Abstract
IMF Country Report No. 23/98
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IMF Country Report No. 23/98
BELGIUM
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BELGIUM
March 2023
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 2022 Article IV consultation with Belgium, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its February 27, 2023, consideration of the staff report that concluded the Article IV consultation with Belgium.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 27, 2023, following discussions that ended on December 21, 2022, 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 9, 2023.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Belgium.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2023 International Monetary Fund
Press Release
PR23/54
IMF Executive Board Concludes 2022 Article IV Consultation with Belgium
FOR IMMEDIATE RELEASE
WASHINGTON, DC – March 2, 2023:
On February 27, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the 2022 Article IV Consultation1 with Belgium.
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.
Growth is expected to slow from 3.0 percent in 2022 to 0.2 percent in 2023, before returning to potential of 1.2 percent over the medium term. Inflation should decelerate from 10.3 percent in 2022 to 5.5 percent in 2023, as energy prices ease. Indexation has opened a wage gap with key trading partners, posing challenges for competitiveness. With aging and social-benefit pressures and in the absence of adjustment measures, the structural fiscal deficit is expected to remain elevated over the medium term at 5½ percent of GDP and high public debt will also rise to about 120 percent of GDP in 2028, increasing vulnerabilities. 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.
Executive Board Assessment2
Executive Directors broadly agreed with the thrust of the staff appraisal. They welcomed the authorities’ timely policy response, which helped cushion the impact of the energy crisis on household and firms and strengthened energy security, but also led to fiscal deterioration and an erosion of competitiveness. Noting the economic slowdown this year and elevated uncertainty and downside risks, Directors called for prudent policies to preserve fiscal sustainability and financial stability and for structural reforms to boost competitiveness and reinvigorate growth.
Directors recommended a credible and ambitious multi-year, expenditure-led fiscal adjustment, drawing on spending reviews, to put debt on a declining path, replenish buffers, and complement monetary policy in curbing inflation. They encouraged the authorities to rationalize current spending while increasing productive public investment. Directors emphasized that energy support measures should remain limited and temporary, be better targeted, and maintain price signals. They also encouraged improved coordination of spending across government levels and welcomed efforts to initiate tax reforms and enhance public investment management.
Directors concurred that financial sector policies should continue to balance ensuring adequate credit provision, preserving resilience, and facilitating deployment of buffers to absorb losses when needed. Given rising interest rates and the slowing economy and housing market, they called for close monitoring of financial stability risks. While most Directors supported the authorities’ near-term hold on additional macroprudential policy tightening, some Directors considered that further tightening could be desirable to continue strengthening resilience, as long as macro-financial conditions allow. Directors welcomed recent steps to further strengthen the AML/CFT framework and looked forward to the conclusions of the ongoing FSAP.
Directors emphasized that further labor and product market reforms are key to improve productivity and competitiveness and reinvigorate growth. They recommended additional measures to facilitate labor reallocation, including enhancing labor market flexibility and incentive setting in the social security and pension systems. Directors noted that pension reforms are critical for Belgium to receive the Next Generation EU funds. They also encouraged the authorities to consider revising the wage indexation framework once inflationary pressures subside. They welcomed efforts to improve the business environment, including reforms to the restructuring and insolvency frameworks and actions to strengthen cyber risk monitoring and preparedness.
Directors agreed that reaching ambitious climate goals require a wider set of initiatives and greater focus on coordination and execution, including aligning national climate policies with more ambitious EU targets and considering raising carbon pricing. They welcomed the significant new investments in renewables to enhance energy security.
It is expected that the next Article IV consultation with Belgium will be held on the standard 12-month cycle.
Belgium: Selected Economic Indicators, 2021–23
Contribution to GDP growth.
