory convergence, move toward banking union. - Housing price correction: Relative likelihood Medium; Impact Low; Policy response: capital requirements on mortgages increased; macro-prudential measures if necessary. - Political risk / lack of consensus on structural reforms: Relative likelihood Medium; Impact High; Policy response: push comprehensive structural reform to restore competitiveness and fiscal sustainability. --- ### 6. Social policies, pensions, and labor market reforms (Appendix IV highlights) ### Unemployment benefits and search requirements (implemented changes) - Suitable job distance requirement changed from "25 km away or less" (2011) to "60 km away or less" (2012/2014). - Restrict rights to search for the same kind of job: 2011 = six months; 2012/2014 = three months (young unemployed) and five months (other unemployed). - Monitoring of search efforts after unemployment: 2011 = 18-21 months annual follow-up; 2012/2014 = nine months (26 years or younger) or 12 months (26 or older) after start of unemployment, follow-ups every nine months. - Search effort requirement while on unemployment benefits: 2011 = every 12 or 16 months; 2012/2014 = evaluation every six months; negative evaluation: no unemployment benefits until next evaluation (no earlier than after six months). - Initial benefit rates revised: 2011 = 60 percent of last wage initially; 2012/2014 = 65 percent for three months, then 60 percent for following nine months, then reductions after 13 months. ### Pension and pre-pension reforms (implemented or in progress) - Job search requirement introduced for pre-pension/unemployment with employer top-up until age 55 (2013) and 58 (2016). - Minimum ages and career length requirements adjusted; early retirement minimum age raised progressively to 62 by 2016 and full career length increased to 40 years by 2016. - Pension bonus unified with progressively increasing lump sum (from EUR 1.5 to EUR 2.0) per extra day worked beyond early retirement conditions. - Measures to decrease pension expenditure, including changes to pension complements and their timing (effective July 1, 2014). ### Activation measures for youth and subsidies - Yearly creation of 10,000 internships for low-skilled school leavers; reduced employer contribution in case of hiring after internship. - Government subsidies and social-security contribution reductions for targeted hires (older long-term unemployed; very low-skilled youth; SMEs incentives); many measures implemented or in progress. --- ### 7. Institutional, statistical, and governance matters ### Fiscal transparency and budget processes - Belgium meets and in some cases exceeds requirements of the fiscal transparency code. - Basic government finance processes supported by sound institutional and legal framework; roles and responsibilities clear. - Areas for improvement: - Limited insight into objectives and targets of government expenditure. - Medium-term budget estimates and presentation of new policy measures and their medium-term costs could be clarified. - Public information could be increased on fiscal risk, tax expenditures, in-year data on local government and agencies, final government accounts, and governance of state-owned equity holdings. - Institutional arrangements could be strengthened by reinforcing the High Council of Finance and converting budget agreements into published agreements specifying targeted balances. ### AML/CFT, statistics, and data availability - Full reassessment of Belgium’s AML/CFT framework required in line with relevant IMF Board decisions; new FATF assessment tentatively scheduled for June 2014. - Belgium’s economic and financial statistics adequate for surveillance; NBB publishes comprehensive data and is an SDDS subscriber. - Shortcomings mainly related to export and import deflators based on unit values rather than direct prices. - NBB publishes timely quarterly national accounts within a lag of three months and provides FSIs regularly. --- *Source: _cr1476 - IMF staff report and Article IV consultation material provided in the supplied document excerpt.* ### 1. Belgium in the Global Value Chains _____________________________________________________________5 ### 1. Belgium in the Global Value Chains ### Economic and financial context: resilience and recent performance - Government term ends with elections in May 2014; federal elections will coincide with regional and European elections on a five year cycle. - During its 2½ year mandate the government took actions to stabilize and reform the economy and has put forth a major banking reform now before parliament. - Real GDP is now 1.3 percent above the pre-crisis peak. - Germany absorbs 17.4 percent of Belgium’s exports and anchors Belgian firms in supply chains of German chemical, pharmaceutical, and automobile industries. - Employment supported by subsidized job schemes has fared better than much of Europe. - Household debt is essentially mortgages, increased with real estate prices, but remains below the euro area average. - Non-financial corporate sector (NFC) relatively shielded by low debt. ### Recent macro dynamics (2008–13) - Recovery from 2012 slowdown proceeding slowly; inflation declined to around 1.2 percent. - Economy bottomed out in 2013Q1; since then growth averaged 1.1 percent in annualized terms. - Recovery drivers: modest private and public consumption growth and a significant contribution from net trade; investment remained weak. - Contribution of final domestic demand (excluding inventory changes) estimated flat in 2013. - CPI inflation declined faster than neighboring countries for the first time since 2009, aided by energy market reforms. ### Belgium in Global Value Chains (Box 1) — integration and value added - GVC integration around Germany: in 2011 exports of intermediate goods and services to Germany amounted to 8 percent of GDP (compared with 2 percent for France and 9 percent for the Netherlands). - On the import side, about 40 percent of Belgium’s consumption of intermediate goods and services was imported, compared with 27 percent average for France, Germany, and the Netherlands. - Half of imported inputs came from Belgium’s four largest European partners. - OECD/WTO data indicate value added content of Belgium’s exports of goods and services accounted for 34.5 percent of GDP while total exports amounted to 71.7 percent of GDP. - By value added metric, Belgium moves from 8th largest exporter to 18th (out of 58 countries with data). ### Competitiveness: cost and non-cost issues - Unit labor costs indicate a gradual loss of competitiveness since 2005; most of this stems from lower productivity growth rather than excessive wage growth. - Overall labor productivity in Belgium higher than France, Germany, and Netherlands but the gap has been narrowing. - Low productivity growth even in knowledge-intensive sectors points to gaps in innovation capacity, education, and limited exposure to competition. - Energy reforms since 2012 contributed to lower energy prices, but a large energy cost differential relative to the United States creates competitive pressures for energy-intensive sectors. - IMF External Balance Assessment (EBA) as of end–2013: Belgium’s real exchange rate is overvalued relative to the level consistent with medium-term fundamentals and desirable policy setting by about 3-8 percent. - EBA regression-based estimate puts cyclically-adjusted current account consistent with fundamentals at a surplus of 1.8 percent of GDP. - Net international investment position remains strong; gross asset and liability positions have been shrinking with bank deleveraging. ### Non-cost competitiveness (Box 2) - Innovation: - Belgian firms perform well in process innovation but poorly in product innovation, hindering movement up the value-added chain. - R&D spending stable over the past decade but increasingly concentrated in the pharmaceutical sector, which accounts for a fourth of total R&D spending. - Belgium had fewer triadic patents in 2011 than in 1997. - Government subsidies for R&D jobs represent 9 percent of total labor subsidies; effectiveness unclear. - Research resources of public universities not fully leveraged to support private sector innovation. - Education: - Belgium has fewer students in science compared to European peers; student performance in science declined over the last decade. - Regional disparities within Belgium are very strong. - Training of the working age population is less developed than in other EU countries. - PISA student performance charted against peer countries (France, Germany, Netherlands) shows declines between 2003 and 2012 in mathematics, reading, and science. - Regulatory environment: - Competition appears less intense, with high regulation and administrative burden. - Belgium ranks 133 out of 144 countries on “burden of government regulation” (World Economic Forum). - OECD indicates regulations are significantly more widespread than in other countries. - Further liberalization of services sectors recommended; Bourlès et al. (2010) estimate total factor productivity would grow by 1.25 percent more per year over five years if regulatory burden reduced to best practice in the OECD. ### Financial sector: deleveraging, liquidity, and solvency - Banking sector balance sheet reduced from 410 percent of GDP in 2008 to 268 percent in 2013Q2. - Deleveraging led by cutbacks in cross-border exposures and sales of foreign subsidiaries; legacy assets to be unwound gradually. - As of end-June 2013, aggregate Basel III Liquidity Coverage Ratio (LCR) for 13 Belgian banks stood at 116 percent. - Impaired claims stabilized at 3.8 percent of total claims. - Return to the repo market in 2013 and stable deposit base reduced reliance on central bank financing. - Basel 2.5 Common Equity Tier 1 ratio rose by 1.5 percentage points over 12 months to 15.1 percent in June 2013. - Improvement in solvency since 2008: core Tier 1 capital ratio increased by 6.1 percentage points. - Sources of solvency improvement: asset reduction accounted for 83 percent of improvement; capital increases 20 percent; offset by a -3 percent increase in share of risky assets. - Profitability from domestic operations weak due to low interest margins and high operating costs. - Ample domestic deposit liquidity and shedding of foreign assets enabled positive credit growth throughout the crisis. - Banks channeled excess liquidity to foreign markets via upstreaming to foreign parents or funding foreign lending out of Belgium. ### Public finances and fiscal repair - Structural adjustment of 1.1 percent of GDP in 2012–13; deficit expected to come down to 2.7 percent of GDP in 2013, enabling exit from EU Excessive Deficit Procedure. - Government sale of 25 percent share in BNPP Fortis (0.9 percent of GDP) kept debt ratio just below 100 percent in 2013. - Financing conditions favorable; ratings confirmed at AA/Aa3. ### Outlook (projections) and risks - Real GDP projected to grow by 1.1 percent in 2014, driven by gradual improvements in domestic and external demand. - Fiscal consolidation negative impulse expected to be limited at 0.5 percent of GDP in 2014. - Reduction of VAT on energy should keep headline inflation at 1.1 percent, below core inflation. - Short-term external risks (Appendix III): - Spillover from protracted low growth in Europe could raise structural unemployment and complicate fiscal adjustment. - Sovereign-bank nexus could re-emerge under renewed financial stress, though risk diminished as state aid is repaid, guarantees lapse, and legacy portfolios are derisked. - Financial stability risks from incomplete regulatory