Fitch maintains Belgium's credit rating, but warns of long government formation
Credit rating agency Fitch left Belgium's rating unchanged, at AA-. However, without fiscal efforts, a downgrade of the rating is imminent, the rating agency says in a report released on Friday.
In its report, Fitch praises Belgium's prosperous and diverse economy and its strong banks. But it is concerned about the country's "very high and rising" public debt and a political and institutional context that "complicates" austerity efforts. The negative outlook reflects the risk that fiscal efforts may prove insufficient over time, according to the credit rating agency.
The credit rating agency does note that the current government formation appears to be moving a lot faster than in previous negotiations. However, that does not detract from the fact that the parties face a lot of challenges, it says. That could in turn cause negotiations to drag on and delay fiscal measures.
Downgrade is possible
Without credible debt management by the next Belgian government, a credit rating downgrade in the future is not out of the question, Fitch says. Rising labour costs leading to declining business competitiveness and threatening Belgian growth could also lead to falling credit ratings. Just last year, Fitch lowered Belgium's credit rating outlook from 'stable' to 'negative'.
The ratings that international credit rating agencies like Fitch assign to a country are very important. For instance, they help determine the extent to which a country can or cannot easily borrow money on the international markets. Consequently, a falling rating is bad news for the treasury.
Reducing Belgium's budget deficit is one of the main tasks of the next federal government, as not doing so could result in European sanctions. Bart De Wever (N-VA) is aiming to finish government negotiations by 20 September, when Belgium needs to submit its deficit reduction plan to the European Commission.
PHOTO © BELGA PHOTO ERIC LALMAND
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