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Business and Economics > Public Finance

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Cover Selected Issues Papers
The Fiscal Cost of Aging in Belgium: Pensions and Healthcare
Mr. Jean-Jacques Hallaert
Belgium faces a fiscal consolidation challenge at a time when the fiscal cost of aging—primarily related to pension and health outlays—is mounting. Pension spending will increase relatively fast unless a combination of measures related to pension generosity and retirement eligibility are put in place. Potential efficiency gains are large in the health sector and could absorb part of the fiscal and reorganization costs related to an aging population.
Keywords:
Belgium; Aging; Fiscal cost of aging; Pensions; Healthcare; reorganization cost; cost of aging; cost pressure; fiscal cost; healthcare cost; Pension spending; Europe; Global
Cover Selected Issues Papers
Fiscal Consolidation in Belgium: How Much and by What Means?
Yu Ching Wong
Belgium is facing higher structural deficits and rising debt after the pandemic and energy crisis. Fiscal consolidation is needed to lower inflation, rebuild buffers, reduce debt, and preserve Belgium’s social contract. While designing an appropriate fiscal consolidation path involves trade-offs, an ideally front-loaded and significant adjustment to achieve a medium-term structural balance would reduce public debt towards the 60 percent debt threshold, significantly reducing vulnerabilities. Experiences in other countries and in the past in Belgium show that while ambitious, such an adjustment is achievable. Comparisons with peers show that rationalizing and increasing the efficiency of social benefits and the public wage bill would need to be at the core of the consolidation effort. All federal entities should share the burden of the adjustment, in a coordinated manner, with accountability at all levels of government, and within a credible and clear multi-year consolidation plan. Comprehensive spending reviews would help target budgetary saving. To mitigate the growth impact in the near term and boost potential growth, public investment should be preserved, and the adjustment should go together with structural reforms to increase labor force participation and productivity.
Keywords:
Fiscal policy; fiscal consolidation; government expenditures; budget; deficit and debt; federal and subnational public finances; fiscal federalism; fiscal consolidation in Belgium; social contract; major spending category; categories Between Belgium; fiscal consolidation path; Fiscal stance; Government debt management; Europe; Global
Cover IMF Staff Country Reports
Belgium: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that though resilient to shocks, the Belgium economy and financial sector face significant cyclical and structural challenges and risks to the outlook. Owing to a strong and timely policy response, the economy resisted the coronavirus disease and energy crises. Meanwhile, an aging population and the climate transition are putting pressure on public finances while low productivity and labor participation are dampening potential growth. Growth is expected to decelerate further in 2024, before returning to potential. Private consumption will normalize, as momentum from wage and social benefit indexation, lower energy prices, and post-pandemic pent-up demand ebbs. Headline inflation is projected to drop in 2023 and return to 4.4 percent in 2024, mostly due to fading effects from energy price support measures. Structural reforms in labor and product markets and further progress in green transition are key to boost potential growth, mitigate the impact of fiscal consolidation, and address medium-term challenges.
Keywords:
government formation; money market rate; Belgium economy; General government statement; General government balance; FSAP stress tests; Fiscal consolidation; Energy prices; Financial Sector Assessment Program; Fiscal stance; Inflation; Global
Cover IMF Staff Country Reports
Belgium: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper explores different aspects of fiscal consolidation in Belgium. Belgium is facing higher structural deficits and rising debt after the pandemic and energy crisis. Fiscal consolidation is needed to lower inflation, rebuild buffers, reduce debt, and preserve Belgium’s social contract. Comparisons with peers show that rationalizing and increasing the efficiency of social benefits and the public wage bill would need to be at the core of the consolidation effort. All federal entities should share the burden of the adjustment, in a coordinated manner, with accountability at all levels of government, and within a credible and clear multi-year consolidation plan. Comprehensive spending reviews would help target budgetary saving. In order to mitigate the growth impact in the near term and boost potential growth, public investment should be preserved, and the adjustment should go together with structural reforms to increase labor force participation and productivity.