reform and fragmentation. - Medium-term domestic risks: - Failure of structural reforms to respond to international competitiveness pressures would undermine growth and fiscal objectives and affect ageing-related costs. - Main financial risk: banks’ ability to maintain adequate capital buffers amid low profitability and potential asset quality deterioration. - Other financial exposures and risks: - State guarantees to banking sector sizable at 12 percent of GDP, mostly related to Dexia (in run-off mode). - Realization of financial risks could impact government balance sheet via state-owned banks (Debt Sustainability Analysis in Appendix V illustrates adverse impacts). - Real estate risks: - Property prices rose 110 percent in real terms since 2000; continued increase through the financial crisis. - Overvaluation estimates range from 10–60 percent; interest-adjusted affordability regression suggests overvaluation of 5–15 percent. - High ownership rates (~70 percent) and persistent housing shortages likely prevent rapid price decline. - Robust household balance sheets, prevalence of fixed interest rate mortgages, and tighter capital requirements on mortgage lending should limit impact of interest rate or unemployment shocks on mortgage portfolio quality. - Prevalence of fixed-rate mortgages shifts interest rate risk to banks. - Cross-border exposures: - Exposures to mortgages in Ireland and Hungary, and overall exposures to Spain and Italy, remain a risk factor. - State guarantees largely related to Dexia; exposure of domestically owned banks to Italy and Spain reduced from EUR 105 billion in 2008 to EUR 21 billion in June 2013. ### Policy discussions and recommendations - Focus areas: activate unused labor resources, reinforce competitiveness, and anchor fiscal policy to medium-term structural targets. - Measures taken to correct past slippages in wage costs relative to partners. - Closing competitiveness gap requires broader structural reforms to increase productivity, innovation, and improve resource allocation. - Financial sector discussions: adjust bank business models to low structural profitability and evolving regulatory environment. - A. Raising Productivity, Adaptability, and Activation (policy priority highlighted for further action). *Source: _cr1476 - 1. Belgium in the Global Value Chains_ (IMF).* ### 11. The authorities’ structural policies have been guided by two main objectives: ### 11. The authorities’ structural policies have been guided by two main objectives: ### Increasing labor activation to meet the 73.2 percent employment rate target by 2020 - Objective: 73.2 percent employment rate target by 2020; authorities noted the target may be overly ambitious in the wake of the crisis. - Measures and expected effects: - Tightening of unemployment, pension, and pre-pension benefits in the last two years expected to raise work incentives and lengthen working life (Appendix IV). - A commission charged with preparing pension reform proposals for the next government. - Job subsidy schemes amounting to nearly 3.2 percent of total labor costs to activate low-skilled workers; minimum wage (roughly EUR 1,500 a month) seen as employment barrier for low-skilled workers. - Service voucher system covers some 109,000 workers; budgetary cost of 0.4 percent of GDP in 2011. Under the service voucher system, households can purchase vouchers for domestic work from contractual workers at 60 percent of the minimum wage, with the state (and from 2015 the regions) filling the gap and other costs. - Other active labor market policies cited as successful: subsidized apprenticeships. - Policy preference: transition more generally from passive support to in-work benefit schemes. - Empirical note: employment rates for senior workers have been increasing. ### Restoring cost competitiveness - Institutional mechanism: 1996 law on competitiveness establishes a “wage norm” aligning wage developments with partner countries despite indexation. - Historical developments: - 2007–08: wages in Belgium rose 2.2 percent above those of partners, mostly due to forecast errors. - Government actions: (i) imposing a real wage freeze in 2013–14; (ii) adjusting the price index, which lowered wage growth by 0.2 percent; and (iii) reducing energy prices through structural reforms, with resulting indexation impact on wages. - Outcome: wage handicap relative to partners stabilized at 4.8 percent in 2013, and should decline by 1 percentage point in 2014. - Additional November 2013 measures: - Commitment to reduce labor taxes by the equivalent of 0.4 percent of GDP over the next five years. - Lowering VAT on electricity from 21 to 6 percent, effective April 2014, with an estimated impact of 0.4 percent on prices and, through indexation, on wages. - Staff recommendations and concerns: - Secure social partners’ agreement that labor tax reductions would go to reducing labor costs rather than increasing wages. - Questioned merits of lowering VAT on energy; suggested cutting labor taxes would be a more efficient way of reducing labor costs. - Wage indexation detail: wages indexed to inflation; wage norm sets a ceiling on real wage negotiations based on expected wage developments in Germany, France, and the Netherlands; national wage norm guides sectoral wage negotiations covering 90 percent of employees. - Note on estimates: Estimates of the Central Council for the Economy based on OECD wage projections for France, Germany, and the Netherlands. The wage handicap is cumulated since 1996. ### Substantial remaining challenges - Inefficient redistribution mechanisms: - Belgium’s social model produces the largest degree of redistribution in the OECD; taxes and cash transfers reduce inequality by about 15 percentage points (GINI). - Redistributive design creates widespread inactivity traps; scope to increase work incentives by reducing interruption of career schemes and exemptions from job search requirements. - Wage formation: - Need to make automatic corrections for past deviations from the wage norm more explicit. - Staff recommended introducing corrections for observed deviations in labor productivity growth (not only wages) and removing terms-of-trade effects from indexation mechanisms. - Labor market adaptability: - Dismissal procedures lengthy and costly; 2013 reform eliminated differences between blue collar and white collar treatments but system remains costly. - Adverse effects on hiring, labor mobility, and enterprise adjustment; staff suggested reallocating resources to in-work training (Belgium lags other countries). - Recommend strengthening job search requirements and reducing tax impediments to relocation. - Product market efficiency: - Regulation and administrative burdens are more cumbersome in Belgium than in other European countries; competition in non-tradable sector less intense and productivity gains lower (even negative for some services). - Liberalization recommended—particularly in transport industries, retail distribution, and professional services—to raise potential growth, create new job opportunities, and reinforce activation policies. - 2013 reform of the competition authority increases capacity to sanction anti-competitive practices. ### A more strategic approach to fiscal adjustment - Required structural fiscal adjustment: 3.3 percent of GDP still required to meet the authorities’ medium-term structural surplus objective of 0.75 percent of GDP. (Based on the authorities’ estimate of potential GDP, the needed effort is 2½ percent.) - Rationale: targeted surplus would place the debt ratio on a path consistent with EU commitments and create fiscal space for ageing costs. - Timing and pace: - April 2013 Stability Program envisioned reaching the objective in 2016; meeting that date would require acceleration relative to projected 2014 structural adjustment (0.5 percent of GDP). - Staff view: average structural adjustment of 0.75 percent a year appropriate going forward given DSA risks; emphasis on steady quality adjustment over a specific date. - Staff baseline assumes more modest structural adjustment of about 0.5 percent per year, which would see Belgium achieve the medium-term fiscal objective in 2019. - Risks: under baseline, public finances remain fragile; modest economic changes could push public debt above 100 percent. Major risks include a negative growth shock and realization of contingent fiscal liabilities from bank support. - Policy composition: - Staff stressed need to identify upfront sources of medium-term adjustment; rebalance consolidation toward expenditure measures given most adjustment to date has come from revenue measures. - For federal government: reduce current spending and rationalize subsidies and social transfers, consistent with activation objectives. - Tax policy: integrate planned reductions in labor taxes into a comprehensive tax shift toward indirect, environmental, and capital income taxation—income from capital is subject to different and favorable tax regimes relative to labor income. - Role of regions: - Regional and community governments responsible for roughly 1/3 of the remaining adjustment; must take decisive actions. - Enhanced competencies under the sixth reform of the state provide scope for both revenue and expenditure measures. - For regions: focus adjustment on current spending and tax expenditures to preserve fiscal space for productivity-enhancing spending in education and transport infrastructure, where growing bottlenecks undermine productivity. - Fiscal Compact adaptation: - Cooperation agreement among federal, regional, and community governments; stronger assessment and monitoring role for the High Council of Finance. - Moving to structural targets should reduce reliance on pro-cyclical stop-gap measures. - Defining and monitoring structural targets for regional governments will be challenging; staff proposed setting nominal deficit targets with cyclical adjustors for revenues. ### Box 3 — Sixth Reform of the State and burden sharing of fiscal adjustment (summary) - Reform timeline and scope: - Negotiated October 2011; finalized December 2013 with revised Special Finance Act; reform enters into force in July 2014; new financing rules applied in 2015. - Decentralized responsibilities should amount to nearly 5 percent of GDP in 2015. - Redistribution of adjustment burden: - Regions gain tax autonomy: responsibility for around 25 percent of the personal income tax (2.9 percent of GDP); share of own taxes in regions’ total revenue increases from 43.9 percent to 73.3 percent. - New federal grants (1.3 percent of GDP) and new traffic related revenue (0.2 percent of GDP); overall total new resources increase by 4.4 percent of GDP in 2015. - Residual gap of about 0.6 percent of GDP as of 2016 is Regions and Communities’ contribution to fiscal consolidation. - Additional adjustment of 0.4 percent of GDP over the medium term via: decreased indexation of some grants to economic growth from 2017 onwards (reducing federal transfers by 0.2 percent of GDP by 2030) and gradual increase of Regions’ contribution to civil servants’ pension plans to 8.86 percent of wages in 2030 (0.2 percent of GDP). - Redistribution between regions scaled back: national solidarity allowance compensation reduced from 100 percent to 80 percent of per capita income differences, yielding 0.1 percent of GDP savings for the federal government. - Data and sources: calculations based on end-2012 data; sources include Belgian authorities and Decoster & Sas (2013). ### Financial sector: from deleveraging to reforming business models - Main bank challenge: move from balance