REPORT FROM THE COMMISSION Belgium Report prepared in accordance with Article 126(3) of the Treaty
Date: 2016-05-18
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Belgium, budget deficit, budget policy, gross domestic product, public debt, public expenditure, public finance, short-term economic prospects, stability pact, structural policy

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 291 final   REPORT FROM THE COMMISSION Belgium  Report prepared in accordance with Article 126(3) of the Treaty  
 
 
1. 

INTRODUCTION 

Article 126 of the Treaty on the Functioning of the European Union (TFEU) lays  down the 
excessive deficit procedure (EDP). This procedure is further specified in Council Regulation 
(EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit 
procedure1, which is part of the Stability and Growth Pact (SGP). Specific provisions for euro 
area Member States under EDP are laid down in Regulation (EU) No 473/20132. 

According  to  Article  126(2)  TFEU,  the  Commission  has  to  monitor  compliance  with 
budgetary discipline on the basis of two criteria, namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic product (GDP) exceeds the reference value of 
3%  (unless  either  the  ratio  has  declined  substantially  and  continuously  and  reached  a  level 
that comes close to the reference value; or, alternatively, the excess over the reference value 
is only exceptional and temporary and the ratio remains close to the reference value); and (b) 
whether the ratio of government debt to GDP exceeds the reference value of 60% (unless the 
ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace). 

Article 126(3) TFEU provides that, if a Member State does not fulfil the requirements under 
one or both of the above criteria, the Commission has to prepare a report. This report also has 
to  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”. 

This report, which represents the first step in the EDP, analyses Belgium's compliance with 
the deficit and debt criterion of the Treaty, with due regard to the economic background and 
other relevant factors.  

Following  the  amendments  to  the  SGP  in  2011,  the  debt  requirement  has  been  put  on  an 
equal footing with the deficit requirement in order to ensure that, for countries with a debt-to-
GDP  ratio  above  the  60%  reference  value,  the  ratio  is  brought  below  (or  sufficiently 
declining towards) that value. Article 2(1a) of Council Regulation (EC) No 1467/97 provides 
that Member States that were subject to an excessive deficit procedure on 8 November 2011 
benefit from a three-year transition period, starting in the year following the correction of the 
excessive  deficit,  during  which  they  are  expected  to  make  sufficient  progress  towards 
compliance with the debt reduction benchmark. In the case of Belgium, the transition period 
covers the years 2014-2016 (i.e. three years after the correction of the excessive deficit3). The 
"Specifications on the implementation of the Stability and Growth Pact and guidelines on the 
format and content of stability and convergence programmes" of 3 September 2012 spell out 
how  the  requirement  for  the  structural  balance  is  defined  and  assessed.  In  particular,  they 

1 

2 

3 

OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation 
of the Stability and Growth Pact and guidelines on the format and content of stability and convergence 
programmes”, endorsed by the ECOFIN Council of 3 September 2012, available at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/legal_texts/index_en.htm . 
Regulation (EU) No 473/2013 of the European Parliament and of the Council on "common provisions 
for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of 
the Member States in the euro area" (OJ L 140, 27.5.2013, p. 11). 
Council Decision of 20 June 2014 abrogating the decision on the existence of an excessive deficit. All 
EDP-related documents for Belgium can be found at the following website:  
http://ec.europa.eu/economy_finance/economic_governance/sgp/corrective_arm/index_en.htm  

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define a minimum linear structural adjustment of the structural balance (MLSA) ensuring that 
the debt reduction benchmark is met by the end of the transition period. 

On  13  January  2015  the  Commission  adopted  a  Communication  on  Flexibility4,  providing 
new guidance on how to apply the existing rules of the Stability and Growth Pact, in order to 
strengthen the  link between  effective implementation of structural reforms, investment, and 
fiscal responsibility in support of jobs and growth. The Communication does not amend any 
provision of the Pact but aims to further reinforce the effectiveness and understanding of its 
rules and develop a more growth-friendly fiscal stance in the euro area by ensuring the best 
use  of  the  flexibility  enshrined  within  the  Pact,  while  preserving  its  credibility  and 
effectiveness  in  upholding  fiscal  responsibility.  In  particular,  the  Communication  clarified 
that – in line with the provisions of Article 2(3) of Council Regulation (EC) No 1467/97 - the 
Commission  – in  the  context  of  a  report  pursuant  to  Article  126(3)  TFEU -  will  analyse 
carefully  all  relevant  medium-term  developments  regarding  the  economic,  budgetary  and 
debt  positions.  It  has  also  clarified  that  the  implementation  of  structural  reforms  in  the 
context of the European Semester is to be considered among those relevant factors5.  

On  27  February  2015,  the  Commission  issued  a  Report  under  Article  126(3)  TFEU,  as 
Belgium was not expected to make sufficient progress towards compliance with the debt rule 
in 2014, including the assessment of all relevant factors that might justify the prima facie lack 
of  compliance,  notably:  (i) the  unfavourable  economic  conditions,  and  in  particular  low 
inflation, which made the respect of the debt rule particularly demanding; (ii) the expectation 
that  compliance  with  the  required  adjustment  towards  the  medium-term  budgetary  objective 
(MTO)  was  broadly  ensured;  and  (iii) the  expected  implementation  of  ambitious  growth-
enhancing structural reforms in line with the authorities' commitment, which was expected to 
contribute to debt reduction in the medium/long term.  

Data  notified  by  the  Belgian  authorities  on  31  March  20166  and  subsequently  validated  by 
Eurostat7 show that the general government deficit in Belgium reached 2.6% of GDP in 2015, 
while  debt  was  at  106.0%  of  GDP,  above  the  60%  of  GDP  reference  value.  For  2016,  the 
spring  2016  notification  planned  a  deficit  of  2.4%  of  GDP  and  a  debt  ratio  of  106.2%  of 
GDP, while the Stability Programme (SP) plans a deficit of 2.5% of GDP and a similar debt 
ratio. This upward revision of the deficit target results from the federal government's decision 
to  exclude the budgetary impact of anti-terrorist measures from its structural targets.  

