Belgium: Selected Issues
IMF Staff Country Reports, March 31, 2020
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- Canonical URL
- Belgium: Selected Issues
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Bibliographic details
- Published: March 31, 2020
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513538877.002
Analysis and model
- Uses a structural stochastic model that "explicitly accounts for the trade-offs between the short-term cost of fiscal tightening and the long-term gains associated with higher fiscal buffers."
- Model frames fiscal policy choices in terms of trade-offs between immediate consolidation costs and increased capacity to respond to future shocks.
Key findings
- Rebuilding fiscal buffers once the current crisis is over is "essential to helping Belgium confront the next shock from a stronger fiscal position."
- When a government reduces debt, it "increases its capacity to react to shocks later."
- The short-term cost of debt reduction "is, in the case of Belgium, worth the effort as this capacity to smooth future shocks increases future welfare."
- A large capacity to react with fiscal policy "reduces the risk of long-lasting effects of a large crisis."
- Historical data show that in the past, the Belgium government’s reaction to the cycle was "limited to a single event."
- If Belgium could "firmly anchor public debt on a downward path, future governments would be able to offset downturns while keeping debt sustainability concerns under control."
Policy implications and recommendations
- Adopt and credibly pursue a medium-term fiscal consolidation strategy to rebuild fiscal buffers after the crisis.
- Prioritize debt reduction to increase the government's capacity to respond to future downturns and to limit long-lasting crisis effects.
- Anchor public debt on a downward path to enable future countercyclical fiscal policy while maintaining debt sustainability.
Source: Belgium: Selected Issues (IMF Staff Country Report)
Content in this bundle
- Belgium: Selected Issues; IMF Country Report No. 20/92; March 18, 2020