On March 18, 2025, the Executive Board of the International Monetary Fund (IMF) completed its Article IV consultation with Belgium. The Board endorsed the staff appraisal without convening a formal meeting.
The Belgian economy has shown resilience in the face of various shocks, though growth has been slowing and core inflation remains persistent. Labor productivity growth is sluggish, and labor-cost competitiveness has decreased. Structural fiscal deficits and public debt have increased due to successive shocks. Risks from deepening geoeconomic fragmentation and regional conflicts affecting energy, trade, and financial spillovers could worsen the economic outlook.
In their assessment, Executive Directors supported the staff's appraisal of Belgium's economic challenges. They noted that in the short term, policies need to focus on disinflation while preserving growth and financial stability. In the longer term, policies should aim to rebuild buffers, reduce vulnerabilities from high public debt, address spending pressures from aging and green transition, foster higher growth, and improve external positions.
The new government's policy agenda includes significant structural reforms and fiscal consolidation as opportunities for progress. The IMF supports a seven-year adjustment under the EGF to bring Belgium's deficit below 3 percent of GDP and put debt on a downward path. An annual reduction in the structural primary balance of about 0.6 percentage points of GDP until 2031 will be necessary.
The adjustment should rationalize current spending to allow for more public investment while increasing spending efficiency. Rationalizing social benefits and the public wage bill is crucial for savings. Public investment should be preserved or ideally increased to support potential growth and green transition.
Fiscal reforms are essential for supporting this adjustment. The government intends to reduce labor tax burdens while introducing capital gain taxation without reducing overall revenue. Planned reforms aim at raising effective retirement age and reviewing pension eligibility to preserve sustainability despite aging demographics.
Systemic risks in Belgium's financial sector remain moderate; current capital buffer requirements should be maintained. Recent improvements in systemic risk assessment are acknowledged by the IMF.
Labor market reforms are needed to increase participation rates and better align skills with market needs. Proposed reforms include widening income gaps between work and nonwork activities, limiting unemployment benefit duration, reducing hiring costs, fostering inclusivity among low-skilled workers, older workers, women, individuals with immigration backgrounds or disabilities through lifelong learning initiatives.
Reforming wage-setting mechanisms will help improve competitiveness by potentially abolishing automatic indexation which currently increases fiscal deficits during inflationary periods.
Product market reforms alongside efforts with EU partners can enhance productivity by reducing regulatory barriers within single markets; developing venture capital at EU levels would widen financing options available for Belgian firms' growth ambitions.
Despite progress towards climate objectives much effort remains necessary; expanding EU ETS complemented by carbon taxation/phasing out fossil fuel subsidies ensures vulnerable populations receive adequate support while consolidating federal/regional climate efforts into cohesive national strategies becomes essential according to IMF recommendations.