Based on the notified data and the Commission 2016 spring forecast Belgium is not expected 
to make sufficient progress towards compliance with the debt reduction benchmark in 2015 
and 2016 (see Table 1) as the change in the structural balance is estimated to have been 0.2% 

4  

5  

6 

7 

Commission Communication on making the best use of the flexibility within the existing rules of the 
Stability and Growth Pact - COM(2015) 12 final. 
Article 2 of Regulation (EC) No 1467/97 provides that " […] The report shall reflect, as appropriate 
[…]  the  implementation  of  policies  in  the  context  of  the  prevention  and  correction  of  excessive 
macroeconomic  imbalances,  the  implementation  of  policies  in  the  context  of  the  common  growth 
strategy of the Union […]". 
According to Council Regulation (EC) No 479/2009, Member States have to report to the Commission, 
twice a year, their planned and actual government deficit and debt levels. The most recent notification 
of Belgium can be found at:  
http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/excessive_deficit/edp
_notification_tables. 
Eurostat  news 
21042016-AP-EN.pdf 

release  No  76/2016  http://ec.europa.eu/eurostat/documents/2995521/7235991/2-

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of  GDP  in  2015  compared  to  a  required  minimal  linear  structural  adjustment  (MLSA)  of 
1.1% of GDP8 and is projected to amount to 0.3% of GDP in 2016 compared to the required 
2.0% of GDP9.  

Table 1: General government deficit and debt (% of GDP) 

Overall,  Belgium's  insufficient  progress  towards  compliance  with  the  debt  reduction 
benchmark in 2015 provides evidence of a prima facie existence of an excessive deficit in the 
sense  of  the  Stability  and  Growth  Pact  before,  however,  considering  all  factors  as  set  out 
below.  

The Commission has therefore prepared this report to comprehensively assess the departure 
from the transitional debt rule in order to examine whether the launch of an Excessive Deficit 
Procedure is warranted after all relevant factors have been considered. Section 2 of the report 
examines  the  deficit  criterion.  Section  3  examines  the  debt  criterion.  Section  4  deals  with 
public investment and other relevant factors, including the assessment of compliance with the 
required  adjustment  path  towards  the  MTO.  The  report  takes  into  account  the  Commission 
2016  spring  forecast,  released  on  3  May  2016,  and  the  Commission's  evaluation  of 
subsequent developments.  

2. 

DEFICIT CRITERION 

In 2014, Belgium's deficit reached 3.1% of GDP. In its report under Article 126(3) TFEU of 
27  February  2015,  the  Commission  concluded  that  the  deficit  was  close  to  the  3%  of  GDP 
reference value and the excess over the reference value was exceptional and temporary in the 
sense  of  the  Stability  and  Growth  Pact.  In  2015,  Belgium’s  general  government  deficit 
decreased  to  2.6%  of  GDP.  According  to  both  the  2016  Stability  Programme  and  the 
Commission  2016  spring  forecast,  the  deficit  is  also  foreseen  to  respect  the  3%  of  GDP 
Treaty  reference  value  during  the  period  2016-2017.  According  to  the  Commission  2016 
spring forecast, it is expected to amount to respectively 2.8% of GDP in 2016 and 2.3% in 

8 

9 

I.e.  an  annual  structural  adjustment  over  2014-2016  of  0.8%  of  GDP  would  have  ensured  that  -  if 
followed  –  Belgium  would  comply  with  the  debt  reduction  benchmark  at  the  end  of  the  transition 
period, assuming that growth projections of the Commission 2016 spring forecast materialise. 
Given  the  shortfalls  in  2014  and  2015,  the  required  annual  structural  adjustment  over  the  remaining 
year  of  the  transition  period  (2016)  amounts  to  2.0%  in  order  to  comply  with  the  debt  reduction 
benchmark at the end of this period, assuming that growth projections of the Commission 2016 spring 
forecast materialise. 

4 

COMSPCOMSPDeficit criterionGeneral government balance-3.0-3.1-2.6-2.8-2.5-2.3-1.4General government gross debt105.2106.5106.0106.4106.2105.6104.7Gap to the debt reduction benchmarkn.r.n.r.n.r.n.r.n.r.2.3n.a.Change in structural balance0.60.10.20.30.60.20.8Required MLSAn.r.0.81.12.02.1n.r.n.r.20152013201420162017Source: Belgium's 2016 Stability Programme (SP) and Commission 2016 spring forecast (COM)Debt criterion 
 
 
                                                 
2017.  The  2016  Stability  Programme  plans  the  general  government  deficit-to-GDP  ratio  to 
decline to 2.5% in 2016 and to 1.4% in 2017. Belgium thus complies with the deficit criterion 
as defined in the Treaty and in Regulation (EC) No 1467/97. 

3. 

DEBT CRITERION  

General government gross debt increased steadily over the last years, growing from 87% of 
GDP in 2007 to 106.0% of GDP at the end of 2015 (+19 pps. of GDP).  

The main drivers for the increase were the accumulation of primary budget deficits following 
the economic and financial crisis, as well as interventions in the financial system and subdued 
GDP growth. Despite the increase in debt levels, interest expenditure declined steadily over 
the same period as a result of the decline in interest rates (apart from a temporary rise in risk 
premia in 2012). A slightly positive primary balance had a positive impact on the debt ratio in 
2014  and  2015.  On  the  other  hand,  there  was  an  upward  snowball  effect  on  the  debt  ratio. 
Indeed, as a result of relatively low inflation and real growth, nominal GDP growth for 2014 
and 2015 was rather low, at respectively 2.0% and 2.3% while interest expenditure amounted 
to 3.2% and 2.9% of GDP, respectively. However, thanks to the reimbursement of a loan of 
0.7%  of  GDP  from  KBC  to  the  Flemish  Region,  which  had  been  granted  in  2009  in  the 
context  of  bank  rescue  operations,  the  debt  level  decreased  in  2015  for  the  first  time  since 
2007.  

According to the Commission  2016 spring forecast, the primary balance  is expected  to  slip 
into  deficit  in  2016,  for  the  first  time  since  2012.  Therefore  it  will  no  longer  have  a 
downward  impact  on  the  debt  development.  On  the  other  hand,  the  projected  decrease  in 
interest  expenditure  and  the  slight  acceleration  of  nominal  GDP  growth  should  result  in  a 
reversed  snowball  effect  as  of  2016.  At  the  same  time  stock-flow  adjustments  have  a 
substantial upward impact on the debt evolution over the forecast horizon. All in all, the debt 
ratio  is  estimated  to  rise  to  106.4%  of  GDP  at  the  end  of  2016.  At  unchanged  policy,  it  is 
expected to fall to 105.6% at the end of 2017. 

