IMF Executive Board Concludes 2022 Article IV Consultation with Belgium

IMF News, March 2, 2023

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Growth is expected to slow from 3.0 percent in 2022 to 0.2 percent in 2023, before returning to potential of 1.2 percent over the medium term.
Inflation should decelerate from 10.3 percent in 2022 to 5.5 percent in 2023, as energy prices ease.
Risks are tilted to the downside, related to escalation of the war in Ukraine and a sharper-than-expected tightening of financial conditions.
Lower energy prices would reduce fiscal pressures, and with progress on structural reforms before elections in 2024, boost confidence.

With aging and social-benefit pressures and in the absence of adjustment measures, the structural fiscal deficit is expected to remain elevated over the medium term at 5½ percent of GDP.
High public debt will also rise to about 120 percent of GDP in 2028, increasing vulnerabilities.
Fiscal response to energy shock increased the fiscal deficit in 2022 and 2023 due to timely and substantial support to households and firms.

Labor market has remained tight, with record-high job creation and low unemployment.
Indexation has opened a wage gap with key trading partners, posing challenges for competitiveness.
Directors encouraged the authorities to consider revising the wage indexation framework once inflationary pressures subside.
Directors recommended additional measures to facilitate labor reallocation, including enhancing labor market flexibility and incentive setting in the social security and pension systems.

A resilient financial sector is facing challenges from the weaker macro-financial environment.
Directors concurred that financial sector policies should balance ensuring adequate credit provision, preserving resilience, and facilitating deployment of buffers to absorb losses when needed.
Given rising interest rates and the slowing economy and housing market, close monitoring of financial stability risks was recommended.
While most Directors supported the authorities’ near-term hold on additional macroprudential policy tightening, some Directors considered that further tightening could be desirable, as long as macro-financial conditions allow.

Some important structural reforms took place in 2022.
Directors emphasized that further labor and product market reforms are key to improve productivity and competitiveness and reinvigorate growth.
Pension reforms are critical for Belgium to receive the Next Generation EU funds.
Directors agreed that reaching ambitious climate goals requires a wider set of initiatives and greater focus on coordination and execution, including aligning national climate policies with more ambitious EU targets and considering raising carbon pricing.
Significant new investments in renewables to enhance energy security were welcomed.

Implement a credible and ambitious multi-year, expenditure-led fiscal adjustment, drawing on spending reviews, to:
- put debt on a declining path,
- replenish buffers,
- complement monetary policy in curbing inflation.
Rationalize current spending while increasing productive public investment.
Ensure energy support measures remain limited and temporary, be better targeted, and maintain price signals.
Improve coordination of spending across government levels.
Continue initiating tax reforms and enhance public investment management.

Real GDP: 6.1 (2021), 3.0 (2022), 0.2 (2023 Proj.)
Domestic demand: 5.6 (2021), 2.8 (2022), 0.9 (2023 Proj.)
Foreign balance1/: 0.6 (2021), 0.3 (2022), -0.6 (2023 Proj.)
Exports, goods and services: 11.3 (2021), 4.7 (2022), 1.1 (2023 Proj.)
Imports, goods and services: 10.7 (2021), 4.4 (2022), 1.9 (2023 Proj.)
Potential output growth: 3.9 (2021), 1.8 (2022), 1.2 (2023 Proj.)
Output gap (in percent): -0.5 (2021), 0.7 (2022), -0.2 (2023 Proj.)
Unemployment rate (in percent): 6.3 (2021), 5.5 (2022), 6.0 (2023 Proj.)
Consumer prices: 3.2 (2021), 10.3 (2022), 5.5 (2023 Proj.)
GDP deflator: 2.9 (2021), 5.7 (2022), 5.0 (2023 Proj.)
Revenue: 49.9 (2021), 49.4 (2022), 50.8 (2023 Proj.)
Expenditure: 55.5 (2021), 54.2 (2022), 56.3 (2023 Proj.)
General government balance: -5.6 (2021), -4.8 (2022), -5.5 (2023 Proj.)
Structural balance: -5.1 (2021), -5.3 (2022), (2023 Proj.) -5.3
Primary balance: -3.9 (2021), -3.3 (2022), -3.8 (2023 Proj.)
General government debt: 109.2 (2021), 106.8 (2022), 108.1 (2023 Proj.)
Goods and services balance: 0.4 (2021), -4.0 (2022), -3.5 (2023 Proj.)
Nominal GDP (in billions of euros): 502.3 (2021), 547.0 (2022), 575.9 (2023 Proj.)
Population (in millions): 11.6 (2021), 11.7 (2022)

From Press Release No. 23/54 — IMF Executive Board Concludes 2022 Article IV Consultation with Belgium.