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IMF Executive Board Concludes 2020 Article IV Consultation with Belgium

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 Article IV Consultation with Belgium







March 31, 2020















WASHINGTON, DC
– the Executive Board of the International
Monetary Fund (IMF) concluded the Article IV consultation

[1]

with Belgium.

Economic activity held up well over the last year, with 2019 growth
reaching 1.4 percent, supported by robust domestic demand. The labor market
also improved, with the unemployment rate falling to a record-low of 5.4
percent. However, given the rapidly unfolding global coronavirus outbreak,
growth is projected to decline substantially this year and to gradually
recover to 1.3 percent over the medium term. The outlook is clouded by
unusually high uncertainty and risks are firmly on the downside as the
Covid-19 pandemic represents a new and urgent challenge for policymakers.

Belgium has been without a full-fledged government since December 2018,
which has constrained its ability to address long-standing structural
challenges stemming from high public and rising private debt burdens, an
aging population, slowing productivity growth, and climate change.

Executive Board Assessment

[2]

In concluding the Article IV consultation with Belgium, Executive Directors
endorsed the staff’s appraisal as follows:


Economic activity has held up relatively well over the last year, but
the outlook is clouded by unusual uncertainty and risks

. Growth was resilient and job rich in 2019, while the unemployment rate
reached a historical low, in part reflecting previous reforms. Nonetheless,
the inability to form a new government has paralyzed policymaking, while
the public finances have deteriorated. The coronavirus outbreak is expected
to reduce growth this year, and the outlook is highly uncertain and subject
to risks, including more widespread and damaging effects of the
coronavirus, escalating trade tensions, a sharper euro-area growth
slowdown, and prolonged domestic political gridlock.


Policies should focus on addressing the coronavirus outbreak in the
near term and rebuilding resilience and addressing structural
challenges in the medium run

. The immediate policy priority is to contain the spread and damaging
effects of the coronavirus through targeted temporary support measures to
affected firms and individuals, while ensuring that the healthcare system
has adequate resources to address the crisis. Should banks face
difficulties related to losses due to the impact of the coronavirus, if
needed, the authorities could also support financial intermediation by
considering additional temporary measures on capital relief. A new
government should use its fresh mandate to implement comprehensive reforms
to address remaining medium-term structural challenges: high public and
rising private debt, an aging population, slowing productivity growth, and
climate change.


Belgium will need a credible medium-term consolidation to build fiscal
buffers against future shocks and safeguard sustainability

. Under the baseline scenario, the deficit will continue to widen, and
public debt will remain high in the medium run and be on a rising
trajectory in the long run, due to population aging pressures. To safeguard
fiscal sustainability and build buffers against future shocks, the new
government needs to put in place a credible medium-term consolidation
strategy aiming to reach structural fiscal balance by 2024. Avoiding a
further deterioration in the structural balance this year (net of emergency
measures to address the coronavirus outbreak) and aiming for a structural
adjustment of ½ percent of GDP during 2021–24 could balance near and
long-term considerations.


Growth-friendly spending reforms should underpin the medium-term
adjustment

. A sustained medium-term effort to reduce primary
spending while improving its efficiency can support deficit targets and
reorient the budget toward more growth-friendly areas. Reforms should focus
on containing medium-term healthcare costs, bolstering the sustainability
of the pension system, improving the targeting and labor-market incentives
of social benefits, strengthening the efficiency of subsidies, and reducing
duplication in the public administration. Complementary tax base-broadening
reforms could create space to lower the labor tax wedge in the medium run.


Additional reforms to boost labor-force participation, especially for
vulnerable groups, are needed

. Despite recent reforms, Belgium’s labor-force
participation rate remains among the lowest in Europe, especially for the
young, low-skilled, non-EU born, and women. Efforts should thus focus on
active labor-market policies and training programs targeted at vulnerable
groups and should be followed by further reforms to bolster female
labor-force participation, mobility, and labor-market flexibility. These
can also help strengthen Belgium’s external position, which is weaker than
implied by fundamentals.


Complementary product-market reforms can help boost productivity growth

. Reversing the declining trend in productivity growth is essential to
support higher standards of living and safeguard fiscal sustainability.
Thus, reform efforts would need to focus on reducing red tape for startups,
lowering regulatory barriers to competition in key sectors, supporting
access to venture capital for innovative firms, and boosting public
investment in infrastructure, fiscal space permitting. A comprehensive
policy strategy is needed to fulfill the government climate change
commitments and take advantage of the opportunities from the transition to
a green economy.


The authorities should continue to bolster the resilience of the
financial sector over the medium run.

Staff welcomes the recent macroprudential measures addressing risks
stemming from easy credit and rising corporate and household debt as well
as the more recent decision to release the countercyclical capital buffer
in response to the coronavirus crisis. Looking forward, they should stand
ready to continue to support the banking sector as needed and revisit the
framework for macro-prudential decision-making to ensure the ability to
deploy macro-prudential policies effectively and timely. Efforts should
continue to improve reporting, bank resolution, and deposit insurance
frameworks. The authorities should also encourage banks to rationalize
costs, strengthen governance, and adapt business models to prepare for the
challenges of digitalization.


Belgium: Selected Economic Indicators (2017–20)

2017

2018

2019

2020

Est.

Proj.

Real economy

Real GDP

2.0

1.5

1.4

0.8

Domestic demand

1.2

2.2

1.5

1.1

Foreign balance 1/

0.7

-0.7

-0.1

-0.2

Exports, goods and services

5.3

1.2

1.0

1.6

Imports, goods and services

4.4

2.1

1.2

1.9

Potential output growth

1.4

1.3

1.3

1.2

Output gap (in percent)

0.2

0.4

0.5

0.1

Employment

Unemployment rate (in percent)

7.1

6.0

5.4

5.6

Employment growth

1.6

1.4

1.5

0.3

Prices

Consumer prices

2.2

2.3

1.2

1.1

GDP deflator

1.7

1.5

1.6

1.3

Public finance

Revenue

51.2

51.4

50.3

50.0

Expenditure

51.9

52.1

51.9

52.3

General government balance

-0.7

-0.7

-1.7

-2.3

Structural balance

-1.3

-1.5

-2.0

-2.3

Primary balance

1.6

1.4

0.2

-0.6

General government debt

101.8

100.0

99.0

99.5

Balance of payments

Goods and services balance

1.4

-0.2

0.0

0.2

Current account

1.2

-1.0

-1.2

-1.0

Exchange rates

Euro per U.S. dollar, period average

0.8

0.9

0.9

NEER, ULC-styled (2005=100)

98.7

98.3

98.0

REER, ULC-based (2005=100)

98.5

97.8

97.4

Memorandum items

Nominal GDP (in billions of euros)

446.4

459.8

473.6

484.0

Population (in millions)

11.4

11.4

11.5

11.5

Sources: Haver Analytics, Belgian authorities, and IMF
staff projections.

1/ Contribution to GDP growth.




[1]

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.


[2]

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

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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