Belgium: Staff Concluding Statement of the 2026 Article IV Mission
IMF News, December 16, 2025
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- Published: December 16, 2025
Mission summary and key judgments
- IMF team led by Jean-François Dauphin visited Brussels during December 3-16 to conduct the 2026 Article IV consultation.
- Belgium’s economy: resilient through turbulence but scarred by large structural fiscal deficits, elevated and rising public debt, and a weak external position.
- Policy priorities identified:
- Lower vulnerabilities associated with high debt and external imbalances.
- Restore buffers to address future shocks.
- Create fiscal space for aging, the green transition, and defense.
- Bolster financial sector resilience.
- Foster higher growth to preserve the core of Belgium’s social model.
- Ongoing reforms (tax, pension, labor market, healthcare) are welcome and should be steadfastly implemented; however, sustained fiscal consolidation beyond current plans is needed.
Economic outlook and risks
- Near-term drag from weaker external demand, geopolitical and trade tensions, and prolonged uncertainty.
- Higher US tariffs will dampen growth in 2026-27.
- Growth projection: expected to return to its 1.3 percent potential in the medium term, mainly driven by private consumption and private investment.
- Inflation: lower energy costs and slower wage growth should bring inflation below 2 percent in 2026, before it converges back to target.
- External position: current account deficit projected to narrow gradually as external demand recovers over the medium term.
- Public debt: despite reforms, public debt is expected to further increase through 2030.
- Key risks:
- Lower growth from global/trade uncertainties, higher tariffs, or tighter financial conditions.
- Supply-chain disruptions could raise inflation.
- Implementation challenges may hinder reforms and fiscal consolidation.
- Risk premia could rise more than expected, worsening debt dynamics.
Repairing public finances — findings and projections
- Authorities’ fiscal plan under the EU economic governance framework (EGF) is a step forward but insufficient to stop increases in the deficit and debt.
- Medium-term fiscal structural plan (MTFSP) initiated significant reforms but does not limit net primary spending sufficiently to reach a 3 percent of GDP fiscal deficit by 2029, partly due to optimistic employment and aging assumptions and new defense commitments.
- 2026 federal budget agreement:
- Aims to reduce the 2029 deficit by €8.1 billion compared to previous projections.
- Key new revenue measures: higher excise duties on fuel and flights, adjustments to VAT rates, a new parcel tax, an increased banking tax, and deferred labor tax cuts.
- New spending cuts: partial indexation of the public wage bill in 2026 and 2028.
- Preliminary IMF estimate: the agreement and previously decided measures will broadly stabilize the deficit through 2029—if implemented timely—but at a high level and debt will continue to rise.
- Fiscal targets and recommendations:
- Additional adjustment above current plans necessary to stabilize debt.
- Federal government should reduce its deficit to close to 3 percent of GDP by 2030.
- Regions and communities should commit to credible multi-year consolidation plans converging to a combined balanced position.
- Preserve growth-enhancing investment during consolidation.
- Warning: larger or more abrupt adjustment may be required if market risks materialize.
- Pension reform:
- Multi-pronged reform strategy welcomed (raising penalties for early retirement, improving sustainability, fairness, and labor-market incentives).
- 2025 Study Committee on Aging report estimates reforms will cut aging costs by 1.9 percent of GDP by 2070, limiting the increase from current level to 1.7 percent of GDP instead of 3.6 percent.
- Despite reforms, pension spending still projected to reach 12.2 percent of GDP, indicating further reforms are needed.
Fiscal efficiency and tax measures — findings and recommendations
- Spending-efficiency opportunities:
- Healthcare: increase prevention focus, reduce fiscal cost of medicines, restructure hospitals for greater efficiency and effectiveness.
- Public investment management: coordinate planning among federal and federated entities, standardize project selection, strengthen federal-regional cooperation, and increase finance and budget ministry involvement.
- Complete Recovery and Resilience Plan investments and reforms before related EU funding expires next year.
- Education: leverage teachers’ time better, align curricula with labor market needs, introduce outcome-based monitoring, and enhance support for struggling students.
- Systematic integration of spending reviews into budget planning.
- Tax reform recommendations:
- Widen gap between work income and nonwork benefits to encourage labor participation and fairness.
- Shift part of tax burden from labor to capital, carefully sequenced to avoid widening deficits.
- Planned introduction of a 10 percent capital-gains tax on financial assets is welcome; consider lowering the high exemption threshold for higher revenue and fairness.
