Rating action

Scope Ratings GmbH (Scope) has today affirmed the Kingdom of Belgium’s long-term local and foreign currency issuer and senior unsecured debt ratings of AA- with Negative Outlooks. The short-term issuer ratings have been affirmed at S-1+ in foreign and local currency, with Stable Outlooks.

The affirmation of the Kingdom of Belgium’s credit ratings reflects:

1. A challenging fiscal outlook driving an upward trajectory of general government debt. Belgium’s commitment to the European economic governance framework underpins the projections of a moderate reduction of the primary deficits in the coming years. However, budget deficits are projected to remain wide, which reflect the uncertainties surrounding the implementation of the upcoming government coalition’s fiscal consolidation plan in the context of rising interest payments and ageing-costs.
    
2. High political uncertainties and a fragmented political landscape, which challenge the implementation of economic and budgetary reforms. Although political negotiations to form a government coalition could enter a decisive phase in the coming weeks, uncertainty prevails about the timing and the capacity to strike a political balance on strategic policy orientations. Following the June 2024 elections, any government coalition will face the challenge of reducing wide budget deficits and reaching consensus on difficult reforms in a fragmented parliament.

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Key rating drivers

A challenging fiscal outlook driving an upward trajectory of general government debt.

Belgium’s fiscal outlook is clouded by a large budget deficit, projected at 5.0% of GDP in 2025, after an estimated 4.5% in 2024, as budgetary consolidation is delayed by the ongoing political negotiations to form a federal government. Although Belgium has not yet submitted its Medium-Term Fiscal and Structural Plan to the European Commission in response to the Excessive Deficit Procedure¹, Scope anticipates that the Belgian authorities will remain committed to reduce the budget deficits. Compliance with the European economic governance framework over the next four years would require an improvement in the structural primary balance of around 0.7 percentage point of GDP between 2025 and 2028, which is high relative to historical performance². The needed adjustment possibly requires politically sensitive reforms of the welfare system, which accounts for more than half of the government’s expenditure³.

Under a scenario of moderate fiscal consolidation, reflecting both the commitment to the European economic governance framework and uncertainties on the budgetary adjustment, the government deficit is projected to average 4.8% of GDP over the 2025-29 period, as the reduction of the primary deficit is offset by higher interest payments and ageing-costs. On that basis, Scope projects the general government debt to increase from 104.7% of GDP in 2024 to 114.4% in 2029, or 17 percentage points above the debt-to-GDP level recorded pre-Covid, one of the largest increases among euro area peers. Under a no policy change scenario, the National Bank of Belgium projects the budget deficit and public debt to increase to 6.1% and 112.8% of GDP in 2027, respectively⁴.

However, the near-term fiscal outlook is supported by only moderately rising net interest payments, from 1.7% of GDP in 2024 to 1.9% in 2025 as well as the disinflation trend easing pressure from the automatic indexation of public sector wages and social benefits to inflation. The reduction of gross borrowing requirements from EUR 52bn in 2024 to EUR 45bn in 2025, thanks to lower redemption of medium- to long-term debt (EUR 22.6bn in 2025, down from EUR 29.3bn in 2024), also points to a robust near-term fiscal outlook⁵.

High political uncertainties and a fragmented political landscape risk undermining economic and budgetary reforms.

Since the June 2024 elections, Belgium’s political outlook has been clouded by inconclusive discussions led by the New Flemish Alliance to form a federal government. Although the delays have remained contained compared to previous government formation periods, uncertainty remains about the ability to form a five-party coalition (Flemish N-VA, Vooruit, Christian Democratic and Flemish party, French-speaking Mouvement Réformateur, and Les Engagés), tentatively by end-January 2025. To date, the negotiating parties have failed to agree on a joint policy agenda covering employment, taxation, and pensions. Lengthy discussions or the failure to close an agreement would significantly reduce the likelihood of forming a narrow government coalition in the near-term. Conversely, political alignment between the federal and regional governments could ease budgetary consolidation, among which Flanders and Wallonia that unveiled coalition agreements.

Furthermore, any government coalition will face a highly fragmented parliament challenging the execution of the multi-party reform agenda. Although the parliament is dominated by N-VA (Flemish nationalists), Vlaams Belang (Flemish nationalists) and MR (French speaking liberals), a five-party government coalition would have a thin majority of 82 seats of 150, giving every coalition member strong power to leverage its participation in the government. This could constrain the ability to advance challenging reforms and increases the risk of political and/or institutional instability until the next federal elections, currently scheduled for 2030.