Keywords:
state government expenditure; health efficiency frontier; cost of aging; major spending category; healthcare expenditure; Aging; Pension spending; Pensions; Fiscal consolidation; Europe; Global
Cover IMF Staff Country Reports
Euro Area Policies: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Euro Area; IMF Country Report No. 23/264
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the euro area economy has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, thanks to a swift policy response and a strong rebound in contact-intensive services. Looking ahead, growth is expected to pick up gradually throughout 2023 and 2024, supported by a recovery in real incomes in the context of continued tight labor market conditions, a further easing of supply constraints, and firmer external demand, even as financial conditions continue to tighten. While headline inflation has fallen sharply recently after reaching record high levels, core inflation is proving more persistent. As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period. Renewed supply shocks, which could result from an escalation of the war in Ukraine and a related increase of commodity prices, or a further intensification of geoeconomic fragmentation, would also push up inflation and hurt growth. On the upside, the economy could again prove more resilient than expected, especially amid a still large stock of excess savings.
Keywords:
Euro area headline inflation; inflation expectation; EU climate investment fund; EU AML authority; EU institution; EU bank; core inflation; EU economy; Inflation; Energy prices; Fiscal stance; Monetary tightening; Global; Europe
Cover Technical Notes and Manuals
User Manual for the DIGNAD Toolkit
Mr. Zamid Aligishiev
,
Cian Ruane
, and
Azar Sultanov
This note is a user’s manual for the DIGNAD toolkit, an application aimed at facilitating the use of the DIGNAD model (Debt-Investment-Growth and Natural Disasters) by economists with no to little knowledge of MATLAB and Dynare via a user-friendly Excel-based interface. DIGNAD is a dynamic general equilibrium model of a small open economy developed at the International Monetary Fund. The model can help economists and policymakers with quantitative assessments and policy scenario analysis of the macrofiscal effects of natural disasters and adaptation infrastructure investments in low-income developing countries and emerging markets. DIGNAD is tailored to disaster-prone countries, which typically are small countries or low-income countries that are particularly exposed to large climate shocks—countries where shocks that can disrupt the entire economy are frequent. However, DIGNAD can be relevant also for larger countries that may potentially be exposed to extreme climatic disasters in the future.
Keywords:
natural disasters; adaptation; resilient infrastructure; public investment; public investment efficiency; debt sustainability; DIGNAD toolkit; IMF copyright; DIGNAD model; GNU General Public License; third-party software; Infrastructure; Public investment spending; Total factor productivity; Depreciation; Sub-Saharan Africa
Cover IMF Staff Country Reports
Belgium: Technical Assistance Report-Revenue Administration Gap Analysis Program–The Value Added Tax
International Monetary Fund. Fiscal Affairs Dept.
This paper presents the results of applying the Revenue Administration Gap Analysis Program – Value-Added Tax (RA-GAP VAT) gap estimation methodology to Belgium for the period 2011-2021. The RAGAP methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector. VAT collections have, on average, remained relatively stable in real terms over the period 2011 through 2021, the period under review for this report, at around 7 percent of gross domestic product (GDP). Like the VAT revenues, the compliance gap, as a percent of GDP, has appeared to be largely stable over the period 2011 to 2021 at around 2 percent of GDP. The compliance gap appears to be largely concentrated in the Professional and Managerial Services sector. The results on the distribution of the compliance gap by sector are not to be considered definitive, only suggestive, and so further analysis needs to be conducted to corroborate or refute these findings and to find possible causes for the noncompliance in these sectors.
