Front Matter Page
© 2008 International Monetary Fund
March 2008
IMF Country Report No. 08/111
Belgium: 2008 Article IV Consultation—Staff Report; Staff Supplement; and 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 2008 Article IV consultation with Belgium, the following documents have been released and are included in this package:
The staff report for the 2007 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on January 28, 2008, 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 February 28, 2008. 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 staff supplement of March 19, 2008 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its March 21, 2008 discussion of the staff report that concluded the Article IV consultation.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
BELGIUM
Staff Report for the 2007 Article IV Consultation
Prepared by Staff Representatives for the 2007 Consultation with Belgium
Approved by Alessandro Leipold and Michael Hadjimichael
February 28, 2008
Executive Summary
Headwinds from a more testing international environment and domestic political tensions are challenging Belgium’s enviable economic performance. Economic growth is expected to decelerate significantly—in the staff’s view to 1.6 percent in 2008, though the authorities remain somewhat more sanguine. The recent spike in energy and food prices will likely push average inflation to 2.9 percent in 2008. Partial indexation will temper its impact on real incomes, but poses risks to competitiveness. With political tensions following the June 2007 elections, federal policy making has been at a standstill since April 2007, delaying much needed fiscal consolidation and structural reforms. Meanwhile, the window to tackle the implications of population aging—through fiscal pre-funding and higher growth—is closing rapidly.
The impact of financial turmoil on the financial system appears contained but, together with heightened cross-border integration, will continue to require the dedicated attention of supervisors. While not ruling out downside surprises, especially in the event of a severe and prolonged economic downturn, supervisors indicated that financial institutions remained sound. More transparent disclosure of exposures and valuation assumptions and their implications for banks’ earnings and capital would dampen market volatility. While already high-quality prudential supervision is being further enhanced, the relentless rise in the cross-border dimension of the financial system requires stronger coordination with host country authorities.
Though the policy agenda to address aging and fiscal federalism imbalances is well known, timely delivery is not certain. On the positive side, fiscal consolidation is set to resume in 2008, without recourse to significant one-off measures. But plans fall short of staff advice and the urgent reform of fiscal federalism arrangements will need to be executed without fiscal costs. Greater accountability, more transparency, and stronger coordination among federal and sub-federal entities are key to achieving the required medium-term buildup of fiscal surpluses. Structural reforms will need to resume without delay to boost employment rates and productivity.
Contents
Executive Summary
I. Introduction
II. Outlook: Supporting Growth, Managing Inflation, and Preserving Competitiveness
A. How Significant a Slowdown Lies Ahead?
B. How is Inflation Affecting the Economy?
C. Is Competitiveness an Issue?
III. Financial Sector: Addressing Turbulence and Enhancing Stability
A. How is the Financial System Coping with Financial Turbulence?
B. Will Financial Strains Impact the Real Economy?
C. How Can Financial Stability be Further Enhanced?
IV. Fiscal Policy: Resuming Consolidation and Improving Institutions
A. Why has Fiscal Consolidation Become an Urgent Priority?
B. Why is There a Need to Revise Fiscal Federalism Arrangements?
V. Structural Reforms: Raising Employment and Productivity
VI. Staff Appraisal
Text Box
1. Complex Political Environment
Text Tables
1. Economic Outlook
2. Inflation Impact on Lowest Income Group
3. Saving-Investment Balances
4. Unit Labor Costs in the Private Sector, 2003-08
5. General Government Fiscal Indicators, 2003-2009
6. Fiscal Accounts by Level of Government, 2002-2007
Tables
1. Main Economic Indicators, 2003–09
2. Operations of the General Government, 2000–2006
3. Fiscal Scenarios, 2004–13
4. Financial Soundness Indicators of the Non-Banking Sectors, 2001-07
5. Financial Soundness Indicators of the Banking Sector, 2002-07
6. Indicators of External and Financial Vulnerability, 2001-07
Figures
1. Political Tensions and Sovereign Spreads
2. GDP Growth
3. Employment Growth
4. Business Confidence
5. Residential Construction
6. Real GDP Growth: Risks to the Forecast
7. Headline Inflation
8. Contribution to Inflation
9. Competitiveness Indicators
10. Financial Indicators
11. Bank Lending Survey Data
12. Projected Fiscal Costs of Aging
13. HFC Recommended Adjustment
14. Fiscal Balance Projections
15. Vertical Imbalance—Aging-Related Spending
16. Horizontal Imbalance—Tax Revenue
17. Employment and Unemployment
Appendix
1. Fund Relations
2. Statistical Issues
Front Matter Page
INTERNATIONAL MONETARY FUND
BELGIUM
Staff Report for the 2007 Article IV Consultation Supplementary Information
Prepared by the European Department
(In consultation with the Policy Development and Review Department)
Approved by Alessandro Leipold and Michael Hadjimichael
March 19, 2008
Front Matter Page
Public Information Notice (PIN) No. 08/40
FOR IMMEDIATE RELEASE
March 28, 2008
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