sheet repair to adjusting business models under low profitability and regulatory changes. - Authorities’ assessment: - Risks from legacy assets considered manageable but with very long shelf life requiring prolonged monitoring. - Revival of economic growth should help profitability; primary instrument of adjustment should be more aggressive cuts in operating expenses. - Stronger profitability would facilitate compliance with Basel III solvency rules. - Supervisor has stepped up monitoring of banks’ business models and profitability of specific business lines; consolidation in an overbanked system might be needed. - Forthcoming banking law (cornerstone of strategy to safeguard financial stability): - Agreed December 2013; expected to be passed by parliament before the May elections. - Aims to restrain trading activities and improve recovery and resolution framework within EU Bank Resolution and Recovery Directive perimeter, including reinforcing depositor protection. - Law balances competitive distortion risks with need to protect stability and public finances; bail-in provisions contingent on forthcoming EU agreements. - Law should permit universal banks to continue trading activities beneficial to the real economy; thresholds for additional capital requirements judged prudent. - Near-term assessment: - Banks overall seem well positioned for the ECB comprehensive assessment, which may cast doubts on viability of specific business lines. - Risk profiles differ across banks (legacy assets, problematic foreign mortgage markets, public sector lending); asset quality problems in specific loan classes could have uneven system repercussions. - Loss absorption capacity differs across banks; some increased provisions ahead of the ECB’s asset quality review. *Source: IMF staff report content provided in the supplied document excerpt.* ### 21. Recent measures by the National Bank of Belgium (NBB) to reduce risk from mortgage ### 21. Recent measures by the National Bank of Belgium (NBB) to reduce risk from mortgage ### Mortgage-sector measures and vulnerabilities - The NBB has enhanced supervisory scrutiny of mortgage risks and has raised the risk weights for domestic mortgages by 5 percentage points above the banks’ own internal risk weighting models. - The authorities presented this measure as mostly preemptive and motivated by the risks of continued upward pressures on housing prices. - Loan impairment of domestic mortgages (around 15 percent of the consolidated balance sheet) remains low. - The latest vintages of mortgage loans do not show any increase in default rates. - Pockets of vulnerability remain: - 10 percent of mortgages combining loan-to-value ratios of over 90 percent with debt service ratios of over 50 percent. ### Reform of taxation of savings - The tax advantage granted to bank savings accounts has contributed to the strong liquidity position of banks but distorts financial intermediation. - Authorities proposed extending the tax benefit to all financial instruments, capping it at the current level to be revenue neutral, and phasing it gradually to avoid disrupting banks’ operations. - The proposal aligns with past staff advice but encountered public and political opposition, in part because it would increase the reporting requirements of financial institutions to the tax authority. - Contextual numeric detail: the combination of declining interest rates and a high cap on exempt interest income (EUR 1,880 in 2013) resulted in a massive shift of saving toward savings accounts. ### Box 4 — The Draft Banking Law (summary of key features) - Objective: improve recovery and resolution frameworks, reduce contagion from risky trading activities to retail banking, and reinforce depositor protection. - Trading activities: - Bans banks from proprietary trading while allowing trading operations deemed beneficial for the real economy. - Trading activities will be limited to 15 percent of the balance sheet or 10 percent of the regulatory capital; and subject to capital surcharges beyond those thresholds. - Forbidden trading activities must be transferred to a separate entity. - Approach closer to the Volcker rule (United States) by defining a perimeter for permissible trading activities preserved by deposit-taking entities. - Recovery and resolution framework: - Requires all domestic financial institutions to have recovery and resolution plans. - Recognizes the National Bank as the resolution authority and empowers it with flexible instruments (selling part or all of a failing bank, using bridge institutions, separating assets via asset management vehicles). - Seeks to speed up judiciary decisions to resolve banks and extend the requirement to submit strategic decisions for regulatory approval to all banks. - Depositor protection: - Establishes depositor preference over unsecured creditors for all deposits eligible for coverage by the deposit guarantee scheme. - Banks required to provide information on asset encumbrance in their recovery plans; level of asset encumbrance monitored and assessed against bank-specific thresholds set by the regulator. - Failure to comply with thresholds will trigger corrective action. - Macro-prudential policies: - Designates the NBB as the macro-prudential authority with responsibility for detection and monitoring of systemic risks and powers to make recommendations ("act or explain"). - NBB would have an array of macro-prudential instruments (e.g. additional capital and liquidity requirements, new disclosures, limits on concentration risks, leverage ratio, limitation on dividends, different valuation of collateral). - Federal government retains responsibility for setting limits on loan-to-value and debt-to-income ratios; NBB can recommend use of these instruments. ### Staff appraisal — growth, labor, and product-market reforms - With financial stability risks receding, strengthening growth performance is the critical challenge. - Growth impediments arise from the interaction of labor and product market rigidities and distortions from inefficient social policies. - Comprehensive, mutually reinforcing measures are needed to: - Activate underused labor resources and improve competitiveness. - Improve resource allocation and productivity through structural reforms. - Labor market recommendations: - Focus institutions on promoting labor mobility and adaptability, including life-time training, rather than protecting existing jobs through costly layoff procedures. - Strengthen wage-setting institutions by ensuring more timely correction for deviations in wage and productivity trends relative to partners. - Product-market recommendations: - Eliminate barriers to competition, reduce heavy regulation, and improve coordination among government levels via a new cooperation framework. - Leverage public resources for private R&D, notably through public universities. - Social-policy recommendations: - Shift public resources from passive to active labor market policies to raise employment rates. - Pension reform should focus on lengthening working life. - Broader reform needed to eliminate inactivity traps and incentives to withdraw from the labor force. - Phase reforms as demand recovers and expand active labor market policies; fund in-work benefits by generating savings from reforming passive support measures. - Example of activation instrument: service voucher system within the constraint of the minimum wage. ### Fiscal policy and adjustment - High debt requires continued steady fiscal adjustment rebalanced from tax measures to structural spending reforms. - Annual structural adjustment of 0.75 percentage points is recommended to rebuild fiscal space in view of ageing costs while considering risks from a hesitant recovery. - The adjustment should be achieved by containing expenditure growth to limit the need for new revenue measures. - Fiscal effort should focus on reducing current spending, subsidies, and transfers, preserving space for growth-enhancing spending on labor activation and public infrastructure. - Tax recommendations: - Integrate planned reductions in labor taxes into a comprehensive tax shift away from labor income toward indirect taxes (e.g., VAT), environmental taxes, and taxes on income from capital. - The announced reduction of VAT on electricity goes in the opposite direction and should at some point be replaced by lower labor taxes. - EU fiscal-compact adaptation: - Moving to structural deficit targets offers an opportunity to improve fiscal efficiency and reduce stop-gap measures. - Challenges arise from concurrent fiscal decentralization and reallocation of adjustment toward regional governments. - Extending fiscal governance to all levels requires defining individual fiscal objectives that capture structural effort. ### Banking sector outlook and supervision - Bank restructuring has reduced financial vulnerabilities, though legacy assets will be unwound very gradually and require continued close oversight. - Future risks relate to low profit margins and banks’ ability to meet more stringent capital requirements under Basel III. - Policy implications for banks: - Further cost-cutting measures are needed. - Continued regular monitoring of banks’ business models as they adapt to the evolving regulatory environment and the lapsing of state aid conditionality. - The draft banking law currently in parliament should help safeguard financial stability by strengthening the resolution framework and limiting trading activities while preserving the universal banking model of Belgian banks. - Supervision has been strengthened in line with FSAP recommendations; tightening of capital requirements on mortgage lending is a preventive measure against the risk of real estate prices outrunning incomes. *Source: _cr1476 - 21. Recent measures by the National Bank of Belgium (NBB) to reduce risk from mortgage* ### 29. It is proposed that the next Article IV consultation with Belgium take place on the ### It is proposed that the next Article IV consultation with Belgium take place on the standard 12-month cycle. ### Real sector developments (2007–13) - Belgium’s economy "has been virtually stagnant for two years." - Leading high-frequency indicators "have rebounded recently." - "Confidence is at two-year high (albeit still negative)." - Industrial production and export volumes: "consistent with rising industrial production and exports volumes." - Households’ real disposable income: "a steady rise in households’ real disposable income." - Inflation: "Inflation pressures have eased considerably, reflecting the drop in energy prices." - Labor market: "labor market conditions have deteriorated due to insufficient employment growth." - Table 1 projections (selected): - Real GDP: -2.8 (2009), 2.3 (2010), 1.8 (2011), -0.1 (2012), 0.2 (2013), 1.1 (2014), 1.2 (2015), 1.3 (2016), 1.4 (2017), 1.4 (2018), 1.5 (2019) - Unemployment rate: 7.8 (2009), 8.2 (2010), 7.3 (2011), 7.6 (2012), 8.6 (2013), 9.1 (2014), 9.0 (2015), 8.8 (2016), 8.6 (2017), 8.3 (2018), 8.1 (2019) - Household saving ratio (in percent): 18.0 (2009), 15.1 (2010), 14.0 (2011), 15.1 (2012), 15.2 (2013), 15.6 (2014), 15.7 (2015), 15.9 (2016), 16.0 (2017), 16.1 (2018), 16.2 (2019) - Consumer prices: 0.0 (2009), 2.3 (2010), 3.4 (2011), 2.6 (2012), 1.2 (2013), 1.1 (2014), 1.2 (2015), 1.3 (2016), 1.4 (2017), 1.4 (2018), 1.4 (2019) ### External position and private sector balance sheets (2000–12) - Current account: "Even though Belgium’s current account has deteriorated in the recent years..." - Current account balance (Table 2): -0.6 (2009), 1.9 (2010), -1.1 (2011), -2.0 (2012), -1.7 (2013), -1.3 (2014), -1.0 (2015), -0.7 (2016), -0.4 (2017), -0.1 (2018), 0.2 (2019) (In percent of GDP) - Net international investment position: "remains very strong." - Households: "very healthy households’ balance sheets." - Households wealth and indebtedness (2012): Net financial assets and Debt presented in Figure 2 (qualitative: high net financial assets relative to many peers). - Corporate debt: "Consolidated corporate debt is low... especially once cross-border inter-company lending is netted out." - Corporate insolvencies: "have picked up since the onset of the crisis." ### External sector and competitiveness (1995–2013) - Belgium’s share in world exports: "been declining faster than that of other European countries." - Share in World Merchandise Exports (Index, 2005=100): Belgium, France, Germany, Netherlands, Euro area series shown (Figure 3). - Unit labor costs: "relatively rapid growth in unit labor costs." - Total factor productivity: "weak productivity growth which fell behind that of other European countries... especially in the regulated services sector." - Wages: "Wage developments have contributed little to the loss in cost competitiveness relative to the main trading partners." - Real effective exchange rate: "has been on an appreciating trend since late 2012." - Real Effective Exchange Rates Based on CPI (Index, 2008Q1 = 100): Belgium, Germany, France, Netherlands series shown (2008–2013). ### Financial sector deleveraging and banking sector structure (2006–13) - Belgian banks: "undertaken substantial deleveraging since the onset of the crisis." - Business model shift: "banks moved away from cross-border operations or were sold to foreign competitors." - Bank assets reorientation: "assets of resident banks were reoriented toward the domestic market" and "expansion of their domestic deposits." - Total assets by credit institutions (percent of GDP) and related series shown (Figure 4). ### Banking sector exposures and credit quality (2008–13) - Reduction in exposures to Greek, Portuguese, Italian, and Spanish public debt: "Banks have reduced their exposure very significantly." - Elevated exposures: "exposures to Central and Eastern Europe and neighboring sovereigns remain elevated." - Links with domestic economy: "have intensified during the crisis." - Mortgage default rates: "declining relative to past vintages." - Exposures to public sectors and domestic loan composition for 2013 presented in Figure 5. ### Liquidity, solvency, and profitability of the banking sector (2003–13) - Liquidity: "Thanks to a large and increasing deposit base... Belgian banks have comfortable liquidity margins." - Deposits-to-GDP Ratio: peak 2003-2011 and September 2013 comparisons shown (Figure 6). - Capital adequacy: "Tier I capital ratios compare favorably with those in other EMU countries... remain above regulatory levels." - Tier 1 Capital Ratio (In percent of risk-weighted assets): Belgium among comparators; Basel III regulatory threshold shown. - Evolution of Core Tier 1 Capital Ratio: increase since 2008 due to balance sheet restructuring. - Profitability: "Structurally low profitability... reflects comparatively high cost-to-income ratios." - Cost-to-Income Ratio for Selected Countries, 2012: Belgium comparisons shown. ### Credit developments and monetary transmission (2008–13) - Monetary easing by the ECB: "has been effectively transmitted into domestic lending conditions." - Lending to private sector: "has continued to grow overall." - NFC and household lending: year-on-year percent changes series shown (Figure 7). - Lending rates: "Lending rates for NFCs have trended down over the past two years... as they have for households." - Credit conditions: "overall credit conditions are improving relative to 2012 both for NFCs and households." - Real interest rates (adjusted for Belgium's one-year ahead inflation) and bank lending rates series provided. ### Fiscal consolidation efforts and taxation (1980–2013) - Long-run consolidation: "Belgium was able to deliver impressive fiscal consolidation from the 1980s until the crisis." - Recent consolidation: "since 2011 has been based on raising taxes, while expenditure has continued to trend up." - Labor taxation: "taxes on work were already heavier than in the neighboring countries... personal income tax and social security contributions increased further" → "Belgium’s labor taxation is the highest in Europe." - Composition of adjustment (2009–13): cyclically adjusted revenue and expenditure and tax revenue by category comparisons shown. - Key fiscal numbers (Table 3a, selected): - Revenue (percent of GDP): 48.1 (2009), 48.7 (2010), 49.6 (2011), 51.0 (2012), 51.5 (2013), 51.5 (2014), 51.7 (2015), 52.1 (2016), 52.3 (2017), 52.5 (2018), 52.7 (2019) - Expenditure (percent of GDP): 53.7 (2009), 52.6 (2010), 53.4 (2011), 54.8 (2012), 54.4 (2013), 53.9 (2014), 53.8 (2015), 53.6 (2016), 53.2 (2017), 52.7 (2018), 52.2 (2019) - General government balance (percent of GDP): -5.6 (2009), -3.7 (2010), -3.7 (2011), -4.0 (2012), -2.7 (2013), -2.4 (2014), -2.1 (2015), -1.4 (2016), -0.8 (2017), -0.1 (2018), 0.6 (2019) - Gross government debt (percent of GDP): 95.7 (2009), 95.7 (2010), 98.0 (2011), 99.8 (2012), 99.8 (2013), 99.7 (2014), 99.9 (2015), 98.5 (2016), 96.3 (2017), 93.8 (2018), 90.4 (2019) ### Government spending and labor market outcomes (1995–2012) - Social spending: "has grown on average by 2.9 percent per year since 2000... with pensions and healthcare accounting for most of social spending and its growth." - Labor market incentives: "Generous redistributive programs in the absence of active labor market policies have contributed to low labor force participation rates... and have encouraged workers to retire early." - Employment composition since 2008: "employment growth has been positive only in the public and subsidized sectors... with the share of private non-subsidized employment declining steadily." - Real growth of general government spending (2000–2012 average): Investment, Intermediate consumption, Compensation of employees, Social benefits, Subsidies to companies series shown (Figure 9). ### Economic and social regional differences (2003–13) - Regional disparities: "Wide differences in income persist... and employment ratios remain depressed in Wallonia and Brussels." - Education outcomes: "Differences in education outcomes stand in the way of stronger convergence, based on school completion... and science and mathematics proficiency." - Regional indicators (averages and 2013): - Real GDP per capita and Real GDP growth (2003–12 averages) for Brussels, Flanders, Wallonia shown. - Employment and unemployment rates (2013) and early school leavers (2012) and low-achieving students (2012) series shown. ### Balance of payments and financial accounts (2009–19) - Balance on current account (Table 2): -0.6 (2009), 1.9 (2010), -1.1 (2011), -2.0 (2012), -1.7 (2013), -1.3 (2014), -1.0 (2015), -0.7 (2016), -0.4 (2017), -0.1 (2018), 0.2 (2019) (In percent of GDP) - Exports of goods and services (percent of GDP): 72.1 (2009), 78.9 (2010), 84.0 (2011), 85.6 (2012), 81.6 (2013), 77.5 (2014), 75.5 (2015), 74.2 (2016), 73.4 (2017), 73.1 (2018), 73.1 (2019) - Financial account (percent of GDP): 1.8 (2009), -1.9 (2010), 1.5 (2011), 2.6 (2012), 1.8 (2013), 1.5 (2014), 1.2 (2015), 0.9 (2016), 0.5 (2017), 0.2 (2018), -0.1 (2019) ### Financial system structure and banking soundness (2008–13) - Structure (Table 4): - Number of credit institutions: 107 (2008), 104 (2009), 107 (2010), 108 (2011), 104 (2012), 103 (2013) - Total assets (in billions of euros, consolidated): 1,422 (2008), 1,191 (2009), 1,151 (2010), 1,147 (2011), 1,049 (2012), 1,025 (2013) - Insurance sector total assets (in billions of euros): 224 (2008), 234 (2009), 249 (2010), 257 (2011), 265 (2012), 270 (2013 H1) - Financial soundness indicators (Table 5, selected): - Return on assets: -1.3 (2008), -0.1 (2009), 0.5 (2010), 0.0 (2011), 0.1 (2012), 0.5 (Latest) - Return on equity: -36.5 (2008), -2.7 (2009), 10.7 (2010), 0.7 (2011), 3.0 (2012), 9.7 (Latest) - Cost/income ratio: 86.1 (2008), 77.7 (2009), 66.0 (2010), 67.3 (2011), 73.4 (2012), 58.9 (Latest) - Non-performing loans (NPL) as percent of gross loans: 1.7 (2008), 2.7 (2009), 2.8 (2010), 3.2 (2011), 3.2 (2012), 3.2 (Latest) - Regulatory capital to risk-weighted assets: 16.2 (2008), 17.3 (2009), 19.3 (2010), 18.5 (2011), 18.1 (2012), 18.7 (Latest) - Customer deposits (percent of total assets): 40.2 (2008), 46.8 (2009), 46.0 (2010), 46.5 (2011), 49.3 (2012), 53.5 (Latest) - Liquid assets (percent): 28.6 (2008), 31.5 (2009), 32.5 (2010), 34.3 (2011), 36.4 (2012), 35.5 (Latest) *Sources: National Bank of Belgium, Haver Analytics, Belgian authorities, OECD, European Commission, Creditreform, IMF’s Balance of Payments Statistics, IMF Financial Soundness Indicators, DOT, KLEMS, and IMF staff calculations.* ### Appendix I. Main Recommendations of the 2013 Article IV ### Appendix I. Main Recommendations of the 2013 Article IV Consultation and Authorities’ Response ### Fiscal Policy - Fund recommendation: Maintain a steady pace of fiscal adjustment based on structural targets to reduce vulnerabilities. - Policy action taken: Structural adjustment of 0.8 percent of GDP achieved in 2013. - Fund recommendation: Adopt a clear rule-based multi-year fiscal policy framework, which would ensure adequate burden-sharing across all levels of government and consistency with overall fiscal targets. - Policy action taken: Requirements of EU Fiscal Compact adopted into law, with emphasis on medium-term structural targets. Agreement on burden sharing with regional governments reached in mid–2013. ### Financial Sector Policy - Fund recommendation: Strengthen banks’ capital buffers in line with Basel III requirements and review regularly the viability of banks’ business models. - Policy action taken: The 2013 and 2014 Annual Risk Reviews focus on the evaluation of banks’ business models. Recent measures taken by the NBB to strengthen capital buffers include limits on dividends and the reduction of specific activities. - Fund recommendation: Strengthen the national resolution and deposit insurance frameworks. - Policy action taken: New draft banking law before parliament (Box 4). - Fund recommendation: Reform taxation of financial income to reduce bias in favor of short-term deposits and to promote long-term saving regardless of the underlying financial instruments. - Policy action taken: Discussions are ongoing to extend the tax exemption on income from savings deposits’ income to other financial instruments, but no agreement has yet been reached. ### Structural Reforms - Fund recommendation: Phase out wage indexation and strengthen the link between domestic wage developments and those in partner countries, while providing flexibility to correct for past deviations. - Policy action taken: Consensus reached with social partners on need for continued wage moderation in order to close the wage gap relative to partners, estimated at 4.8 percent in 2013. - Fund recommendation: Enact additional pension and social policy reforms, consistent with fiscal consolidation objectives, in order to raise the effective age of retirement and employment rates. - Policy action taken: High level commission established to prepare pension reform recommendations for the next government. *Source: Appendix I. Main Recommendations of the 2013 Article IV Consultation and Authorities’ Response* ### Appendix II. FSAP Recommendations ### Overall Financial Stability Oversight - Recommendation: Formalize procedures and improve information exchange between the NBB and the Financial Services