Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Belgium (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA-/Negative; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 26 July 2024.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Kingdom of Belgium’s long-term AA-/Negative ratings are underpinned by the following credit strengths: i) a wealthy, competitive and diversified economy; ii) a strong market access and favourable debt profile, with long maturities and moderate funding costs; and iii) a sound external position bolstered by a net international creditor position.

Belgium’s ratings are constrained by: i) elevated and rising public indebtedness given wide budget deficits amid structural spending pressures from an ageing population and uncertainties about fiscal consolidation plans; ii) persistent governance challenges, including institutional rigidities and high political fragmentation and polarisation at the federal and regional levels; and iii) structural economic challenges given slowing productivity growth and labour market bottlenecks.

The Belgian economy displayed robust real growth of 1.4% in 2023, significantly outperforming the euro area aggregate of 0.4%. Scope expects output growth to remain comparatively robust at 1.2% this year and 1.3% in 2025, reflecting robust household consumption, anchored by the automatic indexation of wages to inflation. Investment dynamics are expected to benefit from the continued implementation of the Recovery and Resilience plan, while business investment is set to pick-up as lending conditions gradually ease.

Belgium’s general government deficit widened to 4.4% of GDP in 2023 (up 0.9pps from the previous year), primarily due to continued stimulus and spending pressures resulting from the indexation of public sector wages and social benefits to inflation. Under a no-policy change scenario, Scope forecasts a further worsening of the country’s fiscal position over the coming years. In this case, Belgium’s fiscal deficit is expected to rise to 4.7% of GDP next year, driving the debt-to-GDP ratio to 108.3% by 2025 from 105.2% at end-2023. Scope notes that the fiscal policy outlook is affected by significant uncertainty following the June 2024 federal and regional elections and the subsequent ongoing discussions to form a federal government. The outcome and the associated policy agenda, primarily around fiscal consolidation measures in response to the European Commission’s Excessive Deficit Procedure, will be central to inform Belgium’s rating trajectory.

The Negative Outlook reflects Scope’s view that risks to the ratings are skewed to the downside.

The ratings could be downgraded if, individually or collectively: i) Belgium’s fiscal outlook deteriorated resulting in a sustained increase of the public debt-to-GDP ratio; ii) Belgium’s growth outlook significantly deteriorated, for example, due to an external shock; and/or iii) political instability were to worsen, further weighing on governance and the government’s capacity to implement credit-enhancing reforms supporting the economic and fiscal outlooks.

Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) Belgium consolidates its public finances and stabilises its public debt-to-GDP ratio; and/or ii) a stable government coalition implements structural reforms, strengthening the medium-term growth outlook.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Thomas Gillet, Director

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