Belgium: IMF Executive Board Concludes 2018 Article IV Consultation

IMF News, March 8, 2018

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Real GDP growth expected to approach 2 percent in 2018 after an estimated 1.7 percent in 2017.
Recovery drivers: strong investment, solid consumption growth, favorable financial conditions, and a strengthening recovery throughout Europe.
Medium-term outlook described as subdued in the absence of further structural reforms to raise potential growth; subject to external and domestic risks.

Fiscal position improved in 2017 due to cyclical, structural, and one-off factors.
Fiscal consolidation remains a priority given the high level of public debt that has only just started to decline.
Achieving the government’s goal of structural balance will require significant efforts to make spending more efficient while safeguarding revenues.
Selected fiscal figures (percent of GDP):
- Revenue: 51.3 (2015), 50.7 (2016), 51.1 (2017), 50.4 (2018), 50.1 (2019)
- Expenditure: 53.8 (2015), 53.2 (2016), 52.3 (2017), 51.7 (2018), 51.4 (2019)
- General government balance: -2.5 (2015), -1.2 (2016), -1.3 (2017), (no explicit 2018/2019 entries in table)
- Structural balance: -2.2 (2015), -1.1 (2016), -1.4 (2017), -1.5 (2018)
- Structural primary balance: 0.8 (2015)
- General government debt: 106 (2015), 105.7 (2016), 103.3 (2017), 101.1 (2018), 99.1 (2019)

Governing center-right coalition agreed on a new package of tax and labor market measures.
Centerpiece: reform of the corporate income tax system to promote investment by lowering the comparatively high statutory rate while broadening the tax base to preserve revenue neutrality.
Directors welcomed the corporate income tax reform and saw scope for additional reforms to address remaining distortions and safeguard revenues in the next phases of the tax shift.

Belgium faces the challenge of raising productivity growth, which has lagged peers.
Contributing factors: sectoral shifts, underinvestment in infrastructure, and lack of competition in some service sectors.
Directors encouraged:
- Increasing investment in transport infrastructure.
- Enhancing competition in services.
- Fostering innovation.

Employment growth has picked up, partly due to past reform efforts.
Labor market remains fragmented with entrenched high unemployment among certain groups and significant regional disparities.
Directors highlighted the need to:
- Address educational gaps.
- Improve on-the-job training.
- Reduce barriers to geographical mobility.
- Ensure wage setting takes into account comparator country wages, productivity developments, and broader labor market conditions in Belgium.

Soundness of the financial sector has improved considerably since the crisis, but cyclical vulnerabilities are rising.
Identified risks: pockets of vulnerability in the housing market and rising corporate debt.
Directors supported enhancing the central bank’s ability to deploy macroprudential measures in a timely manner when warranted by rising balance sheet risks.
Emphasis on the financial sector adapting to economic, technological, and regulatory changes.
Transition to a full European Banking Union highlighted as an important issue to be navigated by banks and supervisors; Directors encouraged continued close supervision of systemically important subsidiaries of euro area banks operating in Belgium.

Commended Belgian authorities for reform efforts contributing to recovery, employment pickup, and a significant reduction of the fiscal deficit.
Encouraged taking advantage of favorable economic conditions to push ahead with additional reforms to enhance resilience and long-term growth potential.
Emphasized gradual fiscal consolidation and deeper reforms to make public spending more efficient, requiring coordination across all levels of government.
Stressed raising productivity growth and addressing labor market fragmentation to realize full employment and growth potential.

Real GDP: 1.4 (2015), 1.5 (2016), 1.7 (2017), 1.9 (2018 projection)
Domestic demand: 2.1 (2015), 1.8 (2016)
Private consumption: 0.9 (2015), 1.1 (2016), 1.6 (2017)
Gross fixed investment: 2.7 (2015), 3.6 (2016), 3.7 (2017), 3.2 (2018)
Exports, goods and services: 3.3 (2015), 7.5 (2016), 4.5 (2017), 4.7 (2018), 4 (2019)
Imports, goods and services: 8.4 (2015), 4.3 (2016), 4.6 (2017), 4.1 (2018)
Household saving ratio: 11.9 (2015), 11.2 (2016), 11.6 (2017), 12.3 (2018)
Potential output growth: 1.2 (year not specified)
Output gap (in percent): -0.8 (2015), -0.3 (2016)
Unemployment rate (in percent): 8.5 (2015), 7.9 (2016), 7.3 (2017), 7 (2018), 6.8 (2019)
Consumer prices: 2.2 (year not specified)
GDP deflator: (value not specified in table)
Goods and services balance: 1.3 (year not specified)
Current account: -0.1 (year not specified)
NEER, ULC-styled (2005=100): 97.9 (2015), 98.9 (2016), 101.3 (2017) — note: As of December 2017.
REER, ULC-based (2005=100): 98.3 (2015), 98.5 (2016), 105 (2017)
Gross national savings (in percent of GDP): 23.4 (2015), 24 (2016), 23.9 (2017), 24.5 (2018), 24.8 (2019)
Gross national investment (in percent of GDP): 23.6 (2015), 23.8 (2016), 24.1 (2017)
Nominal GDP (in billions of euros): 410.4 (2015), 423 (2016), 438.1 (2017), 453.5 (2018), 468.8 (2019)
Population (in millions): 11.3 (2015), 11.4 (2016), 11.5 (2017)

IMF Communications Department, March 8, 2018