## Belgium: Staff Concluding Statement of the 2025 Article IV Mission

_IMF News, February 5, 2025_

## Source details

**Canonical URL:** [Belgium: Staff Concluding Statement of the 2025 Article IV Mission](https://www.imf.org/en/news/articles/2025/02/04/mcs020425-belgium-2025-article-iv-mission)

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## Bibliographic details
- Published: February 5, 2025

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### Mission scope and context
- An IMF team led by Jean-François Dauphin visited Brussels to conduct the 2025 Article IV consultation with Belgium. The mission’s discussions took place January 22-February 3 and occurred before the formation of the new government.
- The statement summarizes the mission’s findings and recommendations and does not reflect the new government’s policy intentions.
- The IMF team thanks Belgian authorities and counterparts for constructive dialogue, congratulates the new government on its nomination, and looks forward to future engagement.

### Key takeaways on economic performance
- The Belgian economy has been resilient to a series of shocks, but growth has slowed, and disinflation has faced headwinds.
- Labor market has been strong but shows signs of cooling.
- Labor-cost competitiveness has declined with wage growth outpacing sluggish productivity growth.
- Absent policy change, pressures from an aging population will weigh on Belgium’s social model and further increase the fiscal deficit and public debt, heightening vulnerability to changes in market sentiment.

### Economic outlook and risks
- Growth and inflation projections:
  - Output is expected to grow by 1.1 percent in 2025 and slightly increase by 2027 supported by monetary policy easing and a higher contribution from net exports.
  - Inflation is projected to gradually decline as wage growth moderates and the projected drop in international energy prices passes through to retail prices.
- External and fiscal medium-term outlook:
  - The external current account is expected to return to small surpluses over the medium term as energy prices ease and external demand increases.
  - Under unchanged policies, pressures from the aging population would further increase the fiscal deficit to about 7 percent and public debt about 125 percent of GDP in 2030.
- Risk assessment:
  - The baseline outlook is subject to sizeable risks, tilted down for growth and up for inflation.
  - Downside growth risks include faltering recovery in external demand amid escalating geoeconomic tensions and trade fragmentation.
  - Upside inflation risks include adverse energy price developments or persistently-high core inflation affecting expectations.
  - Fiscal sustainability concerns could trigger a sharp increase in borrowing costs—especially if global risk aversion increases—necessitating abrupt fiscal consolidation with negative consequences for growth and potentially financial stability.

### Rebuilding fiscal buffers — findings and recommendations
- Rationale:
  - Significant fiscal consolidation is needed to address large structural deficits and rising public debt exacerbated by the pandemic and energy crisis.
  - Short-term consolidation will help further reduce inflation despite still-high wage growth and looser monetary policy.
  - Sustained reduction in fiscal deficits is needed to reduce vulnerability to changes in market sentiment, rebuild space for future shocks, address long-term spending pressures, and preserve Belgium’s social model.
- European governance framework:
  - Consolidation under the new EU economic governance framework (EGF) would significantly improve fiscal sustainability.
  - The medium-term fiscal structural plan (MTFSP) under the EGF would benefit from a seven-year rather than a four-year adjustment path, accompanied by credible and front-loaded growth-enhancing reforms.
  - Under such an adjustment, an annual reduction in the structural primary balance of about 0.5 percentage points of GDP until 2031 will be necessary to reach an overall deficit below 3 percent of GDP by 2031 and maintain it until 2041, per the EGF.
- Fiscal policy priorities:
  - Center consolidation on rationalizing current spending while preserving (or ideally increasing) public investment.
  - Rationalize social benefits and the public wage bill to achieve budgetary savings.
  - Preserve or increase public investment to mitigate growth impacts of consolidation, support the green transition, and bolster productive capacity.
- Public investment efficiency:
  - Improve infrastructure investment strategies, strengthen project appraisal, selection, and governance, and improve coordination within and among federal and federated entities.
  - In healthcare: increase focus on preventive care and reform hospital organization and roles to absorb spending increases from aging.
  - In education: pursue reforms to achieve the same outcomes at lower costs or improve outcomes without increasing spending.
- Pension reforms:
  - Raise the effective retirement age in line with healthy-life expectancy and facilitate longer employment through life-long learning and upskilling.
  - Review eligibility criteria for specific pension regimes (e.g., disability pensions) and limit increases in pension benefits by reviewing automatic indexation.
  - Review special provisions (e.g., arduous jobs) to balance fairness and costs.
- Tax reforms:
  - Shift part of the tax burden from labor to capital, without revenue loss, and reduce tax exemptions.
  - Belgium has the highest labor-tax wedge in the OECD.
  - Reduce labor taxation to help increase the employment rate.
  - Tax all capital income (e.g., interests, dividends, and capital gains) in the same way, ideally by incorporating these revenues into overall taxable income subject to personal income tax.
  - Reduce preferential regimes and treatments that cause foregone revenue.
  - Coordinate tax reforms among federal and federated entities for revenue and distributional impacts.
- Fiscal framework and accountability:
  - The new EGF provides an opportunity to strengthen Belgium’s fiscal framework through a revitalized fiscal council and greater accountability among federated entities.
  - Implementation of the 2013 federal-regional coordination agreement has proved challenging; the EGF offers a renewed opportunity to introduce binding rules for burden sharing the fiscal adjustment, with clear accountability for the federal and all federated entities.
  - Strengthen the fiscal council (e.g., enhanced staffing and direct reporting to parliaments) to ensure compliance with European commitments.

