On March 7, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Belgium.
The economic recovery is gaining momentum, with real GDP growth expected to approach 2 percent this year after an estimated 1.7 percent in 2017. It is driven by strong investment and solid consumption growth, and supported by favorable financial conditions as well as a strengthening recovery throughout Europe. Employment growth has picked up, thanks in part to past reform efforts. The fiscal position has improved, reflecting a mix of cyclical, structural, and one-off factors. The medium-term outlook, however, remains subdued in the absence of further structural reforms to raise potential growth, and subject to both external and domestic risks.
Against this favorable economic context, the governing center-right coalition is making another reform push, agreeing on a new package of tax and labor market measures. The centerpiece of the agreement is a reform of the corporate income tax system, designed to promote investment by lowering the comparatively high statutory rate while broadening the tax base to preserve revenue neutrality.
Looking ahead, Belgium faces challenges on several fronts. Notwithstanding the strong fiscal outturn in 2017, fiscal consolidation remains a priority given the high level of public debt that has only just started to decline. Achieving the government’s goal of structural balance will require significant efforts to make spending more efficient while safeguarding revenues. Another important challenge is raising Belgium’s productivity growth, which has lagged peers, in part reflecting sectoral shifts common to many advanced economies, but also underinvestment in infrastructure and lack of competition in some service sectors. Despite recent employment gains, the labor market remains fragmented, as evidenced by entrenched high unemployment among certain groups and significant regional disparities.
While the soundness of the financial sector has improved considerably since the crisis, cyclical vulnerabilities are rising, and there are pockets of vulnerability in the housing market. The banking sector faces the challenge of adapting to a changing economic, technological, and regulatory environment. The transition toward a full European Banking Union is another important issue to be navigated by banks and supervisors.
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. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.