The IMF said Belgium’s recovery from the financial crisis had been only modest could be derailed by shocks related to the slowdown in emerging markets or geopolitical stress. It urged the Belgian government to take substantial additional measures if it plans to balance the budget by 2018.
“Notwithstanding recent reform progress, major challenges continue to weigh on Belgium’s economic prospects – including high public debt and severe labour market fragmentation,” the IMF said.
“With the deficit hovering around 3% of gross domestic product, fiscal sustainability is tenuous and sensitive to macroeconomic shocks,” it added.
In order to build buffers against future shocks, the IMF’s executive board recommended that Belgium should work to bring public debt, which stood at 106.2% of GDP in 2015, down, while nurturing the recovery and social cohesion.
The fund said substantial additional measures will be required if the government is to meet its “ambitious” goal of balancing the budget by 2018 – a promise the country has made to the European Commission.
This would include a focus on largely expenditure-based fiscal consolidation, underpinned by high-quality structural measures, to minimise the drag on growth, IMF directors said.
“In particular, directors saw scope for making public spending more efficient, including through well-targeted reductions in public employment, enhanced means-testing in social spending to better protect the most vulnerable, and improved budgetary controls across all levels of government.”
On the revenue side, more efficient taxation of wealth and real estate and the phasing out of generous tax exemptions would be beneficial, the fund’s directors added.
Severe labour market fragmentation should be addressed through a “comprehensive and inclusive” job strategy, they said, encouraging further efforts to reduce taxes on wages for the low-skilled, improving education and training and strengthening work incentives.
While Belgium’s financial sector was judged to be generally healthy, IMF directors said vigilance and proactive supervision would be welcome, especially considering the strong growth in mortgage lending in the country.
