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Fitch Affirms Kingdom of Belgium at 'AA+'; Outlook Stable

January 21, 2010 | Fitch Ratings

Fitch Ratings-London-19 January 2010: Fitch Ratings has today affirmed the Kingdom of Belgium's Long-term foreign and local currency Issuer Default ratings (IDR) at 'AA+' respectively. The Outlooks are Stable. Fitch has also affirmed Belgium's Short-term foreign currency IDR at 'F1+' and the Country Ceiling at 'AAA'.
"A strong fiscal track record lends credibility to the government's plans for budget consolidation over the coming years," says Douglas Renwick, Associate Director in Fitch's Sovereign Group, "However, Belgium's fractious political environment poses a downside risk as outstanding constitutional issues have yet to be resolved."

Belgium's creditworthiness is underpinned by strong governance, high income and productivity levels and a solid external position. While the high level of public debt (which Fitch estimates will reach just over 100% of GDP at end-2010) constrains the ratings, public finances have developed in line with the high-grade average through the recession, with an estimated fiscal deficit of 6% of GDP in 2009. Furthermore, economic exposure to de-leveraging is limited, with low levels of private sector indebtedness.

The dispute between the political parties of the two main language communities in Belgium has been running since mid-2007. Part of the disagreement is of a fiscal nature: Flemish politicians are pushing for further fiscal devolution while the francophone parties are opposed. Against a background of required fiscal consolidation (which Fitch estimates at 5%-6% of GDP over the medium term), the re-emergence of a fully-fledged political crisis could scupper efforts to restore budget sustainability.

However, the dispute has not greatly hindered the government's fiscal or economic response to the global crisis so far, and Fitch expects a constitutional compromise to be eventually reached. Furthermore, Belgium's fiscal policy-making is stronger than that of most of its rated peers, with multi-year budgeting, an independent fiscal commission, and cross-party support for consolidation. These factors have contributed to a strong fiscal track-record and mitigate the risks to future budget implementation.

Belgium's public debt has been a long-standing rating weakness. Previous efforts at fiscal consolidation had succeeded in reducing the debt/GDP ratio to a low of 83.9% in 2007 from its peak of 138% in 1993, but it is still well above the peer average. Although Belgium's interest service costs (around 9% of revenues) are not currently a concern, a large debt stock increases the interest-rate risk to the budget. However, this is mitigated by Belgium's robust revenue base (tax receipts have held up relatively well through the downturn) and manageable structural deficit.

Belgium's Banking System Indicator (BSI) has fallen to 'D' since the start of the crisis, reflecting the impact of the financial crisis on the domestic banking system as well as concerns over its future earnings capacity. This poses a downside risk to economic growth as banks seek to regain profitability through higher lending rates. However, Fitch assumes that Belgium's recovery will be in line with the rest of the euro area.

Company: Belgium

Full company nameBelgium
Country of riskBelgium
Country of registrationBelgium


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