and Markets Authority (FSMA). - Timing: Immediate - Status: Done. A Memorandum of Understanding was signed in 2013, which provides for information sharing procedures as well as enhanced dialogue through regular meetings at the technical, senior, and board levels. - Recommendation: Make stress testing a routine tool within the macro-financial policy and surveillance framework. - Timing: Short term - Status: Ongoing. Stress tests will be conducted in collaboration with the ECB/EBA as part of the forthcoming asset quality review. The NBB has started collecting granular data needed for credit risk assessment (loss given default and probability of default). - Recommendation: Enhance further stress testing of insurers using a market consistent valuation framework. - Timing: Short term - Status: Partly done. Establishment of interim measures for Solvency II including Own Risk and Solvency Assessment, reporting requirements, governance, and pre-application of internal models. - Recommendation: Complete the ongoing business model reviews for both banks and insurance companies and develop a strategy for both sectors over the medium term. - Timing: Short term - Status: Partly done. The 2013 and 2014 Annual Risk Reviews (ARR) examine the viability of banks' business models. The 2013 ARR focuses on interest margins, profitability drivers, and credit risks by activity lines. The 2014 ARR will broaden the scope of the analysis to market activities, asset liability management, etc. and perform a full vulnerability analysis for insurance companies. - Recommendation: Develop an explicit conglomerates supervision framework and ensure consistent application of governance requirements across financial conglomerates. - Timing: Medium term - Status: Partly done. The banking law will integrate conglomerate supervision into banking supervision (for banking-led conglomerates). Ongoing work to tailor the supervisory framework to conglomerate-specific risks will be adjusted next year to comply with EU guidelines on risk-concentration in financial conglomerates and intragroup transactions in financial conglomerates. The NBB will closely monitor multiple leveraging, ensure the systematic reporting of intra-group transactions and risk concentrations (as mandated by the Financial Conglomerates Directive), and finalize and apply consistently insurance and securities scorecarding systems (2014 ARR). - Recommendation: Designate the NBB as the macroprudential authority, ensuring a regular dialogue with FSMA and Ministry of Finance (MoF) on macroprudential and financial stability matters. - Timing: Medium term - Status: Done. The banking law designates the NBB as the macro-prudential authority. As such, the NBB will be responsible for the detection and monitoring of systemic risks and for following up on any related recommendations from international organizations (IIOO); and vested with powers to ask for corrective measures to the relevant authorities ("act or explain"). The NBB is currently revamping the framework for the detection of systemic risks and will count on a wide range of instruments to encourage effective action (e.g. additional capital and liquidity requirements, new disclosures, limits on concentration risks, leverage ratio, limitation on dividends, different valuation of collateral). Specific limits related to loan-to-value and debt-to-income ratios will be the responsibility of the federal government, but the NBB will make recommendations on the use of these instruments whenever risks appear in the real estate sector. ### Banking Regulation and Supervision - Recommendation: Review supervisory processes and calibrate intensity and resource allocation based on institutions' risk profiles, particularly for smaller institutions. - Timing: Short term - Status: Done. Supervisory processes have been strengthened along a number of dimensions (clustering exercises, resource allocation based on risks' profiles also for smaller institutions, etc.) The NBB's supervisory framework is adjusting to SSM requirements, particularly the adoption of a uniform supervision scorecard. Up to 20 additional positions will be created within the NBB to support supervisory tasks. - Recommendation: Embed engagement with bank and insurance boards in the supervisory process in a systematic way. - Timing: Short term - Status: Partly done. The NBB Board holds regular meetings with bank and insurance boards. - Recommendation: Empower the NBB to pre-approve a major acquisition by a credit institution. - Timing: Medium term - Status: Done. The banking law (2014Q1) includes a provision for this purpose and the notion of strategic decisions for Belgian D-SIBs will be broadened to include any changes in banks' operations that could potentially impact on resolvability. - Recommendation: Maintain current liquidity regulatory regime until Basel III Liquidity Coverage Ratio (LCR) is fully adopted and phased in at the European level. - Timing: Ongoing - Status: Done. To avoid liquidity cliff effects due to the implementation of the EU capital requirements regulation, the NBB will require all Belgian credit institutions and financial holding companies to stick to the 100 percent LCR during 2015–18 (phase in period for the adoption of a full LCR under the CRR). ### Insurance Regulation and Supervision - Recommendation: Formulate a baseline prudential supervisory program for insurers and risk-based conduct-of-business supervision of insurers and intermediaries. - Timing: Short term - Status: Partly done. The 2014 ARR will refine the existing scorecarding approach towards supervision. Technical provisions will be monitored on a regular basis and methods used by insurance companies to compute technical provisions will be challenged (through dedicated on-site inspections). Supervisory staff for insurance companies will be increased by 6 additional positions and the effectiveness of external auditors and actuaries will be improved (licenses will be granted upon successful performance in specialized exams). A law was passed on July 30, 2013 to extend the Markets in Financial Instruments Directive risk-based conduct-of-business rules to insurance companies (entry into force as of January 1, 2014). - Recommendation: Align findings of insurance stress testing with contingency planning in the context of the recovery and resolution framework. - Timing: Short term - Status: Partly done. European Insurance and Occupational Pensions Authority-led stress tests will be conducted this year (in continuation of the long-term guarantee impact assessment conducted in 2013). The Own Risk and Solvency Assessment regime will also be used to assess the solvency needs of insurance companies in view of their risk profiles. - Recommendation: Implement elements of Solvency II, including an Own Risk and Solvency Assessment regime. - Timing: Medium term - Status: Partly done. Measures were adopted to improve the quality of the calculation of the Solvency II balance sheet and capital requirements (Own Risk and Solvency Assessment Regime, reporting requirements, governance, and pre-applications of internal models). The NBB will require insurance companies to provide additional information in 2014H1 for the computation of the solvency capital requirement. - Recommendation: Empower the NBB to take immediate recovery measures notwithstanding an appeal by the insurer. - Timing: Medium term - Status: Unaddressed. This recommendation will be addressed in the context of the transposition of the Solvency II regime. ### Securities Markets Supervision - Recommendation: Establish an Emerging Risk Committee at the FSMA and formalize framework for detecting and monitoring emerging risks. - Timing: Medium term - Status: Partly done. The IOSCO Thematic Review on the Implementation of Principles 6 and 7 of the International Organization of Securities Commissions Objectives and Principles of Securities Regulation (March 2013) found that the FSMA had made significant efforts to implement these principles. The FSMA is now consulting with other European securities regulators to exchange views on the framework for detecting and monitoring risks. ### Crisis Management and Resolution Framework - Recommendation: Formalize domestic coordination arrangements for the financial safety net participants via a crisis management memorandum of understanding and the establishment of a cross-institutional coordination group. - Timing: Short term - Status: Unaddressed. In the context of the banking union, coordination arrangements for safety nets will integrate resolution authorities at the both national (NBB) and EU levels (Single Resolution Mechanism and Single Supervisory Mechanism). - Recommendation: Request recovery and resolution plans (RRPs) for all domestic systemically important firms. - Timing: Short term - Status: Done. The forthcoming banking law will request RRPs for all domestic financial institutions. - Recommendation: Grant NBB an explicit mandate as the resolution authority. - Timing: Medium term - Status: Done. NBB's mandate as a resolution authority will be embedded in the forthcoming banking law. - Recommendation: Improve the bank resolution toolkit by reducing ex ante procedural requirements, extending the framework to all banks, and enhancing powers for special inspectors. - Timing: Medium term - Status: Partly done. The forthcoming banking law will reinforce the crisis management toolkit by speeding up of judiciary decisions to resolve failing banks, requiring NBB's opinion on the designation of the administrator and ex ante approval in the event of bank liquidation. EU agreements on bail in rules will be transposed to national legislation by royal decree at a later stage. - Recommendation: Revamp the deposit guarantee scheme, establish ex ante fund and depositor preference. - Timing: Medium term - Status: Partly done. The banking law would establish depositor preference over unsecured creditors. The regulator would be tasked with setting, for each bank, a floor on unencumbered assets which would be available to cover uninsured depositors in the event of a bank failure. Deposit guarantee schemes have not been reformed. *Source: Appendix II. FSAP Recommendations* ### Appendix III. Risk Assessment Matrix - Source of risk: Protracted period of slower European growth (larger than expected deleveraging, or negative surprise on potential growth) - Relative likelihood and channel of transmission: High; Strong impact through trade channel - Impact if realized: High. The growth impact of lower external demand would, over time, translate into higher structural unemployment and thus complicate further fiscal adjustment. - Policy response: coordinated fiscal policy response at European level to support demand where fiscal space is available. - Source of risk: Financial stress in the euro area re-emerges (triggered by stalled or incomplete delivery of national and euro area policy commitments) - Relative likelihood and channel of transmission: Medium. The extent to which financial stress in the euro area would spread to Belgium (and cause it to delink from the euro area core) depends on the nature of the shock. Belgium has limited direct exposures to Greece, and Portugal, its domestic banks are in a stronger position than in 2011, and despite high debt Belgium has market credibility owing to proven ability to consolidate. On the negative side, sovereign banking interdependence remains high. - Impact if realized: Medium. Impact would be greatest if source of stress came from bank asset quality concerns, as it could reactivate the sovereign-banking nexus. - Policy response: euro area