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© 2005 International Monetary Fund
March 2005
IMF Country Report No. 05/75
Belgium: 2004 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2004 Article IV consultation with Belgium, the following documents have been released and are included in this package:
the staff report for the 2004 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on November 22, 2004, with the officials of Belgium on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 26, 2005. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its February 18, 2005 discussion of the staff report that concluded the Article IV consultation.
The document listed below have been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
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Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
BELGIUM
Staff Report for the 2004 Article IV Consultation
Prepared by Staff Representatives for the 2004 Consultation with Belgium
Approved by Poul Thomsen and Michael Hadjimichael
January 26, 2005
The discussions took place in Brussels during November 12–22, 2004. The team—Messrs. Everaert (head) and Hofman and Mmes. Polan and Zhou (all EUR)—met with the prime minister, the governor of the central bank, the minister of pensions and their staffs; the head of the banking commission; the director of the treasury; staffs of the ministries of finance, the budget, employment, social affairs and health, and the economy; the High Finance Council; the Central Economic Council; the High Labor Council and staff of regional employment organizations; the Planning Bureau; academics, and representatives of labor unions, business organizations, and banks. Mr. Kiekens (Executive Director) and Ms. Dupont (Advisor) participated in the discussions.
At the time of the last Article IV consultation on February 13, 2004, the Executive Board stressed the need to reduce primary spending growth for successful fiscal consolidation and endorsed the focus on reducing public debt and promoting employment growth to cope with population aging.
Belgium accepted the obligations under Article VIII and, apart from certain security restrictions, maintains an exchange system free of restrictions (Appendix I).
Belgium subscribes to the Fund’s Special Data Dissemination Standard, and comprehensive economic data are available on a timely basis (Appendix II).
The concluding statement of the mission is publicly available at http://www.imf.org/external/np/ms/2004/112204.htm
A Financial Stability Assessment is under way; its findings will be discussed at the time of the next Article IV consultation.
Contents
Executive Summary
I. Introduction
II. Economic Developments and Outlook
III. Policy Discussions
A. Fiscal Policy
B. Labor Market
C. Product Markets, Financial Sector, and Other Issues
IV. Staff Appraisal
Figures
1. Economic Developments
2. Inflation and Wage Developments
3. External Developments
4. Policy Conditions
5. Fiscal Developments
6. Employment and Unemployment
7. Labor Market Indicators, 2003
8. Hiring and Firing
Tables
1. Basic Data, 1999–2005
2. Operations of the General Government, 1997–2003
3. Public Sector Debt Sustainability Framework, 1999–2009
4. Fiscal Scenarios, 2001–07
5. Vulnerability Indicators, 2000–04
Text Boxes
1. Past Fund Policy Recommendations and Implementation
2. Why has the Recovery in Household Consumption been so Strong?
3. Coping with Population Aging
4. Labor Market Institutions Impede the Effectiveness of Tax Cuts in Raising Employment
Text Tables
1. Selected Indicators of Economic Activity
2. Budget Balance Adjusted for Cycle and Nonstructural Items
3. Interprofessional Wage Agreements, 1997–2006
Appendices
1. Fund Relations
2. Core Statistical Indicators
Executive Summary
Economic growth has been comparatively robust, propelled by household spending and supportive policies, and yielding an auspicious outlook for 2005. Private consumption is set to continue to drive growth, helped by income tax cuts, low interest rates, rising house and equity prices, and spending linked to the repatriation of financial assets due to a tax amnesty and the EU savings-taxation directive. Corporate investment and employment growth are likely to strengthen, though risks lie in euro appreciation and faltering trading partner demand. The inflation outlook is in line with that of the euro area, with indirect tax increases providing a transitory boost.
Policies are correctly geared toward attenuating the long-term impact of population aging on growth and public finances, but fiscal and labor market reforms should be stepped up substantially and concurrently:
With large primary surpluses and budgets at least in balance over the past five years, fiscal consolidation has progressed, as indicated by a declining public debt-to-GDP ratio. However, one-off measures continue to play a role in achieving budget objectives, and the primary surplus has declined recently amid spending pressures and tax cuts. To avoid the return of deficits and achieve needed surpluses, focus should shift decisively toward durable primary expenditure restraint. The budgetary framework and the internal stability pact between federal and regional governments will need to be reinforced.
Past reforms have delivered a sustainable pension system, but the retirement decision remains to be made actuarially fair, and early retirement schemes need to be phased out. Measures to correct health care expenditure overruns are in place, but policies to curb underlying spending growth in the medium run should be implemented. Structural reforms in other spending areas (civil service, labor market programs) are urgent.
While raising comparatively low employment rates is a priority, the authorities’ desire to preserve social peace implies a gradual approach. Ongoing reductions in the labor tax wedge, the introduction of an earned income tax credit, and the actual and proposed measures to limit recourse to early retirement will be helpful. The staff sees a need for more comprehensive reforms to the current social bargaining model to raise the effectiveness of these measures in boosting job creation and increase wage and labor market flexibility.
In product markets, ongoing reforms should be accelerated to strengthen effective competition, de facto liberalize network industries, and reduce further the administrative burden on businesses and taxpayers.
The financial sector has performed well, though the life insurance sector continues to face challenges. The merger of banking and insurance supervisors is progressing apace. A Financial Sector Assessment Program has started and will be completed in the context of the next Article IV consultation.
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Public Information Notice (PIN) No. 05/26
FOR IMMEDIATE RELEASE
March 3, 2005
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
On February 18, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Belgium.1
Washington, D. C. 20431 USA • Telephone 202-623-6772 • Fax 202-623-6772 • www.imf.org
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.
