Belgium’s public debt will increase sharply this year and the rating agency Moody’s fears that this increase will continue in the long term.
According to Moody’s, the Belgian authorities’ economic support measures will help limit the negative impact of the coronavirus crisis. The agency evokes a “proactive” approach, notably with the establishment of the Economic Risk Management Group (ERMG).
But the impact on the economy will still be “considerable”. Moody’s expects real GDP in Belgium to decline by 4.9% in 2020. The budget deficit will increase to 7.2% of GDP and the debt, which for the first time in eight years had passed below 100% of GDP, will again start to 111%, estimates Moody’s.
The agency fears that the public debt will not decline once the crisis is over. “The low rates in the euro zone should facilitate debt repayment, but we must still wait to see if this will be enough to offset the increase in debt,” said analyst Olivier Chemla. “And a deterioration of the prospects in the euro zone would have a negative impact on the solvency of Belgium since the country is fairly connected to the other Member States.”
Last week, the National Bank and the Planning Bureau communicated their analysis of the impact of the health crisis, based on a scenario of seven weeks of containment measures recommended by the National Security Council. According to the two institutions, real GDP would drop by 8% this year. The impact of the coronavirus on public finances would increase the budget deficit to 7.5% of GDP. Debt is estimated at 115% of GDP for this year.