Rating strengths: wealthy, competitive and diversified economy; favourable debt profile and strong market access; and sound external position.

Belgium’s economy benefits from a robust growth momentum, with real GDP growth projected at 1.2% in 2025, unchanged from 2024, outperforming the euro area average. Private expenditure remains strong thanks to mandatory wage indexation, disinflation and a strong labour market with the unemployment rate projected to remain below 6%. However, fiscal adjustments and a challenging international environment could weigh on growth prospects, as reflected in the most recent high frequency indicators such as business and consumer confidence.

Belgium benefits from a favourable debt profile underpinned by its long average maturity (10.4 years as of end-2024) providing cushion against higher interest rates and delays in budgetary consolidation. The amortization of long-term debt is equivalent to a moderate EUR 29.3bn between 2025 and 2029, or around 5% of 2024 GDP⁶, which contains borrowing requirements. The debt profile is further strengthened by moderate funding costs, Euro-denominated debt, and significant holdings by the National Bank of Belgium (around 24% of the federal government bonds).

Finally, Belgium displays a large net international creditor position (63% of GDP as of end-June 2024), moderate current account deficits, and a favourable debt composition, with around two-thirds of external liabilities being long term. This mitigates risks stemming from the country’s high gross external debt stock and weakening competitiveness, due to slowing productivity gains and rising labour costs. The diversification of export industries (minerals, pharmaceuticals, chemicals, automotive) across cyclical and non-cyclical sectors supports resilience of the country’s external accounts.

Rating-change drivers

The Negative Outlook reflects Scope’s view that risks to the ratings are skewed to the downside over the next 12 to 18 months.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Weaker fiscal outlook, resulting in a sustained increase of the public debt-to-GDP ratio.
    
2. Weaker growth outlook, due, for example, to an external shock.
    
3. 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.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Consolidation of public finances and stabilisation of public debt-to-GDP ratio.
    
2. A stable government coalition implements structural reforms, strengthening the medium-term growth outlook.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a+’ for Belgium. Under Scope’s methodology, the indicative rating receives 1) a one-notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘aa-’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of the Belgium’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope has identified the following QS relative credit strengths for Belgium: i) macroeconomic stability and sustainability; ii) debt profile and market access; iii) resilience to short-term external shocks; and iv) banking sector performance. Conversely, the following credit weaknesses have been identified in the QS: i) growth potential and outlook; ii) long-term debt trajectory; and iii) governance factors.

On aggregate, the QS generates a zero-notch adjustment for Belgium’s indicative credit ratings and indicate AA- long-term foreign- and local-currency ratings.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

Environmental factors are explicitly considered in the ratings process via an environment sub-category of the ESG sovereign risk pillar. The economy is more carbon intensive than credit rating peers, with limited emissions reductions in recent years. Environmental performance is penalised by elevated level of greenhouse gas emissions per capita, similarly to other advanced economies. Belgium faces some risks linked to storms and flooding but its vulnerability to natural disasters remains low within an international context. The political fragmentation weighs on the government’s ability to formulate a coherent long-term transition strategy. This drives Scope’s ‘neutral’ qualitative assessment.

Socially factors are captured under the sovereign methodology in the SQM via accounting for the economy’s increasing old-age dependency ratio, low labour force participation rates, and comparatively low-income inequality. Belgium has also strong social safety nets alike other rating peers, which balance skills mismatches and regional inequalities. This drives Scope’s ‘neutral’ qualitative assessment.

Under governance factors, Belgium scores strongly, in line with that of sovereign peers according to the World Bank’s Worldwide Governance Indicators under the SQM. However, Belgium has had a record of policy inertia in recent years given the difficulties it faces in forming a robust government coalition, leaving structural weaknesses partially unaddressed. This reflects long-term trends in political polarisation, which are exacerbated by a complex political and institutional structure, with high degrees of autonomy for federated entities and a limited formal hierarchy between government tiers. This supports Scope’s ‘weak’ qualitative assessment.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. European Commission, Recommendation for a Council Recommendation, November 2024
2. National Bank of Belgium, The new European fiscal framework: Implications for fiscal policy in Belgium, 2024
3. National Bank of Belgium, Expenditure by function, 2024
4. National Bank of Belgium, Economic projections, 2024
5. Belgian Debt Agency, 2025 borrowing requirements and funding plan, 2024
6. Belgian Debt Agency, Investors Presentation, January 2025

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 29 January 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties did not participate in the Credit Rating process. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation   NO
With access to internal documents                                NO
With access to management                                         NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Thomas Gillet, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 15 September 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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