{ "title": "Belgium - 2008 Article IV Consultations: Concluding Statement of the Mission", "publication": "IMF News, December 19, 2008", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs121908", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs121908", "overlayPath": "/en/news/articles/2015/09/28/04/52/mcs121908/index.md", "summary": "Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries).", "publishDate": "2008-12-19", "sections": [ { "heading": "Overview and context", "content": "- Publication dates: December 19, 2008; text dated December 15, 2008.\n- Core message: Belgium faces an extraordinary set of economic challenges from the global financial crisis, a deep European and US recession, and an earlier spike in energy and commodity prices. Authorities should address the crisis decisively while pursuing medium- and long-term reforms to restore competitiveness and fiscal sustainability.\n- Key structural challenges highlighted: long-run fiscal pressures from an aging population; unsustainable imbalances from existing fiscal federalism arrangements; structural rigidities dampening growth and job creation." }, { "heading": "1. The Economic Outlook: A sharp economic downturn, with a slow recovery", "content": "Findings and projections:\n- Growth will turn negative in Q4 2008 and contraction expected to continue into H1 2009, with a weak recovery beginning only late in 2009.\n- Belgian growth is expected to fall to around -¾ percent in 2009.\n- Economic activity likely to remain below potential in 2010.\n- Risks to the forecast are large and tilted to the downside.\n- Unemployment will rise, eventually peaking well above 8 percent during the downturn.\n- Inflation dynamics:\n - The early-2008 spike in inflation has begun to reverse, but aftereffects will continue in 2009.\n - Indexation mechanisms will generate higher wage growth than in partner countries over the coming year.\n - Services prices show some second-round inflationary effects.\n - Inflation should fall to around 2 percent in 2009, but may still remain above the euro area average.\n- Structural concern: price-setting behavior in food and energy markets." }, { "heading": "2. Responding to the Crisis—the Financial Sector", "content": "Assessment of past actions:\n- Authorities acted quickly, comprehensively, and decisively in Fortis and Dexia interventions in late September; also intervened in Ethias and strengthened capital in KBC.\n- Legal complications remain in the Fortis operation.\nOngoing risks:\n- Elevated systemic risks from additional problems in advanced-economy institutions, contagion to Eastern Europe and other emerging markets, and recession-induced stress on banks.\nRecommended framework and actions:\n- Establish a broader legal framework with pre-established rules for interventions and capacity to mobilize significant further financial resources.\n- Prepare specific contingency plans jointly by Government, BFIC, and NBB for major banks, smaller banks, and the insurance industry.\n- Immediately strengthen information sharing and coordination between BFIC and NBB:\n - Create joint databases for offsite inspections.\n - Set up joint onsite inspection teams combining BFIC supervisors and NBB macrofinancial risk experts.\n- Consider eventual unification of macrofinancial risk analysis with banking and insurance supervision under a single structure while keeping financial markets supervision separate.\n- Press for expansion of pan-European banking supervision mechanisms; in the interim, prioritize strengthening supervisory colleges and bilateral memoranda of understanding with foreign supervisors." }, { "heading": "3. Responding to the Crisis—the Fiscal sector", "content": "Short-term fiscal assessment:\n- 2008 fiscal deficit likely near 1 percent of GDP due to late budget approval/implementation and initial downturn effects.\n- 2009 deficit projected between 2-2½ percent of GDP, with a corresponding deterioration of the structural balance of around ¾ percent of GDP.\n- The Plan de Relance is judged to be broadly the right magnitude; a larger package now would be hazardous given elevated public debt and long-term consolidation challenges. A larger package should be considered only if the situation deteriorates significantly further and in coordination with the EU.\nCritique of stimulus composition and recommendations:\n- Desirable stimulus features: timely, temporary, and targeted toward growth-generating sectors; tied to structural fiscal measures for longer-term sustainability.\n- Shortcomings of Plan de Relance:\n - Timeliness: heavy reliance on boosting investment limited by how much can be accelerated for immediate impact in H1 2009.\n - Temporariness: roughly 2/3 of the cost of the Plan de Relance's measures could be permanent.\n - Includes expensive reductions in social contributions and permanent increases in unemployment and other social benefits.\n - Targeting: some measures (VAT reductions in construction, boosts to unemployment benefits) are targeted; other measures have diffuse benefits and may raise savings rather than spending.\n- Policy recommendations:\n - Include sunset clauses or long-term compensatory savings in all Plan de Relance elements.\n - Focus measures on increasing incomes of those most likely to spend (e.g., the low-income and unemployed) and on accelerating investments already underway.