Mission Concluding Statement 

An IMF team led by Jean-François Dauphin visited Brussels during December 3-16 to conduct the 2026 Article IV consultation with Belgium. The IMF team thanks the Belgian authorities and other counterparts for the constructive dialogue and productive collaboration.

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The Belgian economy has been resilient through turbulence but remains scarred with large structural fiscal deficits, elevated and rising public debt, and a weak external position. In an increasingly uncertain global environment, economic and financial policy should prioritize lowering vulnerabilities associated with the high debt level and external imbalances, restoring buffers to be able to address future shocks, creating space for rising spending pressures related to aging, the green transition and defense, bolstering financial sector resilience, and fostering higher growth—all of which will help preserve the core of Belgium’s social model.

• The ongoing tax, pension, labor market, and healthcare reforms are welcome and should be steadfastly implemented. Meanwhile, sustained fiscal consolidation beyond current plans is needed, as efforts, while commendable, will not sufficiently rein in deficits to reduce debt-related vulnerabilities. Priority should be given to further reducing current spending, boosting the efficiency of public investment and social spending, and streamlining tax expenditures. Regions and communities must contribute to the adjustment.
• After recently adjusting capital buffer requirements, the NBB should stand ready to further increase the counter-cyclical capital buffer if overall risks do not abate. Prudential mortgage loan limits have been effective in reducing risks and should be maintained. Building on recent significant progress, further strengthening systemic risk assessment and supervisory, macroprudential, and crisis management frameworks will boost resilience to macro-financial shocks.
• Domestic reforms are critical to lift employment despite aging, to raise productivity and competitiveness, and to soften the impact of fiscal consolidation. Progress with EU partners in deepening the single market, advancing the savings and investment union, and integrating the energy market is equally important.

Economic outlook and risks

Weaker external demand, geopolitical and trade tensions, and prolonged uncertainty are weighing on the outlook. Higher US tariffs will dampen growth in 2026-27. Growth is expected to return to its 1.3 percent potential in the medium term, mainly driven by private consumption and private investment. Lower energy costs and slower wage growth should bring inflation below 2 percent in 2026, before it converges back to target. The external current account deficit is projected to narrow gradually as external demand recovers over the medium term. Despite welcome reforms, public debt is expected to further increase through 2030.

Important risks could worsen the outlook. Growth could be lower due to global and trade uncertainties, higher tariffs, or tighter financial conditions. Supply-chain disruptions could raise inflation, while implementation challenges may hinder much-needed reforms and fiscal consolidation. Risk premia could rise more than expected, and debt dynamics worsen.

Repairing Public Finances

The authorities’ fiscal plan under the EU economic governance framework (EGF) represents a step forward, but insufficient to stop increases in the deficit and debt. Significant pension, labor market, and tax reforms—aligned with past IMF advice—have been initiated under Belgium’s medium-term fiscal structural plan (MTFSP). However, the plan does not limit net primary spending sufficiently to achieve its intended target of a 3 percent of GDP fiscal deficit by 2029, partly due to optimistic assumptions about employment growth and aging costs and to new defense spending commitments. Without further action, the fiscal deficit would have continued to increase in the medium term.

The added measures in the 2026 federal budget agreement are thus welcome but still do not bring about the required adjustment to reduce deficits and debt vulnerabilities. The agreement factors in previously decided reforms of the tax system, unemployment and long-term sickness benefits, pensions, and healthcare. It aims to achieve a reduction in the 2029 deficit of €8.1 billion compared to the government’s previous fiscal projections. Key new revenue measures include 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 include saving on the public wage bill through partial indexation in 2026 and 2028. We preliminarily estimate that the agreement and previously decided measures will broadly stabilize the deficit through 2029—if implemented in a timely manner—but at a high level and debt will continue to rise.