monetary policy is first line of defense against liquidity stress, backed by adequate backstop and resolution institutions. - Source of risk: Risks to financial stability from incomplete regulatory reforms (delays, dilution of reform, or inconsistent approaches) - Relative likelihood and channel of transmission: Medium. Belgium has been proactive in implementing reforms but it remains vulnerable to the lack of sufficient coordination within the EU and euro area. - Impact if realized: Medium. Banks could be adversely affected by regulatory fragmentation. - Policy response: accelerated conversion of regulatory approaches within the EU, towards banking union. - Source of risk: Housing price correction - Relative likelihood and channel of transmission: Medium. Housing overvaluation estimates are in the 10–60 percent range based on price-to-income and price-to-rent ratios, but finer regression analysis points to overvaluation of 5-15 percent. - Impact if realized: Low. Price adjustment expected to be gradual, with limited impact on banks owing to sound lending standards. - Policy response: capital requirements on mortgages recently increased; additional macro-prudential measures could be introduced if necessary. - Source of risk: Political risk or lack of consensus on structural reforms - Relative likelihood and channel of transmission: Medium. Difficulty in implementing structural reforms and correcting cost and non-cost handicap. Fiscal adjustment lags or is driven by opportunistic (and inefficient) tax and expenditure measures. - Impact if realized: High. Failure to close competitiveness gap, improve the efficiency of public spending, and continue structural reforms would dampen growth and make fiscal adjustment more arduous. *Source: Appendix III. Risk Assessment Matrix* ### Appendix IV. Labor Market and Pension Reform Measures ### Appendix IV. Labor Market and Pension Reform Measures ### Unemployment Benefits — Search Requirements and Monitoring - Suitable job distance requirement changed from "25 km away or less" (2011) to "60 km away or less" (2012/2014). Status: Implemented. - Restrict rights to search for the same kind of job: - 2011: six months - 2012/2014: three months (young unemployed) and five months (other unemployed). Status: Implemented. - Monitoring of search efforts after unemployment: - 2011: Monitor search efforts for 18-21 months after unemployment, with an annual follow-up. - 2012/2014: Monitor search efforts nine months (26 years old or younger) or 12 months (26 or older) after start of unemployment, follow-ups every nine months. Status: Implemented. - Search effort requirement while on unemployment benefits: - 2011: every 12 or 16 months - 2012/2014: evaluation every six months; in case of negative evaluation: no unemployment benefits until the next evaluation, and no earlier than after six months. Status: Implemented. ### Unemployment Benefit Levels and Duration - Initial benefit rates: - 2011: Initial unemployment benefits are 60 percent of last wage, falling after one year to 55 percent for people living alone and 40 percent for people living in a family with another income. - 2012/2014: Initial unemployment benefits are 65 percent of last wage for three months, then 60 percent for the following nine months. After 13 months there is a reduction to 55 percent for people living alone and 40 percent for people living in a family with another income. Between 15 and 24 months of unemployment, depending on career length before unemployment, a stepwise reduction to arrive after maximum 48 months at a level just above social assistance. Status: Implemented. - Higher unemployment benefits by age: - 2011: Higher unemployment benefits for those above 50. Status: Implemented. - 2012/2014: Higher unemployment benefits for those above 55. Status: Implemented. - Unemployment benefits for young entrants: - 2011: Available after nine months of unemployment. - 2012/2014: Available after 12 months of unemployment. Status: Implemented. - Evaluation before opening right for young school leavers: - Two evaluations of search efforts 7 and 11 months after registering as jobseeker. Opening of right on unemployment benefits only after two positive evaluations. Status: Implemented for all youngsters that have left school after June 1, 2013. - Maximum duration where living with family with other income: - 2011: Unlimited - 2012/2014: Limited to three years (five years for worker on the margin of the labor market) for unemployed living with family with other income, or until the age of 33 in other family situations. The period of three years could be extended by six months if at least worked six months in the last 24 months. Period of three years could be extended by six months if worked at least six months in the last 24 months. Status: Implemented. ### Easing the Transition to the Labor Market for Low-skilled Youth - 2011 measure: Yearly creation of 10,000 internships for low-skilled school leavers. Reduced employer contribution in case of hiring after internship. Additionally, employers are asked to create one percent internship position under the form of, for example, apprenticeships. - 2012/2014 status: In progress. ### Government Subsidies, Time-credit, and Temporary Unemployment - Government Subsidy for Temporary Unemployment: - 2011: Without employer penalty. - 2012/2014: Employers will pay a penalty if there is an excess use of the system. Status: Implemented. - Government Subsidy for Time-credit and Career Break System: - 2011: Five year duration before the age of 50. - 2012/2014: One year duration (two to five years if part-time) before the age of 55, with supplementary credit of maximum 48 months for specific motivated breaks, such as childcare or studies. Status: Implemented. - Unlimited duration above: - 2011: Unlimited duration above the age of 50. Status: Implemented. - 2012/2014: Unlimited duration above the age of 55. Status: Implemented. - Public sector duration: - 2011: 72 month duration in public sector. Status: Implemented. - 2012/2014: 60 month duration in public sector. Status: Implemented. - Part-time pre-pension system: - 2011: Part-time pre-pension system. - 2012/2014: No new entries from 2012. Status: Implemented. - Government Subsidy for Working Time Reduction to Half Time (Time-credit with Unlimited Duration): - 2011: Minimum age 50. - 2012/2014: Minimum age 55 (with exceptions for physically demanding jobs). Status: Implemented. ### Pension Benefits — Pre-pension / Unemployment Benefits with Employer Top-up - Job search requirement: - 2011: No job search requirement. - 2012/2014: Job search requirement until the age of 55 (in 2013) and 58 (in 2016). Status: Implemented. - Minimum age: - 2011: Minimum age 58. - 2012/2014: Minimum age 60 for new collective agreements (2015 for existing agreements and 2024 for women). Status: Implemented. - Minimum career length: - 2011: Minimum career length 38 years for men, 25 years for women. - 2012/2014: Minimum career length 35 years (women)/40 years (men) for new collective agreements (2015 for existing agreements). Status: Implemented. - Treatment of pre-pension years in pension rights: - 2011: Pre-pension years count fully towards pension rights at the last wage level. - 2012/2014: Pre-pension years below the age of 60 do not count towards pension rights at last wage level but on a lower fictive level. Status: Implemented. - Employer social security contributions on top-up payments: - 2011: Reduced social security contributions on employer’s top-up payment. - 2012/2014: Employer social security contributions will be higher and linked to age of worker entering pre-pension. Status: Implemented. ### Pre-pension, Early Retirement, and Collective Dismissal Measures - Pre-pension for Collective Dismissal: - 2011: Minimum age 50. - 2012/2014: Minimum age 52 for loss-making companies (from 2012), raised by six months every year to 55 in 2018, 55 for restructuring companies (from 2013). Status: Implemented. - Restriction on dismissed workers’ age structure in collective dismissals: - 2011: No restrictions. - 2012/2014: Collective dismissals must reflect the age structure of the firm. Status: Still under discussion. - Unemployment benefits in pre-pension system for older workers: - 2011: No job search requirement for those above the age of 50. - 2012/2014: Job search requirement until the age of 55 (in 2013) and 58 from 2016 on. Status: Implemented. - Early Retirement Benefit: - 2011: Minimum age 60, full career length 35 years. - 2012/2014: Minimum age increased by six months every year to 62 by 2016, full career length increased by one year every year to 40 years by 2016. Status: Implemented. - Pension bonus: - 2011: Access to bonus stricter: bonus starts not earlier than 12 months after earliest possible date for early retirement. Bonus continues after 65 years. Only real working days creates bonus-rights. - 2012/2014: New system starts January 1, 2014. ### Employer Obligations and Social Security Contributions - Employer obligations towards older workers: - 2011: None. - 2012/2014: Draw up a plan to retain older workers. Status: Implemented. - Social security contribution reductions for hiring older long-term unemployed and pre-pensioners: - 2011: Reduced for hiring of older long-term unemployed. - 2012/2014: Reduced for hiring of older long term unemployed and pre-pensioners. Status: Implemented. - Reduced contributions for older workers: - 2011: Reduced for older workers from 50 years on. - 2013 adaptation (2012/2014): stronger reduction, but starting at 54 years instead of 50 years and only for those with gross wage under EUR 4,453 per month. Status: Implemented. - Additional social security contribution reductions for mentors; first five hires in small and medium enterprises; (very) low-skilled (unemployed) youth; medium-skilled youth; and handicapped persons. Status: Implemented. - Strengthening of the structural social security contribution reductions: In progress. ### Encourage Longer Employment via Pension System Reforms - For pensioners aged 65 or more with careers spanning more than 42 years: abolish ceiling on permitted earned incomes. Status: Implemented. - Full valorization vs limited valorization of assimilated periods in pension calculation: - 2011: Full valorization of assimilated periods in pension calculation at last wage earned: unemployment, unemployment with company top-up and time credit. - 2012/2014: Limited valorization of assimilated periods in pension calculation: - 3rd period unemployment, unemployment with company top-up before 60 and end of career time credit before 60 at pension minimum wage. - unmotivated time credit limited to 1 year assimilation. Status: Implemented. - Pension bonus unified: - 2011: Pension bonus for workers and self-employed persons: EUR 2.3 for every day worked extra, if 62 or a career of 44 years; pension complement for statutory government employees: percentage increase for every month worked after 60. - 2012/2014: Unified pension bonus for workers, self-employed persons, and statutory government employees: progressively increasing lump sum amount (from EUR 1.5 to EUR 2.0) for every day worked extra, if person continues working for longer than one year after fulfillment of early retirement conditions. Status: Implemented. - Survivors’ pension: - 2011: Survivors’ pension for widow(er)s: always for survivors of 45 years and older, under certain conditions in case of survivors younger than 45. - 2012/2014: For widow(er)s younger than 45: survivors’ pension replaced by transition allowance (12 months if no children, 24 months if children) that can