According to Belgium's 2016 Stability Programme, communicated to the Commission on 29 
April  2016,  the  debt  ratio  is  projected  to  reach  106.2%  at  the  end  of  2016  and  decline  to 
104.7%  in  2017.  The  difference  from  the  Commission's  projection  is  explained  by  a  lower 
planned  headline  deficit.  Assumptions  for  nominal  GDP  growth  are  broadly  similar  while 
stock-flow adjustments are expected to have a bigger debt-increasing impact in the stability 
programme.  

5 

 
 
Table 2: Debt dynamics 

Following the abrogation of the Excessive Deficit Procedure in June 2014, Belgium is subject 
toa three-year transition period to comply with the debt reduction benchmark, which started 
in 2014. In order to ensure continuous and effective progress towards compliance during the 
transition period, Member States should respect simultaneously the two conditions below: 

a. 

b. 

First, the annual structural adjustment should not deviate by more than ¼ % of 
GDP from the minimum linear structural adjustment (MLSA) ensuring that the 
debt rule is met by the end of the transition period; 

Second,  at  any  time  during  the  transition  period,  the  remaining  annual 
structural adjustment should not exceed ¾ % of GDP. However, this condition 
does  not  apply  to  the  case  of  Belgium  because  the  first  condition  implies  an 
annual effort above ¾ % of GDP. 

The  structural  adjustment  by  Belgium  in  2014  and  2015  was  not  sufficient  to  meet  the 
requirements of the transition period for the debt reduction benchmark (see Table 1). In 2014, 
the  required  MLSA  calculated  on  the  basis  of  the  Commission  2016  spring  forecast  would 
have  been  equal  to  0.8%  of  GDP,  while  the  structural  balance  improved  by  0.1%  of  GDP. 
Therefore,  the  deviation  is  above  the  maximum  deviation  allowed  by  the  first  condition. 
However, in its report of 27 February 2015, the Commission concluded that the debt criterion 
should be considered as complied with at that point in time. 

In view of the shortfall in 2014, the minimum required adjustment rose to 1.1% of GDP in 
2015,  significantly  above  the  adjustment  towards  the  MTO  of  at  least  0.6%  of  GDP 
recommended  by  the  Council  to  Belgium  in  June  2015.  Based  on  the  outturn  data  notified 

6 

201320142015COMCOMCOMCOMSPCOMSPGovernment gross debt ratio 105.2106.5106.0106.4106.2105.6104.7Change in debt ratio b (1 = 2+3+4)1.11.3-0.50.40.2-0.8-1.5Contributions:• Primary balance (2)-0.3-0.1-0.30.1-0.1-0.3-1.1• “Snowball” effect (3)2.01.10.5-0.1-0.3-0.5-0.6of which:     Interest expenditure3.43.22.92.72.62.62.5Real GDP growth0.0-1.3-1.4-1.2-1.2-1.6-1.5Inflation (GDP deflator)-1.3-0.7-0.9-1.5-1.6-1.4-1.5• Stock-flow adjustment (4)-0.60.3-0.80.40.60.00.2Notes:2017where t is a time subscript; D, PD, Y and SF are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and i and y represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect, measuring the combined effect of interest expenditure and economic growth on the debt ratio.a In percent of GDP.b The change in the gross debt ratio can be decomposed as follows:2016Source: Belgium's 2016 Stability Programme (SP) and Commission 2016 spring forecast (COM)tttttttttttttYSFyyiYDYPDYDYD1*1111 
 
 
and validated in April 2016, the structural balance is estimated to have improved by 0.2% of 
GDP in 2015, and therefore also in 2015 the first condition is not respected.  

In view of the shortfall in 2014 and 2015, the remaining required adjustment in the last year 
of  the  transition  period,  2016,  reaches  2.0%  of  GDP.  According  to  the  Commission  2016 
spring forecast, the structural balance is projected to improve by 0.3% of GDP in 2016. Thus, 
Belgium  is  not  expected  to  comply  with  the  debt  reduction  benchmark  by  the  end  of  the 
transition  period.  On  the  basis  of  the  macroeconomic  scenario  of  the  Stability  Programme, 
the required MLSA in 2016 reaches 2.1% of GDP, while the planned adjustment amounts to 
0.6% of GDP. Hence, Belgium is not projected to and does not plan to comply with the debt 
reduction benchmark by the end of the transition period. This assessment would not change 
when taking into account the impact of financial solidarity operations. 

The overall analysis above thus suggests that prima facie the debt criterion under the Treaty 
and  Regulation  (EC)  No  1467/1997  appears  not  to  be  fulfilled  based  on  2016  Stability 
Programme as well as the Commission 2016 spring forecast before, however, consideration is 
given to all relevant factors set out in Section 4. 

4. 

RELEVANT FACTORS 

Article  126(3)  TFEU  provides  that  the  Commission  report  “shall  also  take  into  account 
whether  the  government  deficit  exceeds  government  investment  expenditure  and  take  into 
account  all  other  relevant  factors,  including  the  medium-term  economic  and  budgetary 
position  of  the  Member  State.  These  factors  are  further  clarified  in  Article  2(3)  of  Council 
Regulation  (EC)  No  1467/97,  which  also  specifies  that  “any  other  factors  which,  in  the 
opinion  of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess 
compliance with the deficit and debt criteria and which the Member State has put forward to 
the Council and to the Commission” need to be given due consideration.  

In  case  of  apparent  breach  of  the  debt  criterion,  the  analysis  of  the  relevant  factors  is 
particularly warranted given that debt dynamics are influenced by factors outside the control 
of the government to a larger extent than in case of the deficit. This is recognised in Article 
2(4) of Council Regulation (EC) No 1467/97, which provides that the relevant factors shall 
be  taken  into  account  when  assessing  compliance  on  the  basis  of  the  debt  criterion 
irrespective of the size of the breach. 

In this respect, at least the following three main aspects need to be considered when assessing 
compliance with the debt criterion given their impact on the debt dynamics and sustainability. 

1.  Adherence to the MTO or the adjustment path towards it: the achievement 
of  the  MTO  or  the  progress  towards  it  is  supposed,  under  normal 
macroeconomic  circumstances,  to  ensure  sustainability  or  rapid  progress  to 
sustainability.  By  construction,  the  country-specific  MTO  takes  into  account 
the  debt  level  and  implicit  liabilities.  Compliance  with  the  MTO  or  the 
adjustment path towards it should ensure – in the medium term – convergence 
of  the  debt  ratios  towards  prudent  levels.  In  particular,  Belgium  would,  in 
normal economic conditions, comply with the debt reduction benchmark when 
at its MTO. 

2. 

