Brussels and federal government faced with probable rating downgrade
For months, Brussels has been anxiously awaiting a rating from credit rating agency Standard & Poor's (S&P), which is likely to announce a new downgrade for the region on Friday evening. A rating downgrade is also looming at the federal level, from the agency Fitch, reports De Standaard.
At the beginning of 2024, Standard & Poor's already adjusted Brussels' rating from AA- to A+. That could now become A. This would mean that there is less confidence in Brussels' repayment capacity. There is a chance that Brussels will then have to pay higher interest rates for new loans.
In the absence of a fully-fledged government, the caretaker government has to work with provisional twelfths, whereby, strictly speaking, one twelfth of the 2024 budget may be spent each month. But the Brussels-Capital Region didn’t manage to comply with that: the deficit for 2024 rose from an estimated 1.3 billion euros to 1.5 billion euros. A deficit of almost 1.6 billion euros is expected for 2025.
“Brussels is in danger of ending up in a vicious circle"
“Brussels is in danger of ending up in a vicious circle,” Flemish minister for Brussels Cieltje Van Achter told De Standaard. "With a lower rating, Brussels will have to refinance old debts with new loans, on increasingly worse terms. There is also the symbolic importance. A financial blow like this reflects on the whole country and on international confidence in our capital."
It’s unclear whether a possible rating downgrade could restore urgency to the formation of a new government in Brussels. Some experts suggest that a rating downgrade could serve as a catalyst and create a sense of urgency that could convince certain parties to drop their vetoes. Others fear that the political stalemate is so great that even S&P will not be able to get Brussels politics moving.
Federal rating report
The federal level can also expect a new rating report from the rating agency Fitch. In its February report, Fitch maintained Belgium’s credit rating at “AA-”, but with a negative outlook because of the poor budgetary situation. In its assessment last August, Fitch also warned that without special budgetary efforts, a rating downgrade was imminent.
According to De Standaard, government circles assume that Fitch will indeed proceed with a rating downgrade this time, which would put Belgium at A+ with that agency. That is the fifth highest level on a scale of eighteen.
According to Jean Deboutte, director of the Belgian Debt Agency, the impact of possible rating downgrades is likely to be limited. “Our interest rates have remained very good in recent months, we have not deteriorated compared to Germany or the Netherlands,” he told De Standaard. “I don't believe in an interest rate snowball effect.”
Logo of credit rating agency Standard & Poor's (S&P) © BELGA PHOTO Charles Guerin/ABACAPRESS.COM
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