Belgium: Selected Economic Indicators, 2021–23
| 2021 | 2022 | 2023 | ||||
|---|---|---|---|---|---|---|
| Proj. | ||||||
| Real economy | ||||||
| Real GDP | 6.1 | 3.0 | 0.2 | |||
| Domestic demand | 5.6 | 2.8 | 0.9 | |||
| Foreign balance1/ | 0.6 | 0.3 | -0.6 | |||
| Exports, goods and services | 11.3 | 4.7 | 1.1 | |||
| Imports, goods and services | 10.7 | 4.4 | 1.9 | |||
| Potential output growth | 3.9 | 1.8 | 1.2 | |||
| Output gap (in percent) | -0.5 | 0.7 | -0.2 | |||
| Employment | ||||||
| Unemployment rate (in percent) | 6.3 | 5.5 | 6.0 | |||
| Employment growth | 1.8 | 1.8 | 0.2 | |||
| Prices | ||||||
| Consumer prices | 3.2 | 10.3 | 5.5 | |||
| GDP deflator | 2.9 | 5.7 | 5.0 | |||
| Public finance | ||||||
| Revenue | 49.9 | 49.4 | 50.8 | |||
| Expenditure | 55.5 | 54.2 | 56.3 | |||
| General government balance | -5.6 | -4.8 | -5.5 | |||
| Structural balance | -5.1 | -5.1 | -5.3 | |||
| Primary balance | -3.9 | -3.3 | -3.8 | |||
| General government debt | 109.2 | 106.8 | 108.1 | |||
| Balance of payments | ||||||
| Goods and services balance | 1.1 | -3.8 | -3.3 | |||
| Current account | 0.4 | -4.0 | -3.5 | |||
| Exchange rates | ||||||
| Euro per U.S. dollar, period average | 0.8 | 0.9 | … | |||
| NEER, ULC-styled (2005=100) | 98.0 | 96.3 | … | |||
| REER, ULC-based (2005=100) | 97.3 | 98.7 | … | |||
| Memorandum items | ||||||
| Nominal GDP (in billions of euros) | 502.3 | 547.0 | 575.9 | |||
| Population (in millions) | 11.6 | 11.7 | 11.7 | |||
Contribution to GDP growth.
Belgium: Selected Economic Indicators, 2021–23
| 2021 | 2022 | 2023 | ||||
|---|---|---|---|---|---|---|
| Proj. | ||||||
| Real economy | ||||||
| Real GDP | 6.1 | 3.0 | 0.2 | |||
| Domestic demand | 5.6 | 2.8 | 0.9 | |||
| Foreign balance1/ | 0.6 | 0.3 | -0.6 | |||
| Exports, goods and services | 11.3 | 4.7 | 1.1 | |||
| Imports, goods and services | 10.7 | 4.4 | 1.9 | |||
| Potential output growth | 3.9 | 1.8 | 1.2 | |||
| Output gap (in percent) | -0.5 | 0.7 | -0.2 | |||
| Employment | ||||||
| Unemployment rate (in percent) | 6.3 | 5.5 | 6.0 | |||
| Employment growth | 1.8 | 1.8 | 0.2 | |||
| Prices | ||||||
| Consumer prices | 3.2 | 10.3 | 5.5 | |||
| GDP deflator | 2.9 | 5.7 | 5.0 | |||
| Public finance | ||||||
| Revenue | 49.9 | 49.4 | 50.8 | |||
| Expenditure | 55.5 | 54.2 | 56.3 | |||
| General government balance | -5.6 | -4.8 | -5.5 | |||
| Structural balance | -5.1 | -5.1 | -5.3 | |||
| Primary balance | -3.9 | -3.3 | -3.8 | |||
| General government debt | 109.2 | 106.8 | 108.1 | |||
| Balance of payments | ||||||
| Goods and services balance | 1.1 | -3.8 | -3.3 | |||
| Current account | 0.4 | -4.0 | -3.5 | |||
| Exchange rates | ||||||
| Euro per U.S. dollar, period average | 0.8 | 0.9 | … | |||
| NEER, ULC-styled (2005=100) | 98.0 | 96.3 | … | |||
| REER, ULC-based (2005=100) | 97.3 | 98.7 | … | |||
| Memorandum items | ||||||
| Nominal GDP (in billions of euros) | 502.3 | 547.0 | 575.9 | |||
| Population (in millions) | 11.6 | 11.7 | 11.7 | |||
Contribution to GDP growth.