Structural  reforms,  already  implemented  or  detailed  in  a  structural  reform 
plan:  the  rationale  for  taking  into  account  these  reforms  is  that  through  their 
impact  on  growth  they  are  expected  to  enhance  sustainability  in  the  medium 

7 

 
 
term, contributing to bring the debt-to-GDP ratio on a satisfactory downward 
path.  

Adherence  to  the  MTO  (or  the  adjustment  path  towards  it)  along  with  implementation  of 
structural  reforms  (in  the  context  of  the  European  Semester)  is  expected  to  bring  debt 
dynamics on a sustainable path, through the combined impact on the debt level itself (through 
the  achievement  of  a  sound  budgetary  position  at  the  MTO)  and  on  economic  growth 
(through the reforms). 

3.  Apart  from  these  two  main  factors,  the  occurrence  of  extraordinary 
economic  conditions,  which  may  hamper  the  reduction  of  the  debt-to-GDP 
ratios and make compliance with the SGP provisions particularly demanding, 
needs to be taken into account. Specifically, the protracted period of relatively 
low nominal GDP growth – requires the concerned Member States to achieve 
very  demanding  structural  adjustments  to  comply  with  the  MLSA  under  the 
transitional debt  rule. By construction, the transitional debt rule assumes  that 
the growth of the GDP deflator will only return to the long term average value 
of 2%  by 2020, which makes compliance with the forward-looking debt  rule 
particularly demanding. Under such conditions, adherence to the MTO or the 
adjustment path towards it (as spelled out under 1) is a key relevant factor in 
assessing compliance with the debt rule. 

In view of the above provisions, the following subsections consider in turn (1) the medium-
term economic position; (2) the medium-term budgetary position, including an assessment of 
compliance  with  the  required  adjustment  towards  the  MTO  and  the  development  of  public 
investment; (3) the developments in the medium-term government debt position, its dynamics 
and  sustainability;  (4)  other  factors  considered  relevant  by  the  Commission;  and  (5)  other 
factors put forward by the Member State. 

4.1.  Medium-term economic position 

Cyclical conditions, potential growth and inflation 

The Belgian economy proved to be rather resilient following the global economic recession 
in 2009. GDP quickly regained pre-crisis levels, thanks to strong economic growth in 2010 
and 2011. This period of growth was followed by a period of stagnation, with only slightly 
positive GDP growth in 2012 and flat GDP in 2013. In 2014 and 2015, GDP growth reached 
around 1.3 to 1.4%. According to the Commission 2016 spring forecast, economic growth is 
expected  to  slow  down  to  1.2%  in  2016  due  to  the  weaker  external  environment  and  the 
short-term  impact  of  the  March  2016  terrorist  attacks.  More  robust  domestic  demand  is 
projected lift growth to 1.6% in 2017.  

Potential growth estimates for Belgium are rather low, at 1.1% on average over 2014-2017. 
The contribution of labour to potential growth slowed down since the crisis, mostly due to a 
slower  growth  of  working  age  population.  In  addition,  the  contribution  of  capital 
accumulation dropped, while  the contribution of total factor  productivity continued its long 
term erosion. While the negative output gap narrowed since its trough in 2013, it is projected 
to remain negative over the forecast horizon. 

As  with  other  Member  States  of  the  euro  area,  Belgium  experienced  a protracted  period  of 
low domestic inflation. The GDP deflator has risen by 0.7% in 2014 and 0.9% in 2015. The 
increase  projected  for  2016  and  2017  remains  below  the  historical  average,  by  respectively 

8 

 
 
1.5% and 1.4%. By construction, the debt reduction benchmark assumes that the increase in 
the GDP deflator will only gradually convergence to a more normal rate of 2%, notably by 
2020.  This  relatively  slow  increase  in  the  GDP  deflator  has  an  important  impact  on  the 
evolution of the debt-to-GDP ratio and has a substantial impact on the adjustment required to 
put  the debt on a firm downward path as  required by the forward-looking debt  benchmark. 
Indeed,  the  MLSA  for  Belgium  calculated  on  the  basis  of  the  Commission  2016  spring 
forecast  is  substantially  higher  than  what  had  been  recommended  by  the  Council  in  June 
2015. In view of the above-mentionned adverse cyclical circumstances, such high effort may 
be neither feasible nor desirable. 

Table 3: Macroeconomic and budgetary developments a 

Structural reforms 

The  2016  Country  Report  for  Belgium  found  that  macroeconomic  risks  related  to 
competitiveness  have  narrowed  in  recent  years  given  corrective  action10.  This  trend  is 
expected  to  continue  in  the  near  term.  However,  the  report  also  highlighted  that  only 
structural  reforms  of the wage-setting framework itself  could  prevent  new competitiveness 
gaps from emerging. Risks stemming from the high public indebtedness are mitigated by an 
increasing average maturitiy of this debt stock and the overall healthy financial state of the 
private sector. Nevertheless, the high public debt level complicates consolidation efforts for 
the Belgian government moving forward. 

10  

See Commission Communication COM(2016) 95 final. 

9 

 201320142015COMCOMCOMCOMSPCOMSPReal GDP (% change)0.01.31.41.21.21.61.5GDP deflator (% change)1.30.70.91.51.61.41.5Potential GDP (% change) 0.81.01.11.21.31.41.4Output gap (% of potential GDP)-1.4-1.0-0.7-0.7-0.6-0.5-0.4General government gross debt105.2106.5106.0106.4106.2105.6104.7General government balance-3.0-3.1-2.6-2.8-2.5-2.3-1.4Primary balance0.30.10.3-0.10.10.31.1One-off and other temporary measures0.60.30.4-0.1-0.10.00.1Government gross fixed capital formation2.42.42.32.32.42.42.5Cyclically-adjusted balance-2.2-2.5-2.2-2.4-2.1-2.0-1.1Cyclically-adjusted primary balance1.20.70.70.30.90.61.7Structural balance b-2.8-2.8-2.6-2.3-2.0-2.1-1.2Structural primary balance0.50.40.30.40.70.51.220162017Source: Commission 2016 spring forecast (COM), Belgium's 2016 Stability Programme (SP)b Cyclically-adjusted balance excluding one-off and other temporary measures.a In percent of GDP unless specified otherwise.Notes: 
 
 
                                                 
In its Communication of 13 January 201511, the Commission strengthened the link between 
effective  implementation  of  structural  reforms,  investment,  and  fiscal  responsibility  in 
support of jobs and growth, within the existing rules of the SGP. Since taking office at the 
end  of  2014,  the  Belgian  federal  government  has  outlined  and  started  to  implement  a 
structural  reform  agenda.  Reforms  relate  primarily  to  pensions,  taxation  and  the  labour 
market  and  cover  several  of 
the  country-specific 
recommendations for Belgium12. 

