Credit rating agency Moody’s has maintained Belgium’s federal authorities’ rating at Aa3, surpassing expectations amid ongoing budget negotiations. With the government set to present its 2026 budget and a multiannual budget soon, key questions revolve around the magnitude of cuts needed and their impact on public services, reports 24brussels.
During a parliamentary session last Thursday, Prime Minister Bart De Wever expressed optimism that recent government measures aimed at reforming pensions and unemployment benefits would prevent a downgrade in the credit rating.
However, these initiatives have not alleviated the projected budget deficit, which stands at 4.2 percent of GDP for the current year and is expected to rise to 5.8 percent by 2030.
The Aa rating signifies that Moody’s perceives Belgium’s credit risk as very low, but the designation of “3” indicates it is at the lower end of this category. A downgrade could lead to increased borrowing costs for the government to manage budget deficits.
Moody’s attributed its favorable rating to the Belgian government’s focus on structural reforms necessary to address persistent issues, including low employment rates, an aging population, and rising budget deficits, while noting that Belgium’s elevated debt ratio remains a significant challenge.
1,000 euros per person
In a statement from the Prime Minister’s office, officials acknowledged that while the implemented reforms have been positively received and have bought time, further efforts are essential for significant budget improvement by the end of the government’s term. “It is clear, however, that new efforts are needed to improve the budget significantly by the end of the term. We are fully committed to this,” they stated.
The European Commission has laid out a seven-year plan requiring structural reforms and budget cuts. De Wever aims to galvanize coalition partners and the public with the reminder that Belgium will incur €11 billion in interest on its sovereign debt this year, equating to approximately €1,000 per citizen.
“It is clear that new efforts are needed to improve the budget significantly by the end of the term. We are fully committed to this.”
As De Wever prepares to unveil the 2026 budget and multiannual budget to parliament on Tuesday, and subsequently to the EU Commission the following day, the specific measures and the extent of cuts remain unclear.
Return to work
In recent discussions, De Wever has proposed four potential measures to address the looming deficits.
The first entails suspending the indexing of wages and social benefits. This automatic indexation tied to inflation serves to balance the cost of living and labor; thus, a pause could reduce expenses across both public and private sectors.
A second option would involve increasing VAT rates on certain goods and services to boost government revenues. The remaining proposals focus on health insurance, suggesting that patients might need to shoulder higher costs, or unemployed individuals on sick leave could be encouraged to re-enter the workforce.
National strike
The viability of reaching a detailed and ambitious agreement by Tuesday’s deadline is uncertain. Trade unions have organized a national demonstration for the same day, expressing discontent with proposed pension cuts for civil servants. Further budget cuts could exacerbate these tensions.
Compounding the social unrest are budgetary reductions implemented by regional governments, with all regions facing fiscal challenges, except for Brussels, which has yet to form a government following the June 2024 elections.
The Brussels authorities are expected to receive their credit rating from Standard & Poor’s next week, likely reflecting a more negative outlook than that of Moody’s for Belgium, due to the region’s more severe financial issues.
Moody’s has emphasized that addressing Belgium’s financial challenges requires coordinated efforts from both national and regional governments.