\n - Link reductions in social contributions to countervailing long-term savings if pursued." }, { "heading": "4. Beyond the crisis—Achieving fiscal sustainability", "content": "Current fiscal pressures:\n- The financial crisis has increased the gross debt-to-GDP ratio by some 6 percentage points.\n- Deficits in 2008 and 2009 will further increase public indebtedness.\nMedium-term anchor and institutional reforms:\n- Recommendation: the government, in collaboration with regions and communities, should firmly commit now to a structural adjustment of at least 0.7 percent of GDP per year once the crisis has passed, to return as soon as possible to fiscal balance and eventually to a surplus.\n- Steps to lay groundwork now (could be coupled with temporary stimulus to reassure markets):\n - Multiyear budgeting:\n - Consider a medium-term budgetary framework to guide the annual budget process.\n - Translate spending plans into binding ceilings forming the basis for the annual budget cycle.\n - Strengthen the role of the High Finance Council (HFC):\n - Expand mandate to act as independent evaluator of government fiscal plans and outcomes, produce regular reports, include expenditure policy issues, and help set parameters for the multiyear budget process.\n - Undertake comprehensive expenditure and revenue reviews:\n - Identify reductions in tax expenditures and opportunities to streamline and improve spending efficiency.\n - Objective: reduce the size of government, currently nearly 50 percent of GDP.\n - Tackle imbalances in fiscal federalism:\n - Shift more of the burden of fiscal consolidation and aging-related preparation from federal/social security to community/regional entities.\n - Reconsider horizontal imbalances to better match spending authority and revenue-raising responsibility and improve transparency and incentives of intergovernmental solidarity mechanisms." }, { "heading": "5. Beyond the crisis—Competitiveness and Structural reforms", "content": "Assessment of competitiveness:\n- Evidence of a competitiveness gap: declining Belgian shares in European markets, an appreciating real effective exchange rate, and a deteriorating external current account balance that has slipped into deficit for the first time in many years.\nLabor market recommendations:\n- Centralized wage-setting and indexation have helped macro coordination but generated real wage rigidity and weakened competitiveness.\n- Central Economic Council view: no room for real wage increases over 2009-10; the existing real wage gap should be reduced, but current indexation mechanisms prevent it.\n- Policy options:\n - Adapt wage indexation parameters to permit full coverage for the poorest, most vulnerable workers, while allowing less-than-complete indexation for the economy as a whole.\n - Increase use of all-in agreements to introduce greater real wage flexibility.\n - Improve activation policies and remove inactivity traps; increase training opportunities at least to previously agreed targets; focus on improving labor productivity.\nProduct and services market reforms:\n- Retail: ease restrictions on new retail establishments; deregulate opening hours and sales periods to promote competition and lower consumer prices.\n- Pharmaceuticals: remove price regulations on over-the-counter drugs while liberalizing their market.\n- Energy: carefully examine pricing policies; the recent enhancement of regulator (CREG) investigation powers is welcomed; recommend additional actions by the new price observatory to increase end-user transparency.\n- EU Services Directive: fully seize liberalizing opportunities.\n- Estimated benefits: reforms of this type could lower the consumer price level by as much as 1-2 percentage points over time, boosting purchasing power by hundreds of euros per household while narrowing the external competitiveness gap.\nCompetition authority recommendations:\n- Reinforce the Competition Council to act as a vocal public advocate for competition and a watchdog against rent-seeking behavior.\n- Empower and staff the Competition Council to analyze policy areas where change could boost competition and to issue periodic sectoral reports with specific recommendations.\n- Reinforce cooperation between the Competition Council and sectoral regulators such as CREG.\n\nSource: IMF Mission Concluding Statement, Belgium - 2008 Article IV Consultations.\n\n---\n\n\n References\n\n- Belgium and the IMF\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- http://www.imf.org/external/country/BEL/index.html\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs121908" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/52/mcs121908/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/52/mcs121908/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/52/mcs121908/bundle-manifest.json)", "Published: December 19, 2008", "Publication dates: December 19, 2008; text dated December 15, 2008.", "Core message: Belgium faces an extraordinary set of economic challenges from the global financial crisis, a deep European and US recession, and an earlier spike in energy and commodity prices. Authorities should address the crisis decisively while pursuing medium- and long-term reforms to restore competitiveness and fiscal sustainability.", "Key structural challenges highlighted: long-run fiscal pressures from an aging population; unsustainable