(The following statement was released by the rating agency)
LONDON, May 16 (Fitch) Fitch Ratings has affirmed Belgium's
and local currency IDRs at 'AA'. The Outlooks are Stable. The
issue ratings on
Belgium's unsecured foreign and local currency bonds have also
been affirmed at
'AA'/'F1+'. The Country Ceiling has been affirmed at 'AAA' and
foreign currency IDR at 'F1+'.
KEY RATING DRIVERS
The affirmation reflects the following key rating drivers:
Belgium's rating is underpinned by its diversified economy, high
capita and solid institutions. The external sector is supported
by a sizeable
net foreign asset position.
The Belgian economy is recovering. Following stagnation in 2012,
real GDP grew
by 0.2% in 2013, driven by private consumption and net trade. In
economy grew by 0.4%qoq (1.2%yoy), the fourth consecutive
quarter of positive
growth. Fitch expects growth of 1.2% and 1.6% in 2014 and 2015,
The outlook for external demand has improved and households'
sheets will support private consumption despite adverse labour
Fitch estimates that public debt - Belgium's main rating
weakness - will peak at
close to 102% of GDP in 2014. This is the same year but a higher
to Fitch's previous rating review. The deterioration reflects
reclassification of some state-owned enterprises into the
perimeter as requested by Eurostat, which added 1.7% of GDP to
figures. In Fitch's view, public debt dynamics remain within the
tolerance of a
For 2014 we project a deficit of 2.5% of GDP, above the
(2.1%). In our view, the possibility of a renewed political
the May elections is real and increases risks of fiscal
experience with protracted periods of caretaker governments
suggests that any
slippage would be contained.
In 2013 Belgium achieved a primary budget balance of 0.6% of
GDP, the first
surplus since 2008. Fitch's debt sensitivity analysis indicates
surpluses will have to be maintained and gradually increased in
order to reduce
public debt levels.
The fiscal adjustment so far has mostly relied on revenue
public expenditure (relative to GDP) and the tax wedge on labour
are among the
highest in the OECD. Achieving primary surpluses while also
competitiveness will be challenging and implies that part of the
adjustment will likely rely on expenditure.
Adverse trends in the current account dynamics are a sign that
gradually losing competitiveness compared with its trading
some improvement in 2013, the wage indexation mechanism will
continue to prevent
significant competitiveness gains versus countries which do not
have such a
mechanism, particularly when inflationary pressures pick up.
Risks arising from the banking sector have receded. Contingent
the banking sector declined to 12% of GDP in 2013 from 15.7% in
substantial part relates to the funding guarantees provided to
Dexia, which are
not expected to significantly reduce in the foreseeable future.
The sector has
significantly shrunk from pre-crisis levels: assets stood at
around 250% of GDP
in 2013 from 410% of GDP in 2008. Banks have deleveraged by
shedding or winding
down non-strategic businesses mostly abroad. As a result,
conditions have remained accommodative.
The Outlook is Stable. Consequently, Fitch's sensitivity
analysis does not
currently anticipate developments with a high likelihood of
leading to a rating
change. However, future developments that could individually or
result in a downgrade include:
- Significant fiscal easing or growth underperformance, leading
to the public
debt ratio peaking higher and later.
- Failure to address the deterioration in competitiveness which
improvements in current account dynamics and hamper medium-term
- Sizeable recapitalisation needs of the financial sector by the
sovereign, for example in the context of the ECB's forthcoming
Fitch does not see any strong upward pressure in the near term.
The main factors
that could lead to positive rating action are:
- A marked reduction in the public debt to GDP ratio over time.
The rating and Outlook are sensitive to a number of assumptions:
Fitch assumes that fiscal discipline is maintained beyond the
elections, in line with the government's stability programme.
We assume there will not be a constitutional crisis following
the May 2014
The costs of the Belgian ageing population to public finances
begin to be felt. Fitch assumes that some reforms will be passed
legislation to address this problem. Failure to address the
adverse impact of
ageing on the public finances could lead to negative rating
action over the long
Fitch assumes that implementation of ESA 2010 accounting changes
will result in
limited upward revisions in GGGD.
Fitch assumes the eurozone will avoid long-lasting deflation,
such as that
experienced by Japan from the 1990s. An extended period of
in no growth in nominal GDP would hamper public debt dynamics.
Fitch assumes the gradual progress in deepening fiscal and
at the eurozone level will continue; key macroeconomic
imbalances within the
currency union will be slowly unwound; and eurozone governments
fiscal policy over the medium term. It also assumes that the
fragmentation of the eurozone remains low.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available on www.fitchratings.com
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 09 August 2013, are available at
Applicable Criteria and Related Research:
Sovereign Rating Criteria
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