As expected, Standard & Poor’s has also decided to lower the rating of the Belgian government debt, due to “staggeringly high budget deficits since the pandemic”. Prime Minister Bart De Wever (N-VA) uses the decision as a call to get the budget in order.
Yorick Dupon
Journalist at HLN, follows economy, technology and the EU
What has been decided?
The three major rating agencies Standard & Poor’s, Moody’s and Fitch estimate the likelihood that governments will no longer be able to pay their debts. To do this, they look at the finances and economies of countries, states and municipalities.
Until now, Standard & Poor’s gave our country a rating of AA, but this has now dropped to AA-. This means that our debts are still of “excellent” quality. The assessor does not expect a new decline immediately. Moody’s and Fitch previously also lowered our rating and spoke of “good quality”.
De Wever calls the latest rating downgrade “to be expected” in an initial response to HLN. “After the rating downgrades by Fitch and Moody’s, it is obvious that S&P will also follow suit,” he says. “The explanation always sounds the same: the rating agencies recognize the efforts of the new government, but rightly judge that they are still insufficient to eliminate the accumulated backlog from the past. That is why the political focus must now be fully on restoring the confidence of the international markets in our country. That is priority number one.” Read: The federal government must find money through cuts, new taxes and/or reforms.
Why this decision?
In its press release, Standard & Poor’s writes that our country has a “rich economy” that “has proven to be resilient to shocks in the past”. The big problem, however, is the “staggeringly high budget deficits since the pandemic”.
It is expected that these deficits will shrink less quickly in the future than the government estimates. Moreover, the outstanding debt will continue to rise, while the interest on it will also rise. Standard & Poor’s calls the necessary reforms to correct this “challenging”.
What are the consequences?
The fact that the three credit rating agencies have downgraded their ratings could mean that the federal government will have to pay more to borrow money on the international financial markets.
However, after the rating downgrade by Moody’s last week, things remained quiet on the stock market. Because Moody’s had already indicated that a rating downgrade was imminent, investors reacted with resignation.
Interest rates on government debt that must be repaid in ten years have also risen in Germany and France. People are more concerned about the ongoing war in Iran and its consequences for the global economy.
According to the financial news agency Bloomberg, which surveyed several experts, Belgium is “in danger of turning from one of the safest European bonds into a risky investment.” The interest that Belgium pays on debt is now higher than that of Spain, Portugal and Ireland, EU member states that all needed a financial rescue operation in the not so distant past because they were on the brink of bankruptcy after the financial and economic crisis, it is said.
Our country is still doing better than France, but the Belgian ten-year interest rate is currently only ten basis points below the French interest rate, while “the Belgian budget situation is currently deteriorating faster than that in France,” Ales Koutny of the American asset manager Vanguard told Bloomberg.
