Dagong Global Credit Rating Co., Ltd.
January 4, 2018
Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) has decided to maintain both the local and foreign currency sovereign credit ratings for the Kingdom of Belgium (hereinafter referred to as “Belgium”) at A+, each with a stable outlook. The debt repayment environment of Belgium remains fundamentally stable. The economy is moderately recovering, and the government debt will decline progressively under the ongoing fiscal consolidation. Therefore, the government solvency remains stable.
The primary reasons for maintaining Belgium’s sovereign credit ratings are as below:
1. Belgium’s debt repayment environment is fundamentally stable, and the robustness of its banking system has improved. In the short term, the government will continue advancing austerity measures and its structural reform. However, the reform progress might be slowed down due to political disagreements among parties, as well as refugee and immigrant issues. The robustness of its banking system has improved with an enhanced asset quality and increasing liquidity.
2. Domestic demand facilitates a moderate recovery, yet the country faces various challenges in terms of wealth creation capabilities in the long term. In the short period, consumption and investment will continue promoting modest economic growth. To be more specific, loose monetary policies, a booming real estate market and the government’s measures to ease corporate burdens will help enhance the country’s corporate competitiveness and increase investment demand. Continuous improvement in the job market will also drive stable growth of domestic consumption. The Belgian economy is expected to maintain a moderate growth rate of 1.6% in 2018 and 1.5% in 2019 respectively. In the medium and long term, Belgium’s trade relies heavily upon the external world, giving rise to uncertainties about the country’s economic growth, which is left susceptible to external changes. Additionally, population aging is leading to shrinkage of the work force, harming the country’s long-term development. It is projected that Belgium’s economic growth rate will average around 1.5% over the following five years.
3. The government’s fiscal deficit has gradually narrowed and repayment sources remain stable. In the short term, although tax cuts restrict increases in government tax revenues, yet economic growth increasing at a faster rate will render stable fiscal revenues. At the same time, thanks to the fact that falling unemployment rates lead to less spending on social welfare, and the fact that government adopted austerity measures to streamline government administration and to cut staff pay, as well as the fact that interest expenses are declining, the Belgian general government fiscal deficit is expected to drop to 2.3% both in 2018 and 2019, and the ratio of external financing needs to GDP will decrease to 17.0% in 2018 and 16.3% in 2019 respectively. As of December 5, 2017, the yield of Belgium’s 10-year treasuries was at 0.5% and government financing costs are low, thus stable repayment sources.
4. The government’s debt burden will gradually decrease in the short term while the vulnerabilities of government solvency will continue to exist in the medium term. Belgium’s government debt features medium-and-long-term debts, thus a rational debt structure. Thanks to moderate economic recovery and the ongoing structural reform, the Belgian government’s debt burden has entered a downward channel. The government debt ratio is expected to drop to 103.6% in 2018 and 102.7% in 2019 respectively. Although the debt burden indicates a falling trend, it still remains at a relatively high level.
In the short term, the European Central Bank’s quantitative easing will provide adequate liquidity to support Belgium’s economic recovery and to meet the country’s financing needs. Meanwhile, the ongoing structural reform and fiscal austerity will also contribute to reducing fiscal deficit, thus the government debt will progressively decrease and solvency remains fundamentally stable. Therefore, Dagong has decided to maintain a stable outlook for both local and foreign currency sovereign credit ratings of Belgium for the next one to two years.