be combined without limitation with work income, followed by automatic access to unemployment benefit if no gainful occupation and entitled to appropriate and early guidance. Eligibility age of 45 increased gradually to 50 by 2025. Social partners have given a positive. Law project was sent to the parliament. - Treatment of months of professional activity in retirement year: - 2011: In workers’ and self-employed persons’ pension schemes the months of professional activity in the year of retirement are not taken into account for pension calculation. - 2012/2014: In workers’ and self-employed persons’ pension schemes the months of professional activity in the year of retirement are taken into calculation. Social partners have given a positive advice. Law project was sent to the parliament. - Principle of career unity in pension calculation: - 2011: Principle of career unity in pension calculation in pension schemes of workers, self-employed persons and statutory government employees: career fraction or sum of career fractions cannot exceed 1 (45/45). - 2012/2014: Notion career no longer expressed in years (45), but in full time equivalent days (14,040). Social partners have given positive advice. Law project was sent to the parliament. - Increased taxation of the second pillar system in case of early retirement: - From July 1, 2013, 20 percent instead of 16.5 percent if leaving at 60, and if leaving at 61 without legal pension 18 percent instead of 16.5 percent. Status: Implemented. ### Decrease Pension Expenditure - Pension complement for frontier or seasonal workers in workers’ pension scheme: - 2011: frontier or seasonal workers residing in Belgium granted pension complement to increase foreign pension to level of pension they would have received if they had worked in Belgium. - 2012/2014: From July 1, 2014 no new rights to pension complements for frontier or seasonal workers will be constituted. - Modification to pension complements paid out from July 1, 2014: - only awarded from moment person concerned fulfills receipt conditions of foreign pension. - amount of pension complement will be based on all foreign pension benefits. - Social partners have given positive advice. Law project was sent to the parliament. *Sources: Belgian Federal Public Service Employment, Labor and Social Dialogue, National Bank of Belgium, National Employment Office, Federal Planning Bureau, Minister of Pensions, and Belgian Stability Program 2012–15.* ### 4.0 percent of GDP in 2012 to 0.1 percent in 2018. A modest surplus is expected from 2019 ### _cr1476 - 4.0 percent of GDP in 2012 to 0.1 percent in 2018. A modest surplus is expected from 2019 ### Fiscal projections and baseline - Headline balance: "4.0 percent of GDP in 2012 to 0.1 percent in 2018. A modest surplus is expected from 2019 onwards." - Primary surplus: projected to strengthen from "0.4 percent of GDP in 2013 to 3.9 percent of GDP in 2018." - Authorities’ structural surplus target: "0.75 percent" reached only in 2019 under the staff projection; consolidation measures past 2014 are "yet to be identified." ### Debt levels and gross financing needs - Public debt: "Public debt reached 99.8 percent of GDP in 2012 and is projected to stay just below the 100 percent mark in 2014." - Gross financing needs: "Gross financing needs are estimated at 18 percent of GDP in 2014 and are expected to remain around 14–18 percent in the medium term." - Assessment: Belgium’s high government debt and gross financing requirement warrant the "higher scrutiny" framework. ### Realism of baseline assumptions and forecast track record - Median forecast errors (2004−12): - Real GDP growth: "0.2 percent" (median forecast error), indicating a slight downward bias. - Inflation (GDP deflator): "0.2 percent" (median forecast error), indicating staff under-estimated inflation. - Primary balance: forecast bias of "-0.1 percent of GDP" (staff projections slightly optimistic). - Fiscal multipliers: estimated range "0.1−0.5" for Belgium (relatively low given openness), consistent with rule-of-thumb guidance. - Feasibility: Cross-country experience suggests projected fiscal adjustment is feasible; maximum 3-year CAPB adjustment over projection period is "2 percent of GDP" (ambitious). A constant primary balance scenario is presented to illustrate implementation risk. ### Heat map and vulnerability indicators (selected) - Debt burden benchmark: relevant threshold "85 percent"—Belgium’s values breach this threshold under the baseline and all stress test scenarios (risk from debt level deemed "high"). - Gross financing needs benchmark: most stress test scenarios exceed the benchmark of "20 percent of GDP." - External vulnerabilities: - External financing requirement: "127 percent" (significantly above upper early warning benchmark). - Share of public debt held by foreigners: "about 47 percent of total." ### Shocks and stress-test scenarios (design and key outcomes) - General finding: "The DSA framework suggests Belgium’s government debt-to-GDP ratio remains below 110 percent and its gross financing needs remain below 30 percent of GDP under different macroeconomic and fiscal shocks." - Growth shock: - Shock: real output growth lower by "one standard deviation" starting in 2014–15, i.e., "1.8 percentage points" relative to baseline. - Transmission: inflation assumed to decline "0.25 percentage points per 1 percentage point decrease in GDP growth"; interest rates assumed to increase "25 basis points for every 1 percent of GDP worsening in the primary balance." - Outcome: debt-to-GDP ratio increases to "106.6 percent of GDP in 2016" and declines thereafter. - High interest rate scenario: - Shock: "increase in spreads by 200 basis points throughout the projection period." - Outcome: impact on financing needs is "1.3 percent of GDP" in 2019; debt ratio "would be 2.0 percentage points higher than in the baseline by 2019." - Real exchange rate shock: - Shock: "15 percent devaluation in the real exchange rate in 2014." - Outcome: slight decrease in debt and gross financing needs ratios through the inflation channel. - Primary balance shock: - Shock: cumulative "2.3 percentage points of GDP" deterioration in the primary balance (one standard deviation). - Outcome: deterioration in the debt ratio of "2.5 percentage points relative to the baseline in 2019" and slightly higher gross financing needs. - Combined macro-fiscal scenario: - Aggregates shocks to real growth, interest rate, exchange rate, and primary balance without double-counting. - Outcome: debt would reach "108 percent of GDP in 2016" and remain "above 100 percent of GDP until 2019"; financing needs raised to an average of "20 percent of GDP in 2015–19." - Recommended fiscal scenario: - Assumptions: staff’s recommended average structural effort of "0.75 percent of GDP a year" until the medium-term surplus objective in 2019; gradual increase in revenues of "1 percent of GDP in all" years (as in the 2013 Stability Program); real expenditure growth of "0.5 percent a year." - Outcome: debt ratio falls to "88 percent of GDP in 2019," with lower financing needs throughout the forecast period. - Backtracking on fiscal consolidation: - Assumptions: fiscal slippage in 2014 of "0.3 percent of GDP"; no new consolidation measures in 2015–17; tax-to-GDP ratio constant at 2014 level; real primary expenditure growing at "1.5 percent per year." - Outcome: public debt remains elevated "at about 100 percent of GDP until 2018," with financing needs peaking at "19 percent of GDP in 2017." - Contingent fiscal shock: - Assumption: "50 percent of state guarantees to the financial sector are called upon in 2015." - Outcome/mitigation: large debt and financing-needs impact, but exercise to that degree within the same year is unlikely; Belgian state could cover some costs by selling assets (public enterprises and shares in BNP) estimated worth "10 percent of GDP." ### DSA baseline contributors and indicators (selected exact figures) - Public debt peak/level: "Public debt reached 99.8 percent of GDP in 2012." - Gross financing needs estimate for 2014: "18 percent of GDP in 2014." - Primary (noninterest) revenue and grants (selected projection series): "48.8, 50.8, 51.3, 51.2, 51.4, 51.8, 52.1, 52.3, 52.5, 53.1" (percent of GDP across projection years as shown). - Primary (noninterest) expenditure (selected projection series): "46.8, 51.5, 50.9, 50.7, 50.6, 50.4, 50.1, 49.7, 49.2, 49.2" (percent of GDP across projection years as shown). - Automatic debt dynamics contribution (selected series): "0.8, 1.8, 1.8, 0.9, 0.8, 0.6, 0.3, 0.4, 0.4, 3.4" (percent of GDP across projection years as shown). - Change in gross public sector debt (cumulative projection to 2019): "-9.3" (cumulative change in percent of GDP shown). *Source: IMF staff report (Belgium Public Sector DSA and stress tests, as presented in the informational annex).* ### introduction of macrofinancial risk dashboard to monitor systemic and emerging risk. Funding and ### _cr1476 - introduction of macrofinancial risk dashboard to monitor systemic and emerging risk. Funding and ### Macrofinancial risk monitoring and crisis management - Introduction of a macrofinancial risk dashboard to monitor systemic and emerging risk. - Funding and risk management standards are being improved. - Supervisory tools for monitoring group-wide risks need to be upgraded. - The crisis management framework, while updated for handling systemic firms, is in need of a further upgrade owing in part to EU-wide developments. ### Banking and insurance supervision - Insurance supervision has been significantly strengthened although further work is needed, particularly, in strengthening the solvency framework. - Both bank and insurance supervisory frameworks integrate vertical analyses of individual insurers with horizontal review of the sector. - Adoption of the new institutional architecture has allowed the FSMA to focus solely on market and business conduct. - Adoption of EU directives in the interim has addressed many of the recommendations for the securities sector. - The FSMA’s plan to adopt a risk-based approach to conduct supervision must be adequately resourced. - Pension regulation and supervision has been strengthened; while pension funds remain the remit of the FSMA, there is currently a debate as to whether this should be the responsibility of the NBB. ### Fiscal transparency and budget processes - Report: Belgium meets, and in some cases exceeds, requirements of the fiscal transparency code. - The basic government finance processes are supported by a sound institutional and legal framework. - Roles and responsibilities in the budget process are clear, with a well-defined separation of powers between the executive and legislature. - Fiscal information is provided through regular publications and extensive use of the internet. - Budget formulation is supported by medium-term macroeconomic forecasts and clearly formulated medium-term fiscal policy goals; fiscal policy is presented clearly in a medium-term context. - Audit processes are extensive and help improve budget management decisions, practices and standards, with government financial decisions evaluated ex ante and ex post by various institutions. Areas for improvement (identified): - Limited insight about the objectives and targets of government expenditure. - Medium-term budget estimates need to make budgetary decision-making more oriented to the medium-term. - Presentation of new policy measures and their medium-term costs could be clarified. - Budget implementation by departments and agencies could be streamlined. - Public information