REPORT FROM THE COMMISSION Belgium Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Belgium, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 534 final  REPORT FROM THE COMMISSION Belgium  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Belgium 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 
6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of  Regulation 
(EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic 
downturn.  In  its  Communication,  the  Commission  shared  with  the  Council  its  view  that, 
given  the  expected  severe  economic  downturn  resulting  from  the  COVID-19  outbreak,  the 
current  conditions  permit  the  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Belgian  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government deficit in Belgium reached 1.9% of GDP in 2019, 
while general government gross debt stood at 98.6% of GDP. According to the 2020 Stability 
Programme, Belgium plans a deficit of 7.5% of GDP in 2020, while debt would attain 115% 
of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Moreover,  the  data  for  2019  imply  insufficient  progress  towards  the  debt  reduction 
benchmark, which also provides prima facie evidence of the existence of an excessive deficit 
as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Belgium’s compliance with the deficit and debt criteria of the Treaty. It takes into account all 

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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relevant  factors  and  gives  due  consideration  to  the  major  economic  shock  linked  to  the 
COVID-19 pandemic.. 

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

2016 

2017 

2018 

2019 

2020 
COM 

2021 
COM 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 
Gap to the 
debt 
reduction 
benchmark 

-2.4 

-0.7 

-0.8 

-1.9 

-8.9 

-4.2 

104.9 

101.7 

99.8 

98.6 

113.8 

110.0 

0.4 

0.2 

0.7 

5.7 

1.8 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  Belgium’s  general  government  deficit  in  2020  is 
expected to reach 7.5% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Specifically, while the measures adopted to counter the COVID-
19  pandemic  amount  to  1.2%  of  GDP,  automatic  stabilisers  are  planned  to  contribute  5 
percentage  points  of  GDP  to  the  planned  deficit.    Taking  into  account  the  impact  of  the 
COVID-19  pandemic,  the  Commission  2020  spring  forecast  projects  a  contraction  of  real 
GDP in 2020 by 7.2%.  

The  planned  excess  over  the  Treaty  reference  value  would  not  be  temporary  based  on  the 
Commission 2020 spring forecast, which projects the deficit to remain above 3% of GDP in 
2021.  

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference  value.  The  planned  excess  is  considered  to  be  exceptional  but  not  temporary  as 
defined  by  the  Treaty  and  the  Stability  and  Growth  Pact.  Hence,  the  analysis  suggests  that 
prima facie the deficit criterion as defined by the Treaty and Regulation (EC) No 1467/97 is 
not fulfilled. 

3. 

DEBT CRITERION  

The  government  debt-to-GDP  ratio  decreased  from  99.8%  in  2018  to  98.6%  in  2019.  The 
debt-decreasing  effect  stemming  from  a  slight  primary  surplus,  debt-decreasing  stock  flow 
adjustments, real GDP growth and an increase in prices (inflation effect), was partly offset by 
the interest expenditure, although decreasing. 

The notified data show that Belgium did not  comply with  the debt  reduction benchmark in 
2019 (see Table 1), as the gap to the benchmark is 0.7 % of GDP. 

The  analysis  thus  suggests  that  prima  facie  the  debt  criterion  is  not  fulfilled  based  on  the 
2019 outturn data. 

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4. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
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”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  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.  

For the apparent breach of the debt criterion, the analysis of the relevant factors is particularly 
warranted  given  that  debt  dynamics  are  to  a  larger  extent  influenced  by  factors  outside  the 
control of the government than is the case for the deficit. This is recognised in Article 2(4) of 
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 that 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:  (i)  adherence  to  the  MTO  or  the  adjustment  path  towards  it,  (ii)  the 
implementation of structural reforms, and (iii) the prevailing economic conditions. 

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit criterion in 2020, since the government debt-to-GDP ratio exceeds the 60% reference 
value and the double condition is not met - i.e. that the deficit remains close to the reference 
value and that its excess over the reference value is temporary - those relevant factors cannot 
be  taken  into  account  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive 
deficit on the basis of the deficit criterion for Belgium.  