the  challenges 

identified 

in 

In recent years, Belgium has made important progress in reforming its public pension system. 
In  order  to  raise  the  effective  retirement  age,  early  exit  possibilities  have  been  reduced  by 
further tightening the standard eligibility requirements for both early and pre-retirement. The 
legal retirement age will rise from 65 to 66 in 2025 and 67 to 2030. The long-term impact of 
this  set  of  measures  is  discernible  in  the  latest  projections  of  the  Ageing  Working  Group: 
pension  expenditures  are  projected  to  rise  by  1.3  pp.  of  GDP  between  2013  and  2060, 
compared  to  3.3  pp.  before  the  2015  reforms.  The  difference  is  mostly  due  to  the  pension 
reform itself (-1.6 pp. of GDP), while other measures, such as the temporary suspension of 
indexation  and  lower  public  employment  (-0.4  pp.  of  GDP),  will  also  curb  expenditure 
growth. These more positive ageing projections have allowed for a lower minimum medium-
term objective under the SGP.  

Although already enacted reforms have thus substantially reduced the projected rise in public 
pension  spending,  curbing  the  expected  increase  in  age-related  spending  further  through 
additional reforms would improve fiscal sustainability in the long term. Indeed, the intended 
adoption  of  a  credit-based  public  pension  system  by  2019  would,  once  fully  implemented, 
allow  for  automatic  adjustment  mechanisms  in  response  to  demographic  or  economic 
developments.  At  the  same  time,  a  mechanical  shift  to  early  exit  through  the  sickness  and 
disability schemes needs to be prevented. 

In  recent  months  new  measures  have  already  been  announced  which  focus  on  the  civil 
servant pension scheme and their convergence with the private sector pension scheme. Years 
of  study  will,  for  example,  no  longer  affect  pension  benefits  (in  line  with  the  2015  reform 
which did the same with regard to career requirements) unless these years are regularised by 
means of additional contributions. Favourable accrual rates for certain profiles with regard to 
career  requirements  and  pension  rights  will  also  be  reviewed  once  a  list  of  arduous 
professions is determined.  

Within the framework of the multi-annual tax shift outlined in 2015 and introduced as of this 
year,  the  tax  pressure  on  labour  is  being  reduced.  Both  employers  and  employees  benefit 
from  measures  to  narrow  the  tax  wedge.  On  the  one  hand,  the  statutory  rate  of  employers’ 
social security contributions will be reduced to 25% by 2018, with lower effective rates for 
low  to  medium  wages.  In  addition,  wage  subsidies  for  shifted  and  night  labour  have  been 
increased.  SMEs  and  independents  are  exempted  from  social  security  contributions  for  the 
first newly hired employee, while contributions are reduced for the next five employees. On 
the other hand, the take home pay of employees is being increased through a combination of 
increases  in  the  lump  sum  allowance  for  professional  expenses,  the  work  bonus,  the  tax 
exempted amount, and a reshuffling of tax brackets. The announced labour tax cuts represent 
EUR  11.5  billion  by  2020,  or  2.2%  of  GDP.  The  budgetary  neutrality  of  the  tax  shift  is 

11  
12  

See footnote 4. 
For an exhaustive overview of reform measures, see Belgian National Reform Programme 2016. 

10 

 
 
                                                 
currently  not  assured,  which  weighs  on  the  budget  outlook  for  2016  and  2017.  In  the 
medium-term the initial negative budgetary impact of the tax shift will be partly offset by its 
positive impact on growth and employment. Despite recent reforms, the Belgian tax system 
remains  hampered  by  widespread  distortions  which  narrow  tax  bases  and  contribute  to  the 
system's complexity. 

A  third  wharf  concerns  the  modernisation  of  labour  legislation  with  the  double  goal  of 
enhancing  flexibility  for  employers  and  work  tenability  for  employees.  Proposals  were 
outlined by the federal government in a letter sent on 15 April 2016 to the Commission, with 
forthcoming  legislative  proposals  scheduled  for  adoption  by  the  end  of  the  year.  Newly 
envisaged rules comprise the calculation of the average working period on an annual basis, 
with  a  standard  maximum  daily/weekly  working  time  of  9/45  hours  (11/50  in  case  of  a 
sectoral agreement to exceed the standard limits). In addition, all employees can dispose over 
an annual credit of 100 hours of overtime which they do not have to compensate but can have 
either paid out or added to a 'career account' on which also leave rights can be accumulated if 
agreed at sector level. Other reforms entail the introduction of an individual annual training 
right, a legal framework for occasional telework, and more flexible rules regarding working 
hours and overtime. 

In its 2016 National Reform Programme the Belgian government subscribes to the need of a 
structural  reform  of  the  wage-setting  framework.  With  this  goal  in  mind  it  was  announced 
that the legal framework defining wage negotiations (the 'Law of 1996') will be revised with 
legislation  to  be  introduced  in  Parliament  in  coming  months.  Planned  revisions  include  the 
introduction  of  automatic  correction  mechanisms  and  a  stricter  monitoring  of  compliance 
with  the  wage  norm,  as  was  already  announced  in  the  government  agreement  of  October 
2014. 

4.2.  Medium-term budgetary position 

Headline, structural balance and adjustment towards the MTO  

Belgium's headline deficit reached 2.6% of GDP in 2015, down from 3.1% in 2014. In 2016, 
the  headline  deficit  is  expected  to  increase  to  2.8%  of  GDP  according  to  the  Commission 
2016  spring  forecast.  This  deterioration  is  explained  by  one-off  factors,  which  contributed 
positively in 2015 (0.4% of GDP) but are projected to turn negative in 2016 (-0.1% of GDP). 
Moreover, the 2016 headline deficit is impacted by additional expenditure related to asylum-
seekers and security measures, of respectively 0.2% and 0.1% of GDP. At unchanged policy, 
the 2017 headline deficit is expected to drop to 2.3% of GDP. 

Belgium's  Draft  Budgetary  Plan  for  2016  indicated  that  the  budgetary  impact  of  the 
exceptional  inflow  of  refugees  is  significant  in  2015  and  2016  and  that  it  should  be 
considered as an unusual event outside the control of the government, as defined in Articles 
5(1) and 6(3) of Regulation (EC) No 1466/97. In relation to this situation, Belgium requested 
a  temporary  deviation  from  the  adjustment  path  towards  the  MTO.  In  a  letter  sent  to  the 
Commission  on  17  March  2016,  the  Belgian  authorities  also  invoked  these  provisions  with 
respect to exceptional expenditure in 2016 linked to security measures and the fight against 
terrorism. 

