Moody's changes Belgium rating outlook to negative

Moody's Ratings has affirmed the Government of Belgium's domestic- and foreign-currency long-term issuer and senior unsecured ratings at Aa3 and changed the outlook to negative from stable, Report informs referring to Moody's.

The long-term senior unsecured foreign-currency MTN program rating has been affirmed at (P)Aa3, while the local-currency short-term Commercial Paper rating has been affirmed at Prime-1.

"The decision to change the outlook to negative from stable reflects the risk that the next government will be unable to implement measures that would stabilize the government debt burden. While the previous government made small fiscal consolidation efforts, they were not structural in nature. In the absence of a large fiscal consolidation program, debt will continue to rise due to the material structural increase in expenditures in recent years and persistent spending pressure. At the same time, the political economy of deficit and debt reduction may be more challenging in the future than it has been in the past because of structural headwinds to fiscal consolidation. Moreover, a large fiscal consolidation will require effort at all levels of government, and Belgium lacks the intergovernmental coordination mechanisms to achieve this objective.

The affirmation of the Aa3 ratings is supported by Belgium's diversified, wealthy, and innovative economy that benefits from the country's geographical location at the heart of Western Europe. Belgium has demonstrated greater-than-expected resilience to economic shocks, particularly with regard to the inflation and energy shock of 2022. At the same time, though, Belgium's economy still faces important challenges, most notably a low labor participation rate. Although Belgian institutions are facing some significant challenges due to the country's fiscal position, the overall quality of its institutions is high. Belgium's susceptibility to event risk is driven by political risk, namely geopolitical risks related to Russia's war in Ukraine.

Belgium's local- and foreign currency ceilings remain unchanged at Aaa. For euro-area countries, a six-notch gap between the local-currency ceiling and the local-currency rating as well as a zero-notch gap between the local-currency ceiling and foreign-currency ceiling is typical, reflecting benefits from the euro area's strong common institutional, legal and regulatory framework, as well as liquidity support and other crisis-management mechanisms. It is also in line with our view of de minimis exit risk from the euro area," reads the report.