IMF Executive Board Concludes 2009 Article IV Consultation with Belgium

Public Information Notice (PIN) No. 10/37
March 15, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2009 Article IV Consultation with Belgium is also available.

On March 8, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belgium.1


The Belgian economy was hit hard by the global financial crisis and economic downturn. In response, the authorities took measures to support the financial sector and let the automatic fiscal stabilizers operate freely while implementing a moderate stimulus plan. These actions helped to stabilize the financial sector and halt the economic downturn. At the same time, ground has been lost in addressing the high public debt and the spending pressures related to population aging, and in strengthening competitiveness and pursuing labor and product market reforms. The political situation remains complex, complicating the authorities’ efforts to tackle the medium-term challenges facing the country in the areas of public finances and structural reforms.

The near-term outlook is challenging, with real GDP expected to drop by about 3 percent in 2009 and a gradual recovery projected for 2010. The unemployment rate will continue to rise in 2010 and inflation pressures are expected to remain subdued. Uncertainty to the outlook is high but risks appear broadly balanced. The crisis will have a considerable downward impact on potential growth, in addition to that of demographic factors, in 2009-11.

The banking sector has stabilized after massive public intervention, but its financial situation remains fragile and vulnerable to potential spillovers from mature markets and emerging Europe. The uncertain profitability outlook constrains the banks’ capacity to rebuild a high-quality capital base through internal capital generation. The withdrawal from the emergency support to the financial sector will be done gradually to avoid market disruptions and a credit squeeze. The authorities have initiated the creation by early 2011 of a unified structure to supervise financial institutions at the National Bank of Belgium, in order to more effectively combine the supervision of individual institutions and of the system as a whole. A draft crisis law that would establish a rule-based resolution framework for failed financial institutions has also been prepared.

Recognizing the risk of unsustainable public debt dynamics, the government has announced a fiscal consolidation strategy that appropriately aims to achieve a balanced budget by 2015. The economic and financial crisis and the necessary public interventions have led to a significant deterioration in the public finances with the overall deficit jumping to 5.8 percent of GDP and the public debt rising to close to 100 percent of GDP in 2009. The 2010 budget aims at streamlining spending and boosting revenue to reduce the overall deficit to 5.1 percent of GDP. The total fiscal effort of about ¾ percent of GDP reflects the intergovernmental burden-sharing agreement for 2009-10 and the first multi-year fiscal framework covering 2010-11. The new Belgian Stability Program for 2009-12 builds on the deficit reduction targeted for 2010 and aims to reduce the overall deficit to 3 percent of GDP by 2012. The planned fiscal consolidation requires significant efforts at all government levels and in the social security system.

Executive Board Assessment

Executive Directors, noting that Belgium had been severely hit by the global crisis, commended the authorities for taking prompt measures to support the economy and stabilize the financial system. Directors observed that, although the economic recession in Belgium was less severe than the euro area average, the recovery is expected to be gradual and fragile, with unusually high uncertainty. The near term outlook is clouded by a sluggish rebound in both domestic and external demand, rising unemployment, and growing public debt. Early action is crucial to restore fiscal sustainability, further reinforce financial stability, and intensify labor and product market reforms to boost competitiveness and growth prospects.

Directors underscored the importance of strong and credible medium-term adjustment to put Belgium’s public finances back on a sustainable path and address the challenges arising from an aging population. They supported the authorities’ fiscal consolidation strategy to achieve a balanced budget by 2015, stressing that such a strategy should be backed by concrete measures and based on prudent macroeconomic assumptions. Directors agreed that the 2010 budget strikes the right balance between initiating the much-needed fiscal consolidation and supporting the recovery. They welcomed the authorities’ commitment to take additional actions if necessary to achieve the deficit targets for 2011 and beyond. In addition to reversing most of the fiscal stimulus measures after 2010, it would be important to restrain expenditure, increase the effective retirement age, and reduce the growth of health care costs. These require significant efforts at all government levels and in the social security system. Adopting a rule-based fiscal framework would help enhance the credibility of the consolidation efforts.