Article  5(1)  and  Article  6(3)  of  Regulation  (EC)  No  1466/97  cater  for  this  additional 
expenditure,  in  that  the  inflow  of  refugees  as  well  as  the  severity  of  the  terrorist  threat  are 
exceptional events, their impact on Belgium`s public finances is significant and sustainability 

11 

 
 
would not be compromised by allowing for a deviation from the adjustment path towards the 
medium-term budgetary objective. Therefore, the required adjustment towards the medium-
term budgetary objective for 2015 should be reduced to take into account additional refugee-
related costs estimated at 0.03% of GDP in that year13.  

The structural balance is projected to have improved by 0.2% of GDP in 2015, 0.4% of GDP 
below the required effort of 0.6% of GDP under the preventive arm of the Pact. On the other 
hand, Belgium is compliant with the expenditure benchmark. Over 2014 and 2015 together, 
the structural balance hardly improved, pointing to a risk of significant deviation based on the 
structural balance pillar (average gap of -0.5% of GDP). On the other hand, the expenditure 
benchmark  pillar  points  to  compliance  over  2014  and  2015  taken  together.  It  calls  for  an 
overall  assessment.  In  2014,  the  structural  balance  was  negatively  impacted  by  a  sizable 
revenue  shortfall  (0.3% of GDP),  among others due to  a loss  in  revenue from the  financial 
sector (e.g. dividends and guarantee fees). Also in 2015, the structural balance was impacted 
by  revenue  shortfalls  (0.6%  of  GDP)  compared  to  standard  elasticities,  due  to  particularly 
low  wage  growth  and  low  inflation  (relative  to  the  change  in  GDP  deflator).  The  revenue 
shortfall  was  only  partially  counterbalanced  by  savings  in  interest  expenditure  which 
improved  the  structural  balance  but  which  is  not  taken  into  account  in  the  expenditure 
benchmark pillar. After correcting for the above-mentioned revenue shortfalls, the structural 
balance  pillar  would  point  to  some  deviation.  Therefore,  the  overall  assessment  points  to 
some  deviation  from  the  adjustment  path  towards  the  MTO  over  2014  and  2015  taken 
together.  

In  2016, the structural balance is projected to improve by of 0.3%  of GDP, just half of the 
required adjustment of 0.6% of GDP, pointing to a risk of some deviation. The expenditure 
benchmark points to a risk of significant deviation (gap of -1.2% of GDP). The expenditure 
benchmark is negatively impacted by the development of one-off factors (impact of 0.5% of 
GDP), without which the gap would be 0.7% of GDP. The additional budgetary impact of the 
exceptional  inflow  of  refugees  and  exceptional  security  measures  following  recent  terrorist 
threats in Belgium taken into account in the Commission forecast is estimated at 0.17% and 
0.12%  of  GDP  respectively.  In  case  the  impact  of  one-offs  would  be  netted  out  and  the 
additional  budgetary impact  of the exceptional inflow of refugees as  well as  of exceptional 
security  measures  was  excluded  from  the  assessment,  both  indicators  would  point  to  some 
deviation. 

Over  2015  and  2016  together,  both  indicators  point  to  a  risk  of  signification  deviation 
(average  gap  of  -0.3%  of  GDP  and  -0.6%  of  GDP  on  the  structural  balance  and  on  the 
expenditure benchmark pillar respectively). Therefore, there is a risk of significant deviation 
from the adjustment path towards the MTO in 2016. In case the additional budgetary impact 
of the exceptional inflow of refugees (0.10% of GDP on average over 2015 and 2016) as well 
as  of  exceptional  security  expenditure  (0.06%  of  GDP  on  average)  was  excluded  from  the 
assessment,  the  average  deviation  on  the  structural  balance  pillar  would  fall  below  the 
threshold  of  significance.  The  expenditure  benchmark  is  negatively  impacted  by  the 
development  of  one-off  factors  (annual  average  impact  of  -0.2%  of  GDP  over  2015  and 
2016).  Netted  out  for  this  element  and  excluding  the  additional  impact  of  refugee-related 

13  

See  also  the  Commission  Recommendation  for  a  Council  Recommendation  of  18  May  2016  on  the 
2016  national  reform  programme  of  Belgium  and  delivering  a  Council  opinion  on  the  2016  stability 
programme of Belgium. 

12 

 
 
                                                 
expenditure  and  anti-terrorism  measures,  the  expenditure  benchmark  would  also  point  to 
some  deviation  in  2016.  Therefore,  taking  into  account  the  exceptional  nature  of  the  costs 
related  to  the  sizeable  inflow  of  refugees  and  the  recent  terrorist  threats,  Belgium  can  be 
considered broadly compliant with the required adjustment towards the MTO in 2016. 

Overall, based on the Commission 2016 spring forecast and taken into account the flexibility 
foreseen  in  the  Stability  and  Growth  Pact  for  unusual  events  outside  the  control  of  the 
government,  Belgium  can  be  considered  broadly  compliant  with  the  required  adjustment 
towards  its  MTO  in  2015  and  2016.  Full  compliance  with  the  required  adjustment  towards 
the  MTO  in  2017  and  subsequent  years  would  ensure  that  the  forward-looking  debt  rule  is 
met as of 2018. 

In  their  2016  stability  programme,  the  Belgian authorities revised  their  MTO  to  a  balanced 
budget in structural terms, down from a structural surplus of 0.75% of GDP. The new MTO 
is  more  ambitious  than  the  new  minimum  MTO  for  Belgium  of  -0.5%  of  GDP.  Belgium 
plans to reach this MTO by 2018, which would require an effort of 1.7% of GDP over 2017-
2018 according to the plans. According to the spring forecast, a higher effort (2.3% of GDP) 
would  be  needed  due  to  a  different  estimate  of  the  2015  structural  balance  position  and  a 
different  projection  for  the  2016  deficit.  In  normal  conditions,  the  planned  adjustment 
towards the MTO and the achievement of the new MTO by 2018 would lead to compliance 
with the forward-looking debt rule as of 2017. 