could be increased on: - fiscal risk and tax expenditures in budget documents; - in-year budgetary data on local government and agencies; - the content of the final government accounts; - the governance of state-owned equity holdings. - Institutional arrangements for fiscal policy coordination could be strengthened by: - reinforcing and expanding the role of the High Council of Finance, including by providing additional institutional safeguards as to its continuity and independence, and having the Council cover all important issues bearing on fiscal policy; - converting the budget agreements between the federal government, regions, and communities into published agreements which specify the targeted balance for each partner and identify the measures needed to achieve this target. - Internal audit processes could be better coordinated and simplified by reducing the number of internal control and audit layers; the Court of Audit’s recent Single Audit initiative aims to minimize overlap, coordinate work programs, and to share common data and analysis. ### AML/CFT - A full reassessment of Belgium’s AML/CFT framework is required in line with relevant IMF Board decisions. - Belgium was last assessed in 2005 by the Financial Action Task Force (FATF); a new assessment by the FATF is tentatively scheduled for June 2014. - The 2005 assessment found that, overall, Belgium’s AML/CFT framework largely complied with the standard, particularly regarding the criminalization of money-laundering and terrorist financing. - Shortcomings identified in 2005 included: - supervision of nonbank financial institutions; - transparency of beneficial ownership and control of legal entities; - regulation of designated nonfinancial businesses and professions; - freezing of terrorist assets. - Since 2005, authorities have reported steps to address shortcomings, including measures to reinforce the framework for the freezing of terrorist assets (2006), and the adoption of a new AML/CFT law (2010). ### Statistical framework and data availability - Belgium’s economic and financial statistics are adequate for surveillance purposes. - The National Bank of Belgium (NBB) regularly publishes a full range of economic and financial data and provides calendar dates of main statistical releases. - On-line access to comprehensive databases is facilitated by the NBB’s data search engine, Belgostat. - Belgium is a SDDS subscriber. - Statistics for International Financial Statistics on banking institutions and monetary aggregates are prepared on a monthly basis and are timely. - Belgium adopted ESA95 in 1999; revisions of national accounts started in November 2005 to comply with EUROSTAT requirements and prepare for chain-linked national accounts statistics. - The NBB compiles national accounts statistics; quarterly accounts are published within a lag of three months. - Shortcomings mainly related to export and import deflators, which are based on unit values rather than prices collected directly from exporters and importers. - Belgium compiles and publishes a complete set of general government accounts on an accrual basis (ESA95). - The NBB publishes annual and quarterly data on general government revenue, expenditure, and net lending/borrowing; transactions in financial assets and liabilities and a financial balance sheet data; and details on the consolidated gross debt. - Authorities provide quarterly updates of financial sector indicators (FSIs) in a timely manner. Publicly accessible key macroeconomic websites listed in the source: - National Statistical Portal www.belgostat.be - National Statistics Institute www.statbel.fgov.be - National Bank of Belgium www.nbb.be - Federal Planning Bureau www.plan.be - High Council of Finance www.docufin.be - Central Economic Council www.ccecrb.fgov.be ### IMF Article IV consultation — Executive Board summary (Press Release No. 14/90, March 12, 2014) Findings and context: - On March 5, 2014, the IMF Executive Board concluded the Article IV consultation with Belgium. - The strong financial position of the non-financial private sector and economic integration with Germany dampened the impact of the crisis, but recovery from the stagnation of 2012–13 has been slow. - Real GDP is expected to grow by just over 1 percent in 2014, with the negative impulse from fiscal consolidation expected to be limited in 2014. - The reduction of value-added tax on energy should keep headline inflation at around 1 percent, below core inflation. - The economy has lost competitiveness since 2005 due to lower productivity and higher wage growth than in peer countries. - Government measures have been taken to close the wage gap relative to Germany, France, and the Netherlands, and to reform unemployment, pension, and pre-pension benefits. - Further and deeper reforms of labor and product markets remain warranted. Fiscal position and policy: - Fiscal consolidation continues at a steady pace. - In 2012–13, the structural fiscal deficit was reduced by 1.1 percent of GDP. - The headline deficit is expected to come down to 2.7 percent of GDP in 2013. - The government’s sale of its 25 percent share in BNPP Fortis helped keep the debt ratio just below the 100 percent in 2013. - Additional structural adjustment of 3.3 percent of GDP is needed to meet the government’s medium-term fiscal objective. - A burden sharing agreement clarifies fiscal adjustment responsibilities of the federal and regional governments. Banking sector assessment: - Banks largely completed balance sheet repair but face low profitability and adaptation to regulatory changes. - Reductions in cross-border exposures and sales of foreign subsidiaries reduced banks’ balance sheets from 410 percent of GDP in 2008 to 268 percent in mid–2013. - Improved liquidity and solvency positions have strengthened banks’ capacity to absorb shocks, but profitability remains weak due to low interest margins and high operating costs. - Supervisory and regulatory frameworks are being strengthened, notably with a new draft banking law that restrains trading activities and improves the recovery and resolution framework, including by increasing buffers for depositor protection. Executive Directors’ recommendations and assessment: - Commended efforts to restore financial stability, consolidate public finances, increase labor market participation, and strengthen cost competitiveness. - Noted significant remaining challenges: impediments to sustainable growth, risks to debt sustainability, persistently high unemployment rates, deterioration in external competitiveness. - Recommended a comprehensive strategy to overcome these challenges. Key recommendations included: - Put public finances on a sustainable footing, including by making social spending more efficient, inclusive of pensions. - Reduce labor and product market rigidities. - Safeguard financial stability. - Maintain a steady pace of structural fiscal adjustment to create fiscal space for ageing population costs and productivity-enhancing investment, while placing the debt ratio on a sustainable path. - Rebalance consolidation toward expenditure measures, with emphasis on reducing current spending and safeguarding critical investment spending, and away from taxation of labor income toward indirect and environmental taxes. - Commended adoption of new fiscal rules consistent with the European Union fiscal compact, which entail appropriate burden sharing between national and sub-national governments. - Commended improvements in financial sector stability and resilience through supervisory and regulatory strengthening in line with FSAP recommendations. - Welcomed tightening of capital requirements on mortgage lending to dampen upward pressure on real estate prices. - Called for regular monitoring of banks’ business models and asset portfolios to ensure capital positions are strengthened in line with Basel III requirements. - Looked forward to prompt parliamentary approval of the draft banking law to curtail risky trading activity and improve recovery and resolution. Structural reforms: - Underscored critical role of structural reforms for restoring external competitiveness and increasing potential growth. - Advised that wage setting should better reflect productivity developments and domestic and regional labor market conditions. - Encouraged continued reforms to promote labor mobility and adaptability, raise employment rates, eliminate barriers to competition, further reduce utility costs, and lighten the heavy burden of regulation. ### Selected economic indicators (2009–19 projections) Real economy (percentage change from the previous period) - Real GDP: -2.8, 2.3, 1.8, -0.1, 0.2, 1.1, 1.2, 1.3, 1.4, 1.4, 1.5 (2009–2019) - Domestic demand: -2.2, 1.9, 2.0, -0.6, -0.3, 0.9, 1.2, 1.3, 1.5, 1.4, 1.5 - Private consumption: 0.6, 2.8, 0.2, -0.3, 0.5, 1.0, 1.1, 1.4, 1.5, 1.5, 1.7 - Public consumption: 1.9, 0.6, 0.7, 1.4, 1.0, 0.6, 0.5, 0.6, 0.6, 0.4, 0.4 - Gross fixed investment: -8.4, -1.1, 4.1, -2.0, -2.5, 0.6, 2.0, 2.2, 2.4, 2.3, 2.4 - Business investment: -10.2, -3.1, 7.2, -2.1, -0.6, 1.6, 2.2, 2.4, 2.5, 2.7, 2.8 - Public investment: 9.8, -2.1, 7.1, 2.5, -10.3, -3.6, 3.9, 4.3, 4.6, 1.6, 1.7 - Dwellings: -8.6, 3.6, -3.2, -3.2, -4.5, -0.7, 1.0, 1.1, 1.2, 1.4, 1.6 - Stockbuilding: -1.1, 0.5, 0.9, -0.4, -0.3, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 - Foreign balance: -0.6, 0.5, -0.2, 0.4, 0.5, 0.2, 0.0, 0.0, 0.0, 0.0, 0.0 - Exports, goods and services: -9.4, 8.1, 6.4, 1.8, 0.7, 2.2, 2.5, 3.1, 3.4, 3.5, 3.5 - Imports, goods and services: -8.8, 7.5, 6.8, 1.3, 0.2, 2.0, 2.5, 3.2, 3.4, 3.5, 3.6 - Household saving ratio (in percent): 18.0, 15.1, 14.0, 15.1, 15.2, 15.6, 15.7, 15.9, 15.9, 16.0, 16.2 - Potential output growth: 1.2, 1.1, 1.0, 0.9, 1.0, 1.0, 1.1, 1.1, 1.2, 1.2, 1.3 - Output gap (in percent): -1.5, -0.3, 0.5, -0.6, -1.4, -1.3, -1.2, -1.0, -0.7, -0.5, -0.3 Employment - Unemployment rate: 7.8, 8.2, 7.3, 7.6, 8.6, 9.1, 9.0, 8.8, 8.6, 8.3, 8.1 (2009–2019) - Employment: -0.2, 0.7, 1.4, 0.2, -0.3, 0.1, 0.4, 0.5, 0.6, 0.6, 0.6 Prices - Consumer prices: 0.0, 2.3, 3.4, 2.6, 1.2, 1.1, 1.2, 1.3, 1.4, 1.4, 1.4 - GDP deflator: 1.2, 2.1, 2.0, 1.9, 1.4, 1.3, 1.3, 1.3, 1.4, 1.4, 1.4 Public finance (Percent of GDP) - Revenue: 48.1, 48.7, 49.6, 51.0, 51.5, 51.5, 51.7, 52.1, 52.3, 52.5, 52.7 - Expenditure: 53.7, 52.6, 53.5, 55.0, 54.4, 53.9, 53.8, 53.6, 53.2, 52.7, 52.2 - General government balance: -5.6, -3.7, -3.7, -4.0, -2.7, -2.4, -2.1, -1.4, -0.8, -0.1, 0.6 - Structural balance: -4.3, -3.7, -3.7, -3.4, -2.6, -2.0, -1.5, -1.0, -0.4, 0.1, 0.7 - Structural primary balance: -0.7, -0.3, -0.4, 0.1, 0.7, 1.1, 1.6, 2.1, 2.6, 3.1, 3.7 - Primary balance: -1.9, -0.4, -0.4, -0.5, 0.6, 0.8, 1.0, 1.6, 2.2, 2.9, 3.6 - General government debt: 95.7, 95.7, 98.0, 99.8, 99.7, 99.9, 99.5, 98.4, 96.3, 93.8, 90.4 Balance of payments - Trade balance: 1.3, 1.2, -1.0, -0.8, -0.3, 0.1, 0.2, 0.3, 0.4, 0.5, 0.5 - Current account: -0.6, 1.9, -1.1, -2.0, -1.7, -1.3, -1.0, -0.7, -0.4, -0.1, 0.2 - Terms of trade (percent change): 3.5, -2.1, -1.5, -1.8, 0.4, 0.0, 0.2, 0.2, 0.2, 0.2, 0.1 - Exports, goods and services (volume, percent change): -10.9, 8.5, 4.4, -0.9, 2.3, 2.2, 2.5, 3.1, 3.4, 3.5, 3.5 - Imports, goods and services (volume, percent change): -12.1, 6.8, 5.1, -1.3, 0.6, 2.0, 2.5, 3.2, 3.4, 3.5, 3.6 Memorandum items - Nominal GDP (in billions of euros): 341, 356, 369, 376, 382, 391, 401, 411, 423, 435, 447 (2009–2019) - Population (in millions): 10.8, 10.8, 11.0, 11.1, 11.2, 11.2, 11.2, 11.3, 11.4, 11.5, 11.5 *IMF staff report content as provided in the source document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1476.pdf_