(The following statement was released by the rating agency)
LONDON, July 31 (Fitch) The possible formation of a new federal
Belgium relatively soon after federal elections reduces the risk
of a loss of
policy momentum and attendant increase in fiscal uncertainty
another prolonged political standstill, Fitch Ratings says.
The leaders of the N-VA, CD&V, and Open VLD parties said last
week they had
agreed to form a new Flemish government, and would work together
in a largely
centre-right federal administration that could include the
party. However, it is not clear how long negotiations to
finalise the formation
of a government will take.
If a coalition agreement took shape soon, little more than two
elections were held in late May, it would be in contrast with
experience (it took 541 days to form a federal government after
June 2010). Fiscal slippage has been contained even during
protracted periods of
caretaker government, maintaining fiscal credibility, and we do
significant fiscal deterioration in 2014-2015.
But Belgium's lower political stability relative to most
which reflects political decentralisation and linguistic
divisions, is a ratings
weakness that can have fiscal implications. Although caretaker
able to take measures to contain the budget deficit in the short
term, they lack
the mandate to pass major structural fiscal reform to improve
sustainability over the longer term.
The formation of a government would provide clarity on the
fiscal path and its implications for public debt dynamics
earlier than we
expected. We project public debt to peak at close to 102% of GDP
considerably higher than ratings peers, with a combination of
and GDP growth subsequently bringing it down. Belgium achieved a
surplus of 0.6% of GDP in 2013 for the first time since 2008,
but if debt is to
fall surpluses will have to be maintained and increased. Fiscal
so far mostly relied on revenue measures. Adjustment will
focus on reducing high public expenditure.
Overall fiscal outcomes from 2014 will also depend to a larger
regional and community governments, after various financial
were devolved to them under the Sixth State Reform.
We affirmed Belgium's 'AA'/Stable sovereign rating on 16 May.
The next scheduled
review is on 14 November.
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The above article originally appeared as a post on the Fitch
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