Directors considered that, although the banking sector has stabilized after massive public intervention, its financial situation remains fragile and is vulnerable to potential spillovers from both mature markets and emerging market countries in Europe. This points to continued need for bank recapitalization, balance sheet repair, and targeted liquidity support in the near future. Directors recommended that the authorities withdraw exceptional support to the financial sector gradually, in a manner that is fully aligned with the concerted EU exit policies, and monitor credit to the economy closely to avoid adverse market reactions and a credit squeeze. They welcomed the reorganization of the Belgian supervisory authority consolidating the supervision of individual institutions and that of the system as a whole. The preparation of a draft crisis law is a welcome step toward establishing a rule-based resolution framework for failed financial institutions.

Directors highlighted the urgency of structural reforms aimed at raising productivity and restoring growth to its potential. They encouraged the authorities to push ahead with the restructuring of the labor and product markets. Reabsorbing the unemployed and increasing labor market participation are a priority. In this context, Directors welcomed the proposed system that would link the pre-pension age to the benefits payable by employers. To strengthen competition, Directors recommended enhancing the independence of the Competition Authority, defining clearly the role of sectoral regulators, and establishing effective cooperation among the different regulators. The importance of wage moderation was also emphasized, with a number of Directors suggesting that the authorities reconsider the merits of wage indexation.

Belgium: Selected Economic Indicators 2005-10

  2005 2006 2007 2008 2009 2010
  (Percentage change from the previous period; unless otherwise indicated)

Real economy


Real GDP

2.0 2.8 2.8 0.8 -3.0 1.2

Private consumption

1.2 1.8 1.6 1.0 -1.7 0.6

Public consumption

1.2 1.0 2.6 3.3 1.7 0.8

Gross fixed investment

7.7 2.7 5.7 3.8 -4.2 -2.5

Business investment

5.5 4.5 8.7 6.1 -6.1 -3.1


10.9 3.4 -0.8 -1.6 -2.9 -2.5

Public investment

15.8 -12.4 3.6 3.4 7.7 2.8

Stockbuilding 1/

0.3 0.6 0.2 -0.2 -1.1 0.1

Foreign balance 1/

-1.0 0.4 0.2 -1.0 0.0 0.7

Exports, goods and services

4.8 5.0 4.4 1.4 -9.2 4.9

Imports, goods and services

6.5 4.7 4.4 2.7 -9.5 4.2

Household saving ratio (in percent)

    16.2 16.6 19.7 18.4

Potential output growth

1.7 1.8 1.9 1.3 0.9 0.8

Output gap (in percent)

0.3 1.3 2.2 1.7 -2.2 -1.9



Unemployment rate

8.5 8.3 7.5 7.0 8.0 9.3


1.4 1.2 1.6 1.8 -0.5 -1.1



Consumer prices

2.5 2.3 1.8 4.5 -0.2 1.6

GDP deflator

2.4 2.2 2.2 1.9 1.2 1.3

ULC (in whole economy)

1.3 1.9 2.3 4.1 4.2 -1.1
  (In percent of GDP; unless otherwise indicated)

Public finance



49.4 48.7 48.2 48.8 48.0 48.7


52.1 48.5 48.4 50.0 53.8 53.8

General government balance

-2.7 0.3 -0.2 -1.2 -5.8 -5.1

Structural balance

-1.0 -1.4 -1.4 -2.2 -4.9 -4.3

Primary balance

1.5 4.2 3.6 2.6 -2.1 -1.2

General government debt

92.1 88.1 84.2 89.8 97.3 100.1

Balance of payments


Trade balance

1.6 0.8 0.7 -3.0 -2.8 -2.9

Current account

2.6 2.0 2.2 -2.5 -0.3 -0.5

Terms of Trade (percent change)

-0.2 -1.4 -0.1 -1.4 2.0 -0.9

Exports, goods and services (volume, percent change)

4.8 5.0 4.4 1.4 -9.2 4.9

Imports, goods and services (volume, percent change)

6.5 4.7 4.4 2.7 -9.5 4.2

Sources: Data provided by the Belgian authorities, and IMF staff projections.
1/ Contribution to GDP growth.

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. An explanation of any qualifiers used in summings up can be found here:


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