Article

Country briefs: Belgium should Boost Employment and Restrain Public Spending

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 2006
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Growth in Belgium picked up during 2005, from 0 percent in the first quarter to 2.5 percent (at an annual rate) in the fourth, owing to stronger growth of exports and household consumption. According to the IMF’s annual economic review, annual growth should strengthen to slightly above 2 percent in 2006 from 1.5 percent in 2005 as demand from trading partners continues to increase, private consumption improves in response to tax cuts, and residential construction remains resilient. Inflationary pressures are also growing, however, because of higher wages and oil prices.

As elsewhere in Europe, population aging is weighing on the budget and on growth, while employment is significantly lower than the EU15 average. With a balanced budget since 2000, public debt has fallen as a share of GDP, allowing the government to fund the costs of aging through interest savings. The authorities are implementing the Generation Pact, designed to increase jobs for young, low-skilled, and older workers. Since 2004, the financial sector has been strong and profitable.

The IMF Executive Board applauded the economy’s continued good performance and was optimistic about the near-term outlook and growth projections. Urging the authorities to curb medium-term spending, Directors advised adding a comprehensive approach to tax reform to efforts to reduce public debt and support growth and discouraged using tax amnesties and ad hoc tax measures to meet revenue objectives. The authorities were praised for meeting budget targets and for their intention to use revenue from higher growth to balance the 2006 budget.

While welcoming the Generation Pact, Directors noted that measures should be extended to phase out early retirement regimes and improve the employability of older workers. Wage moderation is essential to preserve competitiveness and promote job creation, they said, and indexation should be abandoned. The Financial System Stability Assessment was well received, particularly the view that the financial sector is stable and resilient. Directors underscored the need to maintain high-quality banking supervision and to raise the quality of insurance and pension fund supervision to the same level. Maintaining adequate oversight of the settlement systems is essential.

Belgium
Est.Proj.
2002200320042005120061
Real GDP (percent change)1.50.92.41.52.1
Unemployment rate
(percent of labor force)7.38.07.98.38.2
General government balance
(percent of GDP)0.00.10.00.0–0.4
General government debt
(percent of GDP)103.298.594.994.090.4

IMF staff estimates and projections.

Data: Belgian authorities and IMF staff estimates.

IMF staff estimates and projections.

Data: Belgian authorities and IMF staff estimates.

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