Public investment 

Public investment peaked in 2012 at 2.5% of GDP, due to the investment cycle at local level. 
For  the  same  reason,  it  decreased  afterwards,  to  2.4%  of  GDP  in  2013  and  2014.  In  2015, 
public  investment  dropped  further,  to  2.3%  of  GDP.  Investment  grants  to  non-financial 
corporations (among others for railway infrastructure, hospitals, elderly homes and schools), 
amounting  to  1.1%  of  GDP  in  2014,  are  not  included  in  these  figures.  Over  the  forecast 
horizon, investment is projected to increase due to large investment projects at regional level 
and the investment cycle of local authorities. 

4.3.  Medium-term government debt position 

Between  1998  and  2007,  Belgium's  government  debt-to-GDP  ratio  decreased  by  32  pps, 
thanks  to  sizeable  primary  surpluses  (although  gradually  declining),  sustained  economic 
growth  as  well  as  a  decreasing  interest  burden.  At  the  end  of  2007,  Belgium's  general 
government debt stood at 87% of GDP. Since the start of the financial and economic crisis in 
2007,  the  Belgian  government  debt  has  been  rising  again.  However,  despite  massive 
interventions in the financial sector and a deficit above or around 3% of GDP since 2009, the 
recent  debt  increase  is  less  pronounced  in  Belgium  (+  19  pps.  of  GDP  between  2007  and 
2015) than in many other Member States and the euro area as a whole (28 pps. of GDP in the 
euro  area  on  aggregate).  Despite  the  increase  in  debt  levels,  interest  expenditure  declined 
steadily  over  the  same  period  thanks  to  a  further  decline  in  interest  rates,  apart  from  a 
temporary rise in risk premia in 2012.  

The reduction of Belgium's public debt is hampered by a protracted period of relatively low 
nominal growth. Up to 2015, it was insufficient to offset interest expenditure, resulting in an 
upward  snowball  effect.    The  decline  in  interest  rates  trickles  only  gradually  through  to  a 
lower implicit interest rate on the outstanding debt stock. Moreover, the primary government 
balance is also impacted by adverse cyclical conditions. Stock-flow adjustments reduced the 

13 

 
 
debt by 0.8pp. of GDP in 2015. They are expected to have a debt-increasing impact of around 
0.4% of GDP in 2016, while assumed to be neutral in 2017. All in all, the debt is projected to 
peak  at  106.4%  of  GDP  in  2016  and  to  decline  to  105.6%  of  GDP  in  2017  thanks  to  the 
expected improvement of the primary balance and a downward snowball effect. 

Currently,  Belgium  does  not  seem  to  face  a  risk  of  financial  stress  in  the  short  term.  The 
average  life  to  maturity  of  the  federal  debt  portfolio14  is  relatively  long,  at  7.98  years  in 
February  201615.  The  Belgian  government  used  the  current  low  interest  environment  to 
refinance the outstanding debt at low rates and pre-financed part of the 2016 financing needs, 
a strategy which will be pursued further in 2016. The 12-month and 60-month refixing risk16 
of the federal debt decreased from 20.3% and 56.8% at the end of 2012 to 15.0% and 44.4% 
at the end of 201517. In line with the euro area wide evolution, interest rates on Belgian debt 
instruments are historically low. The spread between Belgian and German bonds averaged 34 
basis  points  in  2015,  compared  to  55  basis  points  in  2014,  and  a  maximum  of  366  basis 
points on 25 November 2011. The implicit interest rate declined steadily in recent years, from 
4.6% in 2007 to 2. 7% in 2015. It is projected to decline further to 2.4% in 2017. 

Recent  pension  reforms  curbed  the  expected  increase  in  age-related  expenditure  in  the 
medium to long term. At unchanged policy, the debt level is projected to decline to 99% of 
GDP  by  202618.  A  1  pp.  increase  in  the  interest  rate  assumptions  or  0.5  pp.  lower  GDP 
growth  would  bring  the  debt  level  to  around  103%  of  GDP  in  2026.  This  being  said, 
according to the Commission 2015 Fiscal sustainability report, Belgium still appears to face 
high fiscal sustainability risks in the medium term and medium fiscal risks in the long term. 
Adequate progress towards Belgium's MTO19, as required by the Stability and Growth Pact, 
would put the debt on a sustained downward path, arriving at around 81% of GDP by 2026.  
In  such  a  scenario,  Belgium  would  be  compliant  with  the  forward-looking  debt  rule  as  of 
2018. 

Lastly, the sustainability of public debt is also determined by the economy's growth potential. 
As described above, a gradual erosion of the contribution of total factor productivity since the 
beginning of the nineties substantially lowered the potential growth outlook, illustrating the 
importance of implementing structural reforms boosting potential growth.  

Despite the high public indebtedness, the net financial asset position of the Belgian economy 
as a whole is highly positive (+ 50% of GDP in 2015), compared to a net debtor position of 
10% of GDP for the euro area. This overall healthy position is notably thanks to the very high 

14 
15 
16 

17 
18 

19 

The federal debt represents 84% of the general government debt. 
Source: Belgian Debt Agency, Review 2015, 2016 Outlook. 
The share of outstanding debt which matures in a given time period or which is subject to changes in 
interest rates (because of a floating interest rate). 
Source: Belgian Debt Agency, Review 2015, 2016 Outlook. 
These projections start from the European Commission 2016 winter forecast, with the no-policy change 
assumption  translated  into  a  structural  primary  balance  kept  constant  (excluding  ageing  costs)  at  the 
level  of  the  last  year  of  the  forecast  (2017).  The  baseline  scenario  is  based  on  the  following  macro-
economic assumptions for the long term: potential GDP growth remains around 1%; inflation and the 
change  in  the GDP deflator stabilise  at  2%  in  the  medium  term; long-term  interest  rates  on new  and 
rolled-over debt converge to 3% in real terms by 2026 and short-term rates to a value consistent with 
the  long-term  interest  rate  and  historical  (pre-crisis)  euro  area  yield  curve  (see  also  European 
Commission, 2012). Projected ageing costs are based on the 2015 Ageing Report.  
In  its  2016  stability  programme,  Belgium  revised  its  MTO  from  a  surplus  of  0.75%  of  GDP  to  a 
balanced budget in structural terms. 

14 

 
 
                                                 
net financial wealth of Belgian households, which more than offset the net liabilities of the 
public sector and the non-financial corporations. 

4.4. 

Other factors considered relevant by the Commission 

Among the other factors considered relevant by the Commission, particular consideration is 
given to financial contributions to fostering international solidarity and achieving the policy 
goals of the Union, the debt incurred in the form of bilateral and multilateral support between 
Member  States  in  the  context  of  safeguarding  financial  stability,  and  the  debt  related  to 
financial  stabilisation  operations  during  major  financial  disturbances  (Article  2(3)  of 
Regulation (EC) No 1467/97).  

