Belgium’s credit rating unchanged, just like need for budget cuts
Credit rating agency Moody’s has kept the rating of the Belgian federal authorities at Aa3. This is better than expected. In a few days, the government has to present its 2026 budget and its multiannual budget to the parliament. The big questions are how many billions will be cut, and where.
Last Thursday, prime minister Bart De Wever told parliament he hoped the rating would not be lowered thanks to measures the government has taken in recent months on reform of pensions and unemployment benefits.
Those measures couldn’t prevent the budget deficit from being 4.2 per cent of GDP this year, increasing to 5.8 per cent in 2030, however.
"Aa" means Moody's considers the credit risk to be very low. It is the second-best score. However, the 3 means Belgium is at the bottom of that rating category. If an agency downgrades a country's rating, this can affect the interest rate the country has to pay when borrowing money to fill budget deficits.
Moody's justifies its good rating by saying that "structural reforms are central to the agenda" of the government, "to address persistent challenges such as low employment, an aging population, and increasing budget deficits". It says the high debt ratio remains the main challenge for Belgium.
1,000 euros per person
"The reforms already implemented are well-received and give us some time," the prime minister's office said in response. "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."
The European Commission has given Belgium a seven-year path, with structural reforms and budget cuts. De Wever hopes to motivate his coalition partners and the public with the warning that Belgium will pay 11 billion euros in interest on its sovereign debt this year, equal to about 1,000 euros 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"
Although De Wever has to present the 2026 budget and the multi-annual budget to parliament onTuesday and to the EU Commission the day after, it’s still unclear what measures will be taken and how ambitious the cuts will be.
Return to work
De Wever has presented four possible cuts to the parties in his government in recent days.
One is the non-indexation of wages and social benefits. Belgium has a system of automatic indexation, parallel to inflation. Skipping one indexation lowers the real cost of labour in the private and public sectors and lowers expenses in social security.
A second measure would increase the income of the government: higher VAT rates for certain products and services.
Possibilities three and four concern health insurance expenses: patients would have to pay more themselves, or unemployed people in receipt of sickness allowance would be pushed to return to the labour market.
National strike
Whether the government can find an agreement that is sufficiently detailed and ambitious by Tuesday remains to be seen.
Either way, trade unions have already organised a national demonstration that day. They are unhappy with planned cuts to the pensions of civil servants. Additional budget cuts would add fuel to that fire.
Adding to the social unrest are the budget cuts decided by the regional governments. The financial situation of the regions and communities is also far from comfortable and all governments have taken measures - except Brussels, which still has no government after the elections in June 2024.
The Brussels authorities will get their new credit rating from Standard & Poor’s next week. That news will undoubtedly be worse than the news Moody’s had for Belgium, as the region is in deeper financial trouble.
Moody’s, in its new rating for Belgium, points to the need for a coordinated effort of national and regional governments.
Protestors demonstrate against measures taken by the federal coalition in Brussels in June. Trade unions plan to demonstrate again on 14 October | © BELGA PHOTO JAMES ARTHUR GEKIERE
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