- Tax expenditures amounted to over 6 percent of GDP in 2021 (equivalent to about €38 billion in 2025); reduce by eliminating inefficient or no-longer-policy-priority provisions.
- Intergovernmental fiscal framework:
- Strengthen cooperation agreement between federal and regional governments.
- Set binding fiscal targets for regions and communities and enforce accountability (e.g., via financial penalties).
- Limit borrowing capacity of federated entities.
- Systematic regional spending reviews and possible recalibration of intergovernmental transfers, supported by a strengthened fiscal council.
Preserving financial stability — findings and recommendations
- Systemic financial risks: moderate but evolving.
- Credit portfolio sound; nonperforming loans low.
- Household debt stable as a share of GDP and declining relative to disposable income.
- Corporate debt modest and falling, but rising labor costs pressure profits.
- Sovereign risk exposure modest.
- Housing: risks of a steep housing price correction have eased but housing remains overvalued.
- Commercial real estate (CRE): fundamentals improved but bank CRE-collateralized corporate lending remains sizeable and requires monitoring.
- NBB capital buffer adjustments:
- Counter-cyclical capital buffer (CCyB) raised from 1 to 1.25 percent effective July 2026.
- Sectoral systemic risk buffer (SSyRB) for residential mortgages was removed.
- In total, required capital buffer were reduced by about 15 percent.
- IMF view: lowering the SSyRB is justified by lower housing risks, but retaining part would have been preferable to preserve overall required buffers.
- Recommendations:
- NBB should stand ready to further increase the CCyB if overall risks do not abate.
- Consider formalizing a positive neutral CCyB framework for greater transparency and market clarity.
- Implementation of IMF 2023 Financial Sector Assessment Program recommendations is advancing, but legislative measures remain pending:
- Advances: integration of individual models into stress-testing framework; insurers required to conduct regular liquidity stress tests; updated mortgage loan valuation guidance; progress on cross-border emergency liquidity assistance plans; increased AML/CFT resources in 2025.
- Pending legislative measures: changes to institutional macroprudential policy framework, bank governance improvements, disaster-insurance coverage predictability, creation of a national committee covering AML/CFT and proliferation financing.
Labor market and employment — findings and recommendations
- Employment and participation challenges:
- Belgium has a higher share of long-term unemployed than the EA average.
- Employment and labor force participation are below the EA average, especially among older workers, lower-skilled, and migrants.
- Without increasing employment and participation, sustainability of the social model is at risk as aging raises social costs and erodes the tax base.
- Federal labor-market reform strategy (implemented measures and aims):
- Introduces degressive, time-limited unemployment benefits and stricter long-term sickness benefit eligibility with enhanced medical oversight.
- Tasks social partners to propose wage-formation system reforms by 2026.
- Aims to boost labor flexibility: allow annualized working time, liberalize part-time and shop hours, expand overtime and flexi-jobs, and streamline administrative procedures.
- Complementary measures: greater investment in training, reduce labor market fragmentation across regions, and employment-legislation changes to improve labor allocation.
- Specific recommendations:
- Unemployment benefit reform should be complemented by regional measures; many long-term unemployed may initially turn to local welfare centers, requiring increased federal funding to regional governments that will delay expected savings.
- Bolder wage-setting reforms needed:
- Consider abolishing automatic indexation and the wage-growth cap together.
- At minimum: adjust indexation basis, broaden country comparators in the wage law, use unit labor costs instead of wages for comparison, and institutionalize indexation to a certain threshold.
Advancing other structural reforms to boost productivity
- Business regulation reforms needed despite Belgium being near the global productivity frontier in many areas:
- Price controls, complex regulatory procedures, and strict occupational restrictions hinder further productivity gains.
- Insolvency procedures are lengthy and court dependent.
- Pursue reforms aligned with an EU framework under a 28th corporate regime.
- Energy market reforms:
- Would improve efficiency, lower prices, and narrow cost-competitiveness gap with non-EU trade partners.
- Belgium’s energy prices match EA averages, but a high share of energy-intensive industries weakens EU competitiveness; gap larger with non-EU partners like the US and China.
- Further EU energy-market integration recommended for affordability, energy security, and clean energy transition.
- Deepening EU integration and the savings-investment union:
- Reduce/remove barriers to intra-EU trade (especially finance and telecoms), harmonize regulations, and streamline recognition of professional qualifications.
- Ease cross-border capital flows within the EU and enhance the market for venture capital to support funding and risk sharing.
- Prioritize securitization reforms.
Belgium: Staff Concluding Statement of the 2026 Article IV Mission, December 16, 2025.