### Preserving macrofinancial stability
- Systemic risk assessment:
  - Overall systemic risks in the financial sector remain moderate but are evolving due to changing macroeconomic and market conditions.
  - The economy is slowing and real estate markets are cooling, while interest rates are now decreasing.
  - Household indebtedness has stabilized; corporate indebtedness has declined as substantial investments were largely cash financed.
  - Corporate bankruptcies have been increasing but remain aligned with pre-pandemic trends.
  - Residential real estate risks have moderated; commercial real estate market activity has dropped sharply and vacancies have risen, reflecting low demand for office space.
  - Overall, exposures to real estate remain broadly stable.
- Policy recommendations:
  - Maintain current capital buffer requirements and prudential limits on residential mortgages.
  - Continue macroprudential measures: capital buffers have been significantly raised since last year.
  - NBB’s encouragement to lengthen new mortgage maturities to ease household debt servicing was appropriate.
  - Accelerate progress in implementing the 2023 Financial Stability Assessment Program (FSAP) recommendations now that a new government is in place and required legislative changes can be advanced.

### Strengthening labor markets
- Key constraints:
  - Labor market fragmentation and rigidity impede growth potential.
  - Coexistence of local/sectoral pockets of high vacancies and pockets of high unemployment indicates inefficiencies in labor allocation.
  - Employment gaps remain high for low-skilled workers, older workers, women, and individuals with an immigration background or disabilities.
- Policy priorities:
  - Increase income gap between work and nonwork through tax, social benefit, and labor market reforms.
  - Reduce the cost of hiring and dismissal.
  - Reduce the duration of unemployment benefits and link social benefits to income levels to incentivize labor force re-entry.
  - Focus on facilitating re-integration of workers from long-term sick leave.
- Wage-setting reforms:
  - Consider abolishing automatic indexation and the 1996 wage law that define a floor and ceiling for wage growth, which do not allow optimal labor allocation and increased employment.
  - At a minimum, consider reforms including:
    - Adjusting the basis for indexation to exclude volatile prices.
    - Broadening the group of comparator countries in the wage law.
    - Using productivity-adjusted wage growth as the basis for comparison.
    - Allowing firms to partially index wages considering specific local and sectoral labor market conditions.
- Education and life-long training:
  - Reforms are necessary to upskill the labor force, enhance employment rates, and promote growth.
  - Educational outcomes in Belgium are comparable to peers but achieved at a higher cost.
  - Address teacher shortages, reduce grade repetition rates, and achieve greater equality of educational outcomes irrespective of backgrounds.
  - Align education with company needs, better leverage teachers’ time, and strengthen support for students facing difficulties.

### Boosting productivity and firm dynamics
- Diagnosis:
  - Belgium’s long-term productivity slowdown is worse than peers despite significant investment in innovation.
  - Lagging productivity is linked to insufficient firm dynamics—low entry, growth, and exit rates; Belgium experiences some of the lowest firm entry and exit rates in the EU.
- Policy recommendations:
  - Implement product market reforms to reduce regulatory and administrative barriers and improve the insolvency regime.
  - Deepen the European single market and advance the capital market union to improve access to larger markets, enhance competition and firm dynamics, and provide buffers against geo-fragmentation risks.
  - Develop venture capital within an EU-wide push toward capital market union to widen firms’ financing options.

### Sustaining the green transition
- Challenges and priorities:
  - Much effort remains needed to achieve climate objectives.
  - The expansion of the EU emissions trading system should be complemented by timely implementation of carbon taxation and phasing out fossil fuel subsidies, while ensuring support for vulnerable populations.
  - Consolidate federal and regional climate efforts into a coherent national strategy with improved coordination and accountability among federal and regional governments.
  - Ensure adequate investments in the green transition to meet climate goals and contribute to the European Green Deal.

*International Monetary Fund — Staff Concluding Statement of the 2025 Article IV Mission for Belgium*

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## References

- [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)

_Source: https://www.imf.org/en/news/articles/2025/02/04/mcs020425-belgium-2025-article-iv-mission_