IMF Executive Board Concludes 2020 Article IV Consultation with Belgium

IMF News, March 31, 2020

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IMF Executive Board Concludes 2020 Article IV Consultation with Belgium

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• Published: March 31, 2020

Overview and Near-term Outlook

• Economic activity held up well over the last year, with 2019 growth reaching 1.4 percent, supported by robust domestic demand.
• The labor market improved, with the unemployment rate falling to a record-low of 5.4 percent in 2019.
• Given the rapidly unfolding global coronavirus outbreak, growth is projected to decline substantially in 2020 and to gradually recover to 1.3 percent over the medium term.
• The outlook is clouded by unusually high uncertainty and risks are firmly on the downside as the Covid-19 pandemic represents a new and urgent challenge for policymakers.
• Belgium has been without a full-fledged government since December 2018, which has constrained its ability to address long-standing structural challenges.

Executive Board Assessment

• Directors endorsed staff’s appraisal that:
  • Economic activity held up relatively well over the last year, but the outlook is clouded by unusual uncertainty and risks.
  • Growth was resilient and job rich in 2019, while the unemployment rate reached a historical low, in part reflecting previous reforms.
  • The inability to form a new government has paralyzed policymaking, while the public finances have deteriorated.
  • The coronavirus outbreak is expected to reduce growth in 2020, and the outlook is highly uncertain and subject to risks, including:
  • more widespread and damaging effects of the coronavirus,
  • escalating trade tensions,
  • a sharper euro-area growth slowdown,
  • prolonged domestic political gridlock.

Immediate Policy Priorities (Coronavirus response)

• Contain the spread and damaging effects of the coronavirus through targeted temporary support measures to affected firms and individuals.
• Ensure that the healthcare system has adequate resources to address the crisis.
• If banks face difficulties related to losses due to the impact of the coronavirus, consider additional temporary measures on capital relief to support financial intermediation.
• Avoid deterioration in the structural balance this year (net of emergency measures to address the coronavirus outbreak).

Medium-term Fiscal Strategy

• Belgium will need a credible medium-term consolidation to build fiscal buffers and safeguard sustainability.
• Under the baseline scenario, the deficit will continue to widen, and public debt will remain high in the medium run and be on a rising trajectory in the long run due to population aging pressures.
• The new government needs to put in place a credible medium-term consolidation strategy aiming to reach structural fiscal balance by 2024.
• Aiming for a structural adjustment of ½ percent of GDP during 2021–24 could balance near- and long-term considerations.

Growth-friendly Spending and Revenue Reforms

• A sustained medium-term effort to reduce primary spending while improving its efficiency can support deficit targets and reorient the budget toward more growth-friendly areas.
• Reforms should focus on:
  • containing medium-term healthcare costs,
  • bolstering the sustainability of the pension system,
  • improving the targeting and labor-market incentives of social benefits,
  • strengthening the efficiency of subsidies,
  • reducing duplication in the public administration.
• Complementary tax base-broadening reforms could create space to lower the labor tax wedge in the medium run.

Labor Market and Productivity Policies

• Additional reforms to boost labor-force participation, especially for vulnerable groups, are needed.
• Despite recent reforms, Belgium’s labor-force participation rate remains among the lowest in Europe, especially for the young, low-skilled, non-EU born, and women.
• Efforts should focus on active labor-market policies and training programs targeted at vulnerable groups and follow-up reforms to bolster:
  • female labor-force participation,
  • mobility,
  • labor-market flexibility.
• Product-market reforms to boost productivity should include:
  • reducing red tape for startups,
  • lowering regulatory barriers to competition in key sectors,
  • supporting access to venture capital for innovative firms,
  • boosting public investment in infrastructure, fiscal space permitting.
• A comprehensive policy strategy is needed to fulfill government climate change commitments and take advantage of the transition to a green economy.

Financial Sector Resilience

• Staff welcomes recent macroprudential measures addressing risks from easy credit and rising corporate and household debt and the decision to release the countercyclical capital buffer in response to the coronavirus crisis.
• Authorities should be ready to continue to support the banking sector as needed and revisit the macro-prudential decision-making framework to ensure timely deployment of policies.
• Continued efforts are recommended to improve reporting, bank resolution, and deposit insurance frameworks.
• Authorities should encourage banks to rationalize costs, strengthen governance, and adapt business models to prepare for digitalization.

Belgium: Selected Economic Indicators (2017–20)

• Real GDP:
  • 2017: 2.0
  • 2018: 1.5
  • 2019: 1.4
  • 2020 Est./Proj.: 0.8
• Domestic demand:
  • 2017: 1.2
  • 2018: 2.2
  • 2019: 1.1
• Foreign balance (contribution to GDP growth 1/):
  • 2017: 0.7
  • 2018: -0.7
  • 2019: -0.1
  • 2020 Est./Proj.: -0.2
• Exports, goods and services:
  • 2017: 5.3
  • 2018: 1.0
  • 2019: 1.6
• Imports, goods and services:
  • 2017: 4.4
  • 2018: 2.1
  • 2019: 1.9
• Potential output growth:
  • 2017: 1.3
• Output gap (in percent):
  • 2017: 0.2
  • 2018: 0.4
  • 2019: 0.5
  • 2020: 0.1
• Unemployment rate (in percent):
  • 2017: 7.1
  • 2018: 6.0
  • 2019: 5.4
  • 2020 Est./Proj.: 5.6
• Employment growth:
  • 2017: 0.3
• Consumer prices:
  • 2017: 2.3
• GDP deflator:
  • 2017: 1.7
• Revenue (general government, percent of GDP):
  • 2017: 51.2
  • 2018: 51.4
  • 2019: 50.3
  • 2020 Est./Proj.: 50.0
• Expenditure (general government, percent of GDP):
  • 2017: 51.9
  • 2018: 52.1
  • 2019: 52.3
• General government balance:
  • 2017: -1.7
  • 2018: -2.3
• Structural balance:
  • 2017: -1.3
  • 2018: -1.5
  • 2019: -2.0
• Primary balance:
  • 2017: -0.6
• General government debt:
  • 2017: 101.8
  • 2018: 100.0
  • 2019: 99.0
  • 2020 Est./Proj.: 99.5
• Goods and services balance:
  • 2017: 0.0
• Current account:
  • 2017: -1.0
  • 2018: -1.2
• Exchange rates:
  • Euro per U.S. dollar, period average: 0.9
• NEER, ULC-styled (2005=100):
  • 2017: 98.7
  • 2018: 98.3
  • 2019: 98.0
• REER, ULC-based (2005=100):
  • 2017: 98.5
  • 2018: 97.8
  • 2019: 97.4
• Memorandum items:
  • Nominal GDP (in billions of euros):
  • 2017: 446.4
  • 2018: 459.8
  • 2019: 473.6
  • 2020 Est./Proj.: 484.0
  • Population (in millions):
  • 2017: 11.4
  • 2018: 11.5

IMF Communications Department, Press Release No. 20/122, March 31, 2020.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• IMF COVID-19 Hub
• Policy Tracker
• Financial Assistance
• Questions & Answers
• Belgium and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home