Additional adjustment efforts above current plans are therefore necessary to stabilize debt. To reduce debt-related vulnerabilities and initiate a gradual decline of public debt level in the long term, the 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. In the context of federal-, regional-, and community-level consolidation, it will be crucial to preserve growth-enhancing investment. Achieving this adjustment will be challenging, but even greater and possibly more abrupt efforts will be required if market risks materialize. Although public debt is predominantly long-term with an average residual maturity well above the euro area (EA) average and  market reaction to the worsening fiscal position has been muted so far, international experience shows that confidence can unravel abruptly, leading to rapidly deteriorating debt dynamics.

Steadfast implementation of already-launched reforms and additional measures will be crucial to achieve these objectives.

• The ongoing pension reform is a critical step to limit spending pressures from aging. The government’s multi-pronged pension reform strategy to improve sustainability, fairness, and labor-market incentives, including by raising penalties for early retirement, is welcome. The 2025 report of the Study Committee on Aging estimates that the 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. Yet, pension spending is still projected to reach 12.2 percent of GDP, highlighting the need for further reforms.
• Reforms are needed to increase spending efficiency:
  • Healthcare is an area where substantial efficiency gains could be achieved. The authorities appropriately initiated significant reforms to increase the focus on prevention, reduce the fiscal cost of medicines, and restructure hospitals for greater efficiency and effectiveness of care.
  • Public investment management would improve by coordinating planning among federal and federated entities, standardizing project selection, strengthening federal-regional cooperation, and increasing finance and budget ministry involvement. It will be important to complete investments and reforms under the Recovery and Resilience Plan before related EU funding expires next year.
  • Education reforms could bring improved outcomes and savings by better leveraging teachers’ time, aligning curricula with labor market needs, introducing outcome-based monitoring for schools, and enhancing support for struggling students.
  • Spending reviews should be systematically integrated into budget planning.
• Tax reforms are key to supporting fiscal consolidation and the government’s broader agenda. The government’s goal to widen the gap between work income and nonwork benefits is appropriate to encourage labor participation and increase fairness. Shifting part of the tax burden from labor to capital will help and should be carefully sequenced to ensure that early labor tax reduction does not widen the deficit absent sufficient increase in other revenue. The planned introduction of a 10 percent capital-gains tax on financial assets is welcome, but the high exemption threshold could be lowered for higher revenue and fairness. Tax expenditures amount to over 6 percent of GDP in 2021 (equivalent to about €38 billion in 2025), mostly from personal and corporate income taxes and the VAT. They should be reduced by eliminating provisions that are inefficient or no longer serve a policy priority.
• Strengthening the cooperation agreement between federal and regional governments, as intended, is also needed. Key actions should include setting binding fiscal targets for regions and communities, enforcing accountability—e.g., via financial penalties, and limiting borrowing capacity of federated entities. Systematic spending reviews at the regional level and, possibly, a recalibration of intergovernmental transfers would complement those measures together with a strengthened fiscal council.

Preserving Financial Stability

Systemic financial risks remain moderate, but their nature continues to evolve. The credit portfolio is sound and nonperforming loans are low. Household debt is stable as a share of GDP and declining relative to disposable income. Corporates are vulnerable to economic downturns. Their debt is modest and falling but rising labor costs are pressuring profits and could impact loan quality. Sovereign risk exposure is modest. Risks of a steep housing price correction have eased but housing remains overvalued. Commercial real estate (CRE) fundamentals have improved but exposures still require careful monitoring as bank CRE collateralized corporate lending remains sizeable.

The NBB recently modified its capital buffer requirements to cover a larger set of risks. It appropriately raised the counter-cyclical capital buffer (CCyB) from 1 to 1.25 percent effective July 2026 reflecting more diversified risks. The sectoral systemic risk buffer (SSyRB) for residential mortgages was removed as sectoral risks have moderated. In total, required capital buffer were reduced by about 15 percent. While lowering the SSyRB is justified by lower housing risks, retaining part of it would have been preferable to preserve overall required buffers. The NBB should thus stand ready to further increase the CCyB if overall risks do not abate. Separately, the NBB could also consider formalizing a positive neutral CCyB framework for greater transparency and clarity for the market.

