Public Information Notices

Belgium and the IMF

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile

Public Information Notice (PIN) No. 04/13
February 27, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes 2003 Article IV Consultation with Belgium

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2003 Article IV consultation with Belgium is also available.

On February, 13, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belgium.1

The Belgian economy is beginning to emerge from a prolonged period of slow growth. Since 2001, average annual growth has been below one percent, owing to falling business investment and subdued export growth. With support from tax cuts, private consumption gained strength in 2003, though some of the increase in disposable income was saved. An improvement in the external environment provided a positive impetus in the third quarter of 2003, with preliminary data showing annualized real GDP growth of more than 2 percent. The unemployment rate has been rising since 2001 and overall employment started to fall in 2002, with the harmonized unemployment rate averaging 7.9 percent in 2003.

Consumer price inflation has eased more than in the euro area, reflecting transitory factors, notably reductions in the television and radio license fee, which were key to holding monthly average inflation to about 1.5 percent through October 2003. With these transitory effects waning, inflation has more recently posted a similar pace as the euro area average. Hourly wage growth slowed sharply in 2003 to 2.1 percent, while unit-labor-cost growth started to decline already in 2002. Nevertheless, in recent years the increases in unit labor costs have exceeded the average of Belgium's three main trading partners (Germany, France and the Netherlands).

The staff projects moderate growth and low inflation for the near term. Accordingly, real GDP growth is expected to average 1.8 percent in 2004, consistent with confidence indicators, monetary conditions that are expected to remain supportive, and the projected growth of export markets. Moderate growth, sustained for a few quarters, is expected to trigger a revival of business investment. With the recent euro appreciation, inflation is projected to average less than 1.5 percent in 2004. The main downside risks to the growth projection lie in a stronger-than-envisaged euro, a faltering of the recovery in key trading partners, and domestic wage increases, though there appears to be a consensus among social partners to keep wage developments below the guidelines of the 2003-04 Interprofessional Agreement.

Macroeconomic policies have recently been supportive, but fiscal tightening is expected to resume in 2004, in line with medium-term requirements. Monetary conditions have been historically easy, and following the appreciable structural contraction in 2001-02, the primary surplus declined in 2003, beyond the full play of automatic stabilizers. Nevertheless, with sizeable one-off measures, notably related to the transfer of the Belgacom pension fund to the state, the 2003 budget outturn is expected to record a small surplus following 2 years of balance. For 2004, the budget targets balance, relying on one-off factors, including a tax amnesty. The staff estimates the 2004 budget to imply a structural consolidation of one-half of one percentage point of GDP.

To deal with the consequences of aging, the authorities are implementing a strategy of debt reduction so that interest savings can be applied to increased budgetary outlays on pensions and health care with stable debt dynamics, and structural reforms to promote growth, in particular by boosting comparatively low employment rates. To achieve the latter, the authorities have recently embarked on labor market reforms in the context of an employment conference involving social partners. In addition to various other measures, existing cuts for the low paid and across-the-board reductions in social security contributions were expanded and marginal tax rates for the high skilled lowered. As of mid-2004, job search requirements for unemployment benefit recipients are to be made more effective and reforms seeking to redress the high incidence of early retirement are to be launched. In product markets, the focus has been on reducing the administrative and regulatory burden and the strengthening of the competition authority, while in financial markets the supervisory agencies of the insurance and banking sectors have been merged, effective January 1, 2004.

Executive Board Assessment

Executive Directors considered that Belgium's economic fundamentals remain basically sound, given the low inflation, strong underlying primary fiscal balance, sizable external current account surplus, and adequate national savings rate. Directors commended the authorities on the considerable fiscal retrenchment achieved so far, even during the recent slump in growth, but noted that, going forward, successful fiscal consolidation will require further progress in reducing primary expenditure growth and stepped-up pursuit of synergies between fiscal and labor market reforms. They endorsed the authorities' focus on reducing public debt and promoting employment growth to deal with the long-term pressures from population aging.