Title page
BELGIUM
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
February 9, 2023
KEY ISSUES
Context: Post-pandemic recovery slowed with spillovers from Russia’s war in Ukraine and high inflation, financial conditions tightening, 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. Energy consumption is being cut, and gas imports reoriented. A resilient financial sector is facing challenges from the weaker macro-financial environment.
Outlook/risks: Growth is expected to slow from 3.0 percent in 2022 to 0.2 percent in 2023, returning to 1.2 percent (potential) over the medium term. Inflation should decelerate from 10.3 percent in 2022 to 5.5 percent in 2023, as energy prices ease. Indexation has opened a wage gap with key trading partners, posing challenges for competitiveness. Without measures, the already-high fiscal deficit—4.8 pct of GDP in 2022—will increase further with aging costs adding 0.2–0.3 ppt. per year; high public debt (106.8 percent of GDP) will also rise, increasing vulnerabilities. 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.
Policies: The authorities should pursue multi-year, expenditure-led fiscal consolidation from 2023 to support efforts to reduce inflation, ease financing pressures and vulnerabilities, rebuild buffers, make room for increased public investment, and put debt on a declining path. They should improve targeting of energy support and advance reforms in social benefits, pensions, and health in the window before elections. Efforts to initiate tax reforms are welcome, along with growth-enhancing measures (labor and product markets, business environment) to help meet ambitious employment goals. More progress is needed. Financial sector policies should balance ensuring the adequate provision of credit, preserving resilience, and facilitating deployment of buffers to absorb losses when needed. Climate actions should be advanced to meet new, more ambitious emissions-reduction targets. In all these areas, better alignment of federal and regional planning and policies will be helpful. While the financial sector has performed well, risks are rising, and vigilance is warranted.
Approved by:
Laura Papi (EUR) and Maria Gonzalez (SPR)
Discussions took place in Brussels during December 7–21, 2022. The team comprised Mark Horton (head), Yu Ching Wong, André Geis (all EUR) and Nate Vernon (FAD), and was assisted at IMF HQ by Paola Castillo and Karen Cerrato. Luc Dresse and Stijn Verhelst (OED) participated in the mission. The team met with Prime Minister De Croo, National Bank of Belgium (NBB) Governor Wunsch, Deputy Prime Minister Van Peteghem (Finance), Deputy Prime Minister Clarinval (Self-Employed, SMEs and Agriculture, Institutional Reforms and Democratic Renewal), the cabinets of Deputy Prime Ministers De Sutter (Public Administration, Public Enterprises, Telecommunications, and Postal Services), Dermagne (Economy and Employment), Van Quickenborne (Justice) and Vandenbroucke (Social Affairs and Public Health), the cabinets of Ministers Khattabi (Climate, the Environment, Sustainable Development, and Green Deal), Lalieux (Pensions and Social Integration), and Van der Straeten (Energy), and State Secretaries Bertrand (Budget), De Moor (Asylum and Migration), Dermine (Economic Recovery and Strategic Investments), and Schlitz (Diversity, Opportunities and Inclusion). The mission also met with the finance ministers of Brussels, Flanders, and Wallonia, other senior officials, and representatives of the private sector, academia, and labor unions.
Contents
CONTEXT
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Strengthening Fiscal Sustainability
B. Safeguarding Financial Stability
C. Building a Stronger and More Sustainable Economy
STAFF APPRAISAL
BOX
1. Characteristics and Challenges of Belgium’s Wage Indexation Framework
FIGURES
1. Macroeconomic Developments
2. Fiscal Developments
3. Financial Sector Developments
4. External Sector Developments
TABLES
1. Selected Economic Indicators, 2019–28
2. Balance of Payments, 2019–28
3. General Government Statement of Operations, 2019–28
4. General Government Consolidated Balance Sheet, 2013–21
5. Financial Soundness Indicators for the Banking Sector, 2012–22Q2
ANNEXES
I. 2021 Article IV Recommendations
II. External Sector Assessment
III. Risk Assessment Matrix
IV. Fiscal Adjustment
V. Debt Sustainability Analysis
VI. Energy Support
VII. Main Recommendations from the 2017 FSAP: Follow-up
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.