The implementation of recommendations from the IMF’s 2023 Financial Sector Assessment Program is advancing, but measures requiring legislative action remain pending. The NBB has now formally and systematically integrated individual models into its stress-testing framework, and insurers must regularly conduct their own liquidity stress tests. Mortgage loan valuation guidance was updated, and cross-border emergency liquidity assistance plans are in progress. Resources for anti-money laundering and combating terrorism financing (AML/CFT) were further increased in 2025. However, no changes to the institutional macroprudential policy framework have been made. Legislative measures to improve bank governance and disaster-insurance coverage predictability, and to create a national committee that includes the NBB and comprehensively covers AML/CFT and proliferation financing, are also pending.

Lifting Employment

Reforms are needed to increase employment. Belgium has a higher share of long-term unemployed than the EA average. Without increasing employment and labor force participation—both below the EA average, especially among older workers, lower-skilled, and migrants—the sustainability of Belgium’s social model is at risk as aging increases social costs while lowing potential growth and eroding the tax base.

The federal government has started implementing a welcome labor-market reform strategy. The plan aims to address long-term unemployment, inactivity from sickness/disability, and labor shortages. It: (i) introduces degressive, time-limited unemployment benefits and stricter long-term sickness benefit eligibility with enhanced medical oversight; (ii) tasks social partners to propose reforms of the wage-formation system by 2026; and (iii) aims to boost labor flexibility by allowing annualized working time, liberalizing part-time and shop hours, expanding overtime and flexi-jobs, and streamlining administrative procedures. These reforms could be complemented by greater investment in training, further efforts to reduce labor market fragmentation across regions, and changes in employment legislation to improve labor allocation.

The reform of the unemployment benefit was needed and should be complemented by regional measures. The reform aligns Belgium more closely with peers. It encourages early reemployment and will help reduce long-term reliance on unemployment benefits. However, 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 are needed to increase labor-market efficiency and cost competitiveness. Compensation fluctuates within a “wage corridor,” with automatic indexation to inflation setting a floor to wage increases and the 1996 wage law a cap tied to wage growth in neighboring countries. The system limits wage differentiation based on productivity or local/sectoral labor market needs hindering more efficient labor allocation. The authorities should consider abolishing automatic indexation and the wage-growth cap together. At a minimum, welcome first steps would be to adjust the basis for indexation, broaden the set of country comparators used in the wage law to determine caps, use unit labor costs instead of wages for comparison, and institutionalize indexation of wages and benefits only to a certain threshold.

Advancing Other Structural Reforms to Boost Productivity

Belgium is at or near the global productivity frontier in many areas, but business regulation reforms are needed to further increase productivity. Price controls, complex regulatory procedures, and strict occupational restrictions hinder further productivity gains. Insolvency is lengthy and court dependent. Reforms aligned with an EU framework under a 28^th corporate regime should be pursued.

Energy market reforms would improve efficiency, help lower prices, and narrow the cost-competitiveness gap with non-EU trade partners. Belgium’s energy prices match EA averages, but its high-share of energy-intensive industries weakens its EU competitiveness. The cost-competitiveness gap is larger with non-EU partners like the US and China that enjoy lower energy costs. Further EU energy-market integration would improve affordability, energy security, and advance the clean energy transition.

Further deepening the EU single market and advancing the savings-investment union would benefit Belgium’s highly-open economy. Reducing or removing barriers to intra-EU trade, especially in finance and telecoms, harmonizing regulations, and streamlining the recognition of professional qualifications would expand Belgian firms’ markets, enhance competitiveness, and strengthen integration in EU value chains. Meanwhile, easing cross-border capital flows within the EU and enhancing the market for venture capital would support funding and risk sharing . Securitization reforms should be prioritized.