imbalances from existing fiscal federalism arrangements; structural rigidities dampening growth and job creation.", "Growth will turn negative in Q4 2008 and contraction expected to continue into H1 2009, with a weak recovery beginning only late in 2009.", "Belgian growth is expected to fall to around -¾ percent in 2009.", "Economic activity likely to remain below potential in 2010.", "Risks to the forecast are large and tilted to the downside.", "Unemployment will rise, eventually peaking well above 8 percent during the downturn.", "Inflation dynamics:", "Structural concern: price-setting behavior in food and energy markets.", "Authorities acted quickly, comprehensively, and decisively in Fortis and Dexia interventions in late September; also intervened in Ethias and strengthened capital in KBC.", "Legal complications remain in the Fortis operation.", "Elevated systemic risks from additional problems in advanced-economy institutions, contagion to Eastern Europe and other emerging markets, and recession-induced stress on banks.", "Establish a broader legal framework with pre-established rules for interventions and capacity to mobilize significant further financial resources.", "Prepare specific contingency plans jointly by Government, BFIC, and NBB for major banks, smaller banks, and the insurance industry.", "Immediately strengthen information sharing and coordination between BFIC and NBB:", "Consider eventual unification of macrofinancial risk analysis with banking and insurance supervision under a single structure while keeping financial markets supervision separate.", "Press for expansion of pan-European banking supervision mechanisms; in the interim, prioritize strengthening supervisory colleges and bilateral memoranda of understanding with foreign supervisors.", "2008 fiscal deficit likely near 1 percent of GDP due to late budget approval/implementation and initial downturn effects.", "2009 deficit projected between 2-2½ percent of GDP, with a corresponding deterioration of the structural balance of around ¾ percent of GDP.", "The Plan de Relance is judged to be broadly the right magnitude; a larger package now would be hazardous given elevated public debt and long-term consolidation challenges. A larger package should be considered only if the situation deteriorates significantly further and in coordination with the EU.", "Desirable stimulus features: timely, temporary, and targeted toward growth-generating sectors; tied to structural fiscal measures for longer-term sustainability.", "Shortcomings of Plan de Relance:", "Policy recommendations:", "The financial crisis has increased the gross debt-to-GDP ratio by some 6 percentage points.", "Deficits in 2008 and 2009 will further increase public indebtedness.", "Recommendation: the government, in collaboration with regions and communities, should firmly commit now to a structural adjustment of at least 0.7 percent of GDP per year once the crisis has passed, to return as soon as possible to fiscal balance and eventually to a surplus.", "Steps to lay groundwork now (could be coupled with temporary stimulus to reassure markets):", "Evidence of a competitiveness gap: declining Belgian shares in European markets, an appreciating real effective exchange rate, and a deteriorating external current account balance that has slipped into deficit for the first time in many years.", "Centralized wage-setting and indexation have helped macro coordination but generated real wage rigidity and weakened competitiveness.", "Central Economic Council view: no room for real wage increases over 2009-10; the existing real wage gap should be reduced, but current indexation mechanisms prevent it.", "Policy options:", "Retail: ease restrictions on new retail establishments; deregulate opening hours and sales periods to promote competition and lower consumer prices.", "Pharmaceuticals: remove price regulations on over-the-counter drugs while liberalizing their market.", "Energy: carefully examine pricing policies; the recent enhancement of regulator (CREG) investigation powers is welcomed; recommend additional actions by the new price observatory to increase end-user transparency.", "EU Services Directive: fully seize liberalizing opportunities.", "Estimated benefits: reforms of this type could lower the consumer price level by as much as 1-2 percentage points over time, boosting purchasing power by hundreds of euros per household while narrowing the external competitiveness gap.", "Reinforce the Competition Council to act as a vocal public advocate for competition and a watchdog against rent-seeking behavior.", "Empower and staff the Competition Council to analyze policy areas where change could boost competition and to issue periodic sectoral reports with specific recommendations.", "Reinforce cooperation between the Competition Council and sectoral regulators such as CREG.", "[Belgium and the IMF](http://www.imf.org/external/country/BEL/index.htm)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)", "[http://www.imf.org/external/country/BEL/index.html](https://www.imf.org/external/country/BEL/index.html)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/52/mcs121908/index.md", "json": "/en/news/articles/2015/09/28/04/52/mcs121908/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/52/mcs121908/bundle-manifest.json" }, "generatedAtUtc": "2026-09-27T00:59:05.596Z" }