(Bloomberg) -- Belgium’s rating outlook was cut to negative by Moody’s Ratings amid concerns over its deficit trajectory as well as political uncertainty following general elections earlier this year.
Moody’s downgraded its view on the country’s Aa3 score to negative from stable, according to a statement on Friday. It currently assesses its credit seven levels above junk — a rating that matches Fitch, which already revised Belgium’s outlook to negative in March 2023.
“The decision to change the outlook to negative from stable reflects the risk that the next government will be unable to implement measures that would stabilize the government debt burden,” the ratings firm said in a statement.
Driven by rising public spending and costs related to an aging population, Belgium’s debt ratios have been above those of the euro area for years.
The country’s burden is projected to rise further, with Scope predicting in April that it will have the third-highest level in Europe by 2028, after Greece and Italy, given Belgium’s expected largest fiscal deficit in Europe exceeding 5% of GDP in coming years.
Belgium’s central bank has cautioned that the country’s public finances “remain a cause for concern” and that the fiscal outlook “is far from rosy.” It estimated in March that the next government will need to reduce the budget balance by almost €2.5 billion ($2.7 billion) each year simply to stabilize the deficit.
Moody’s verdict comes as the political parties that won in the June general elections are still working to form an executive after a few setbacks over agreeing on the fiscal policy. While the new government is expected to be formed later this year, Belgium has a tradition of long-drawn negotiations. After the 2019 ballot, it took almost 500 days to assemble the now caretaker seven-party coalition, which has been dogged by infighting.
The internal strife has torpedoed the proposed reform agenda including plans on taxation which had to be abandoned last year.
Given that delay, the European Commission last month accepted Belgium’s request to submit its budget plan by Dec. 31 at the latest, according to a federal government official.
The EU had put Belgium along with France and five other countries under a so-called excessive deficit procedure to enforce stricter fiscal discipline which entails maintaining deficit below 3% of GDP.
Belgium was supposed to submit its medium-term fiscal-structural plans by Sept. 20 and the draft budget plans by Oct. 15.
“In the absence of a large fiscal consolidation programme, debt will continue to rise due to the material structural increase in expenditures in recent years and persistent spending pressure,” Moody’s said. “At the same time, the political economy of deficit and debt reduction may be more challenging in the future than it has been in the past because of structural headwinds to fiscal consolidation.”
This story was produced with the assistance of Bloomberg Automation.
©2024 Bloomberg L.P.