Directors expected the economy to grow moderately during 2004, on the basis of a recovery in export markets and broadly supportive macroeconomic policies. However, they also noted downside risks, in particular from a stronger-than-envisaged euro appreciation, an abortive recovery in key euro-area trading partners, and high domestic wage increases. Against this background, most Directors supported the authorities' strategy of maintaining the budget at least in balance in 2004. These Directors considered that the short-run positive confidence effect of a balanced budget and lower public debt outweighs the negative impact on aggregate demand of a slight tightening of the fiscal stance. Some Directors, however, supported the full operation of automatic stabilizers in view of the risks to growth. Directors also considered it important to avoid wage increases in excess of those in neighboring countries in order to maintain Belgium's competitiveness, and stressed the need to ensure that the ongoing cuts in social security contributions lead to lower labor costs.

Looking forward, Directors recommended a steady increase in the underlying budget surplus for the foreseeable future, and many Directors viewed a surplus of about 1 percent of GDP by 2007 as an appropriate intermediate target. However, they strongly cautioned against the continued use of ad hoc fiscal measures to achieve this objective, noting that such measures often trade off a current benefit for a future outlay. In this regard, in addition to targeting a primary surplus, most Directors saw merit in focusing the medium-term fiscal framework on primary expenditure growth ceilings. They considered that such a framework would promote durable fiscal consolidation, avoid imparting a procyclical bias to fiscal policy, and, when set consistent with medium-term tax policy and consolidation objectives, preserve interest savings for debt reduction. Directors also noted that such a framework would need to involve all levels of government.

Directors noted the high ratio of revenue to GDP-one of the highest in the European Union-and endorsed the authorities' planned tax cuts as desirable for job creation. Therefore, to achieve the fiscal objectives, they considered it essential to curb primary spending growth and keep it well below trend-GDP growth. Directors suggested that spending cuts be focused on transfers and labor market programs, noting that this would boost employment rates and potential output. In this context, they welcomed the authorities' intention to implement reforms that would hold unemployment spending constant in nominal terms and to abstain from discretionary increases in pension spending. Directors noted that the upcoming large-scale retirements in the civil service offered a good opportunity for fiscal savings. They also saw a need to put in place mechanisms that would restrain health care spending growth in the long run.

While commending recent initiatives to boost employment, such as the targeted cuts in social security contributions, the enterprise-based training programs, and the stricter enforcement of job search requirements, Directors viewed more vigorous labor market reform as essential to raising Belgium's low employment rate and its potential output growth. They recommended that all remaining measures inducing early withdrawals from the labor force be phased out and that the decision to retire be made actuarially fair. Directors observed that limiting the duration of unemployment benefits would sharpen work incentives. In addition, against the background of substantial differences in regional productivity and employment rates, Directors called for greater labor mobility and wage differentiation. In this context, they saw a need to remove some impediments to greater wage flexibility by modifying aspects of the wage bargaining system.

Directors urged the authorities to accelerate the pace of product market reform to provide an impetus for growth. While welcoming recent progress, they pressed the authorities to achieve complete opening of the energy and telecommunications industries to competition, while ensuring that benefits accrue to consumers. Directors supported the intentions to strengthen the competition authority and lower the administrative burden on taxpayers and enterprises.

Directors agreed that the financial sector has performed generally well in light of the prolonged slump in economic activity, and stressed the need to pursue the ongoing strengthening of supervision, particularly in the insurance sector. In this context, they endorsed the merger of banking and insurance supervision, and welcomed the central bank's involvement in macroprudential supervision. Directors considered that the supervision of important cross-border and bank-insurance firms should remain a priority task. They also commended the authorities' decision to participate in the Financial Sector Assessment Program.

Directors urged the authorities to continue supporting multilateral trade liberalization and to use their position in international institutions to promote a successful outcome of the Doha Round. Directors welcomed the authorities' commitment to raise official development assistance to the UN target of 0.7 percent of GNP by 2010.

Belgium: Selected Economic Indicators







Real economy (change in percent)


Real GDP






Domestic demand












Unemployment rate (in percent)






Public finance (percent of GDP)


General government balance






Structural balance






Primary balance






General government debt






Interest rates (percent)


Money market rate




Government bond yield




Balance of payments (percent of GDP)


Trade balance






Current account






Official reserves (US$ billion)1




Reserve cover (months of imports of GNFS)




Exchange rate


Exchange rate regime


Euro per U.S. dollar (January 20, 2004)




Nominal effective rate (1995=100)2





Real effective rate (1995=100)2, 3





Sources: Data provided by the Belgian authorities, and IMF staff projections.

1 Excluding gold; Eurosystem's definition.

2 For 2003, average through end-November.

3 Based on relative normalized unit labor costs in manufacturing.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100