Rescue  operations  in  the  financial  sector  explain  part  of  the  debt  increase  since  2008.  In 
recent years, the direct cumulative impact of these operations reached almost 7% of GDP in 
2011 but  declined to around 3.6% of GDP in 2015 due to the sale of some  of the acquired 
assets  as  well  as  the  reimbursement  of  loans  granted.  Contingent  liabilities  related  to 
guarantees granted  to  the  financial  sector  are gradually  being  reduced  and  reached  7.7%  of 
GDP at the end of 2015, with Dexia the only remaining beneficiary. 

Article  12(1)  of  Regulation  (EU)  No  473/2013  requires  that  this  report  considers  also  "the 
extent  to  which  the  Member  State  concerned  has  taken  into  account  the  Commission's 
Opinion  on  the  country's  DBP,  as  referred  in  Article  7(1)"  of  the  same  Regulation.  The 
Commission  Opinion  on  the  2016  DBP  presented  by  Belgium  in  October  2015  has  been 
partially  taken  into  account  in  the  budget  for  2016  and  its  subsequent  implementation.  The 
Commission Opinion on the budgetary plans for 2016 pointed to broad compliance with the 
provisions  of  the  SGP.  It  invited  the  authorities  to  take  the  necessary  measures  within  the 
national budgetary process to ensure that the 2016 budget will be compliant with the SGP. In 
comparison  to  the  2016  DBP,  an  additional  provision  for  security  expenditure  of  0.1%  of 
GDP had been included in the adopted budget. In April 2016, the federal government agreed 
on additional measures in order to close the projected deviation of the 2016 structural target. 
However,  not  all  of  these  measures  were  sufficiently  specified  at  the  cut-off  date  of  the 
Commission 2016 spring forecast and therefore have not all been included in the Commission 
projection. This is notably the case for some of the announced savings in the social security, 
the redesign of the government's administration and a number of anti-fraud measures. 

4.5. 

Other factors put forward by the Member State 

On  9  April  2016,  the  Belgian  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Council Regulation (EC) No 1467/97. The analysis presented 
in the previous sections already broadly covers the key factors put forward by the authorities. 

The authorities notably argue that the MLSA for Belgium is excessively demanding, referring 
to the Commission report under Article 126(3) TFEU of 27 February 2015 which stated that 
such  an  effort  was  neither  feasible  nor  desirable.  Secondly,  the  authorities  refer  to  the 
continuation of the structural reform agenda by the Belgian government, in line with what is 
mentioned in Section 4.1. On top  of last year's reforms in  the areas of competitiveness and 
social security (particularly with regard to pensions), the federal government has carried out a 
tax shift away from labour  and a labour market reform is  due  to take  place  by the autumn.  
The  structural  reforms  undertaken  in  the  area  of  pensions  allowed  a  downward  revision  of 
Belgium's minimum MTO from a surplus of 0.75% of GDP to a deficit of 0.5% of GDP. The 

15 

 
 
Belgian  authorities  opted  for  a  more  ambitious  MTO  of  a  balanced  budget,  planned  to  be 
reached by 2018, in order to ensure compliance with the debt criterion. 

In  their  letter,  the  Belgian  authorities  also  point  to  the  fact  that  the  debt  ratio  has  fallen  in 
2015,  for  the  first  time  since  the  economic  and  financial  crisis  of  2008,  and  is  planned  to 
decrease  further  as  of  2017.  According  to  the  authorities'  calculations,  the  budgetary  path 
presented in the stability programme should enable compliance with the debt criterion as of 
2017.  The  authorities  also  invoke  exceptional  refugee-related  costs  and  security  measures. 
While neutralized under the preventive arm, they have an impact on the headline balance and 
thus  on  public  debt  developments.  Lastly,  the  authorities  recall  that  the  sustained  period  of 
low economic growth is detrimental to debt dynamics and deficit reduction. 

5. 

CONCLUSIONS 

General government gross debt reached 106.0 % of GDP at the end of 2015, well above the 
60%  of  GDP  reference  value,  and  according  to  the  Commission  2016  spring  forecast, 
Belgium  is  not  projected  to  make  sufficient  progress  towards  compliance  with  the  debt 
reduction  benchmark.  This  suggests  that  prima  facie  the  debt  criterion  as  defined  in  the 
Treaty  appeared  to  be  not  fulfilled  before  however  consideration  is  given  to  all  relevant 
factors. In line with the Treaty, this report also examined the relevant factors.  

Taking into account the flexibility foreseen for the impact of exceptional events outside the 
control  of  the  government,  Belgium  is  not  expected  to  deviate  significantly  from  its 
adjustment path towards the MTO in  2015 and 2016 and can therefore be considered to  be 
broadly compliant with the preventive arm of the SGP. The MLSA for Belgium calculated on 
the basis of the Commission 2016 spring forecast is substantially higher than what had been 
recommended  by  the  Council  in  June  2015.  The  effort  required  by  the  MLSA  is  very 
demanding  in  view  of  the  relatively  low  nominal  GDP  growth.  In  view  of  these  adverse 
cyclical circumstances, such a high effort may be neither feasible nor desirable. 

Belgium  made  good  progress  in  implementing  the  structural  reforms  announced  at  the 
beginning of 2015, notably in the area of pensions, taxation and the labour market. They are 
substantial and are expected to contribute to  enhancing the economy's growth potential and 
reduce  the  risks  of  macro-economic  imbalances,  thereby  having  a  positive  impact  on  debt 
sustainability.  In  a  letter  sent  on  15  April  2016,  Belgium  announced  further  reforms,  in 
particular  in  the  labour  market,  which  are  further  detailed  in  the  2016  National  Reform 
Programme. 

The analysis presented in this report includes the assessment of all the relevant factors, and 
notably  (i)  the  unfavourable  economic  conditions  which  make  the  respect  of  the  debt  rule 
particularly  demanding;  (ii)  the  expectation  that  compliance  with  the  required  adjustment 
towards  the  MTO  is  broadly  ensured;  and  (iii)  the  implementation  of  ambitious  growth-
enhancing structural  reforms in  line with  the  authorities' commitment, which is expected to 
contribute  to  debt  reduction  in  the  medium/long  term.  It  suggests  that  the  debt  criterion  as 
defined in the Treaty and in Regulation (EC) No 1467/1997 should be considered as currently 
complied with. 

16