{
  "title": "Belgium—Staff Concluding Statement of the 2020 Article IV Consultation",
  "publication": "IMF News, February 20, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/02/20/mcs022020-belgium-staff-concluding-statement-of-the-2020-article-iv-consultation",
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  "summary": "Economic activity held up despite prolonged political uncertainty: Belgium has been without a full-fledged government since December 2018.",
  "publishDate": "2020-02-20",
  "sections": [
    {
      "heading": "Context and challenges",
      "content": "- Economic activity held up despite prolonged political uncertainty: Belgium has been without a full-fledged government since December 2018.\n- Real GDP growth: 1.4 percent in 2019, above the euro-area average.\n- Labor market: over 70,000 jobs created in 2019; unemployment rate reached a historical low of 5.4 percent.\n- Public finances deteriorated sharply:\n  - Revenue collection declined due to the ongoing tax shift and waning temporary factors.\n  - Social-benefit spending increased, largely offset by a lower interest bill.\n  - Public debt at around 100 percent of GDP, among the highest in the euro-zone.\n- Outlook and risks:\n  - Growth projected to moderate to around 1.2 percent this year and next and stabilize at its potential rate of around 1.3 percent in the medium term.\n  - Downside external risks include escalating trade tensions, further euro-area growth slowdown, and rapid spread of the coronavirus.\n  - Prolonged political uncertainty could weigh on confidence and activity.\n- Medium- and long-term structural challenges: high public and rising private debt, an aging population, slowing productivity growth, and climate change.\n- Near-term priority: limit risks through selective measures with cross-party support while ensuring the fiscal deficit does not deteriorate further; a new government should implement comprehensive reforms to enhance fiscal and financial resilience and boost growth."
    },
    {
      "heading": "Rebuilding fiscal buffers and safeguarding sustainability",
      "content": "- Fiscal outlook under current policies:\n  - The deficit is expected to reach around 2¼ percent of GDP this year as revenues decline and social spending rises.\n  - Aging pressures will boost pension and health spending, leading to further deterioration of the deficit in the medium term and putting debt on a rising trajectory in the coming decade.\n  - Adverse shocks would cause the deficit and debt to rise sooner and faster; limited room for discretionary fiscal policy in response to shocks.\n- Recommended fiscal strategy:\n  - Caretaker authorities should strengthen spending controls and resist pressures that would further worsen the deficit; maintain budget discipline at the sub-national level.\n  - As soon as a new government is formed, implement a credible and balanced consolidation strategy to reach structural fiscal balance by 2024 through a fiscal effort of around ½ percent of GDP per year.\n- Growth-friendly spending reforms to underpin adjustment:\n  - Healthcare: strengthen overall cost controls, promote preventive healthcare, and focus reimbursements on generic medicines.\n  - Pensions: revisit the pace of increase of the effective retirement age (while linking it to gains in life expectancy) and the mechanism governing real-benefit growth.\n  - Other social benefits: improve targeting while protecting the most vulnerable; reform unemployment insurance to strengthen return-to-work incentives; tighten controls on disability benefits; better target family benefits to support women’s labor-force participation.\n  - Subsidies: improve efficiency of subsidies and exemptions, including for R&D where overlapping schemes lead to decreasing returns; revisit the company-car scheme.\n  - Wage bill and administrative costs: reduce fragmentation and duplication in public administration.\n- Tax policy:\n  - Further base-broadening reforms could create space to lower the labor tax wedge in the medium run to support employment and growth; examine simplification and neutrality of capital taxation."
    },
    {
      "heading": "Raising potential output",
      "content": "- Labor-force participation:\n  - Belgium’s labor-force participation rate remains among the lowest in Europe, especially for the young, low-skilled, non-EU born, and women.\n  - Priority reforms: active labor-market policies and targeted training programs for vulnerable groups; revisit parental-leave policies and reduce tax disincentives to bolster female participation; improve public transport across regions and reduce real-estate regulatory and tax barriers to support mobility; better align wages with productivity at the firm level (including via opt-outs and revisiting seniority pay) and increase flexibility of collective dismissals.\n- Productivity:\n  - Labor-productivity growth has slowed considerably over the last two decades.\n  - Recommended measures: reduce red tape for startups; lower regulatory barriers to competition in professional services, retail trade and distribution; continue support for access to venture capital for innovative firms; consider public investment in infrastructure, fiscal space permitting, for positive spillovers.\n- Climate policy:\n  - Current policies insufficient to attain medium- and long-term greenhouse gas reduction targets.\n  - Options for a new government, in collaboration with regional governments and EU institutions:\n    - Feebates or regulations to incentivize reductions in emissions.\n    - Carbon taxes, with revenues used to compensate vulnerable households and boost green investment.\n    - Extending the emissions-trading system (ETS) to cover more sectors."
    },
    {
      "heading": "Safeguarding financial-sector stability",
      "content": "- Financial-sector resilience and challenges:\n  - Bank balance sheets strengthened; capital and liquidity ratios remain adequate.\n  - Insurance companies have bolstered solvency ratios.\n  - Low-for-long interest rates pressure profitability, leading banks to ease credit standards; robust credit growth has pushed up household and corporate leverage, raising concerns about pricing of risk and future loan performance.\n- Macroprudential policy and supervisory actions:\n  - Authorities activated the Countercyclical Capital Buffer and issued supervisory expectations limiting the share of new high-risk mortgage loans.\n  - Recommended ongoing actions: continue monitoring risks, assess effectiveness of measures, be ready to extend expiring measures and use additional borrower-based tools if risks intensify.\n  - Revisit the framework for macro-prudential decision-making to ensure timely deployment of policies.\n  - Encourage banks to rationalize costs, strengthen governance, and adapt business models for digitalization.\n\n- Closing note: The mission thanks the authorities for their constructive policy dialogue and kind hospitality.\n\nIMF Staff Concluding Statement, February 20, 2020.\n\n---\n\n\n References\n\n- Belgium and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/02/20/mcs022020-belgium-staff-concluding-statement-of-the-2020-article-iv-consultation"
    }
  ],
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    "Published: February 20, 2020",
    "Economic activity held up despite prolonged political uncertainty: Belgium has been without a full-fledged government since December 2018.",
    "Real GDP growth: 1.4 percent in 2019, above the euro-area average.",
    "Labor market: over 70,000 jobs created in 2019; unemployment rate reached a historical low of 5.4 percent.",
    "Public finances deteriorated sharply:",
    "Outlook and risks:",
    "Medium- and long-term structural challenges: high public and rising private debt, an aging population, slowing productivity growth, and climate change.",
    "Near-term priority: limit risks through selective measures with cross-party support while ensuring the fiscal deficit does not deteriorate further; a new government should implement comprehensive reforms to enhance fiscal and financial resilience and boost growth.",
    "Fiscal outlook under current policies:",
    "Recommended fiscal strategy:",
    "Growth-friendly spending reforms to underpin adjustment:",
    "Tax policy:",
    "Labor-force participation:",
    "Productivity:",
    "Climate policy:",
    "Financial-sector resilience and challenges:",
    "Macroprudential policy and supervisory actions:",
    "Closing note: The mission thanks the authorities for their constructive policy dialogue and kind hospitality.",
    "[Belgium and the IMF](http://www.imf.org/external/country/BEL/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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