Keywords:
VAT collection; VAT gap; Gap term; VAT Gap; revenue performance; Tax gap; Value-added tax; Revenue Administration Gap Analysis Program (RA-GAP); Tax expenditures; Europe
Cover IMF Working Papers
Debt Mutualization in the Euro Area: A Quantitative Exploration
Mr. Sakai Ando
,
Mr. Giovanni Dell'Ariccia
,
Pierre-Olivier Gourinchas
,
Guido Lorenzoni
,
Adrian Peralta
, and
Mr. Francisco Roch
This paper explores the feasibility of an idea proposed first by the German Council of Economic Experts in 2011 and revisited by Italian and French authorities in 2021: the one-off mutualization of some European legacy debt through the creation of a European Debt Management Agency (EDMA). The paper does not argue in favor or against these proposals or make a proposal of its own. Rather it outlines a conceptual framework that can be used to quantify the contours of mutualization proposals and draws lessons from the debt assumption in the United States in 1790. The framework suggests that by capitalizing the convenience yield on European-wide safe assets, the EDMA could issue up to 15 percent of euro area GDP, helping to put national debts on a sounder trajectory. The analysis suggests that, without mutualization, some euro area countries are likely to experience decreasing debt-to-GDP ratios over the forecast period. This is not the case for Belgium, Finland, France, Italy, and Spain, where further fiscal consolidation would be needed. For these countries, we consider the effects of a debt mutualization equivalent to 26 percent of their GDP. For Italy, this operation alone is enough to ensure a decreasing debt-to-GDP path. For the others, the news is more mixed: while the additional fiscal consolidation is smaller, 1.3 to 2.3 percent of GDP are still required to reduce debt with 95 percent probability.
Keywords:
Sovereign Debt; Debt Mutualization; Debt Assumption; Convenience Yield; Safe Assets.; debt mutualization equivalent; mutualization proposal; EDMA debt; Debt reduction; Fiscal consolidation; Debt sustainability analysis; Fiscal stance; Europe
Cover IMF Staff Country Reports
Belgium: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium
International Monetary Fund. European Dept.
The 2022 Article IV Consultation discusses that Belgium’s post-pandemic recovery has slowed with spillovers from Russia’s war in Ukraine, high inflation, tighter financial conditions, and elevated uncertainty. In response to the spike of energy prices, the federal and regional authorities provided timely and substantial support to households and firms. Along with automatic indexation of wages and benefits, energy support helped cushion impacts, although at significant cost, increasing the fiscal deficit in 2022 and 2023. The labor market has remained tight, with record-high job creation and low unemployment. The external current account swung to a large deficit in 2022, due largely to higher energy imports and lower vaccine exports. A resilient financial sector is facing challenges from the weaker macro-financial environment. Some important structural reforms took place in 2022. Risks are tilted to the downside, related to escalation of the war in Ukraine and a sharper-than-expected tightening of financial conditions. Lower energy prices would reduce fiscal pressures, and with progress on structural reforms before elections in 2024, boost confidence.
Keywords:
product market reform; indexation mechanism; money market rate; policy reform; consumer confidence; Policy discussion; State secretaries Bertrand; Energy prices; Inflation; Wage indexation; Wages; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global
Cover IMF Staff Country Reports
Belgium: Selected Issues
International Monetary Fund. European Dept.
Features of Belgium’s wage-formation process. It then tries to identify some weaknesses and policy recommendations that strive to strike a balance between maintaining benefits of wage indexation while attenuating drawbacks for the economy. Inflation at record levels is putting the sustainability of Belgium’s wage indexation system to the test by weighing on corporate and government finances. Current price pressures in Belgium show parallels to periods of elevated inflation in recent history yet also involve some important differences. Energy price inflation in Belgium is among the highest in the euro area, in part driven by the relatively low taxation of energy products. Compared to the median euro area country, Phillips curve estimates point toward some differences in the inflation-setting process and inflation persistence in Belgium. Wage formation in Belgium is characterized by the desire to shield households from purchasing-power losses while protecting the competitiveness of a highly open economy. Despite successfully maintaining wage competitiveness in recent years, the current run-up in inflation is prone to put the wage-setting framework under additional strain.
Keywords:
D. policy option; Policy recommendation; B. EU; EU ETS price; community government; Greenhouse gas emissions; Fiscal federalism; Carbon tax; Global; Europe; Baltics