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

4.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

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4.2 

Medium-term economic position including structural reforms 

Since  2016,  real  GDP  growth  has  been  growing  above  potential,  driven  by  dynamic 
investment  and  private  consumption,  while  the  contribution  from  net  exports  remained 
subdued. Nominal growth picked up in 2017 and abated slightly in 2018 and 2019 due to the 
slow-down  in  economic  activity  and  weaker  GDP  deflator.  Hence,  it  cannot  be  argued  that 
macroeconomic conditions are a mitigating factor in explaining Belgium’s lack of sufficient 
progress towards meeting the debt reduction benchmark in 2019. 

Economic  activity  is  expected  to  be  severely  affected  by  the  COVID-19  outbreak  and  the 
related containment measures. The Commission 2020 spring forecast projects GDP to decline 
by  7.2%  in  2020,  due  to  a  fall  in  private  consumption  and  investment,  while  net  trade's 
contribution  to  growth  is  forecast  to  remain  negative  amid  a  fall  in  trade  volume.  The 
macroeconomic  outlook  is  marked  by  an  exceptional  degree  of  uncertainty  related  to  the 
duration of the pandemic and its economic impact. This a mitigating factor in the assessment 
of Belgium’s compliance with the deficit criterion in 2020. 
In  its  2020  Country  Report2,  the  Commission  assesses  that  Belgium  has  made  limited 
progress in addressing the 2019 Country Specific Recommendations, due in part to the lack 
of  government  with  full  powers  at  the  federal  level.  However,  Belgium  has  made  some 
progress  in  fostering investment  in  sustainable transport infrastructure but  no progress  with 
regard to the coordination of fiscal policies of all levels of government. In 2019, the federal 
caretaker  government  has  continued  the  implementation  of  previously  enacted  measures, 
notably  its  corporate  income  tax  reform,  the  ‘tax  shift’,  pension  reform  and  labour  market 
reform (‘Jobs deal’). 

4.3 

 Medium-term budgetary position, including government investment 

The headline deficit increased from 0.8% of GDP in 2018 to 1.9% in 2019, notably due to a 
large  drop  in  current  taxes  on  income  and  weath.  In  particular,  revenues  from  corporate 
income taxation fell after a temporary boost in 2017 and 2018 due to a change in the timing 
of  tax  collection.  Public  investment  remained  stable  around  2.6%  of  GDP  in  both  years, 
above the general government deficit. 

On  09  July  2019,  Belgium  was  recommended  to  ensure  that  the  nominal  growth  rate  of 
primary government expenditure, net of discretionary revenue measures and one-offs, did not 
exceed 2.8% in 2019 (‘the expenditure benchmark’), corresponding to a structural adjustment 
of 0.1% of GDP, taking into account the structural reform clause3. Based on outturn data and 
the  Commission  forecast,  expenditure  growth  exceeded  the  benchmark,  with  a  deviation  of 
0.7%  of  GDP  in  2019  from  the  recommended  adjustment  path  towards  the  medium-term 
budgetary  objective,  thus  pointing  to  a  significant  deviation.  The  structural  balance 
deteriorated  by  0.6  percentage  points  of  GDP  in  2019,  thus  also  pointing  to  a  significant 
deviation  by  0.7%  of  GDP.  A  similar  assessment  is  obtained  from  looking  at  2018-2019 
taken  together.  The  lack  of  compliance  with  the  preventive  arm  requirements  is  an 

2 See Commission Staff Working Document SWD (2020) 500 final, 26.2.2020, "Country Report Belgium 2020. 

Including an In-Depth Review on the prevention and correction of macroeconomic imbalances".   

3 Council Recommendation of 9 July 2019 on the 2019 National Reform Programme of Belgium and delivering 

a Council opinion on the 2019 Stability Programme of Belgium, OJ C 301, 5.9.2019, p.1. 

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aggravating factor for the assessment of Belgium’s prima facie non-compliance with the debt 
criterion in 2019. 

The  Stability  Programme  provides  information  on  substantial  measures  to  contain  the 
pandemic  and  to  support  the  economy.  It  estimates  the  budgetary  impact  of  those  direct 
support measures at 2.3% of GDP in 2020. The medium-term fiscal outlook remains subject 
to high uncertainty.  

4.4.  Medium-term government debt position  

Government debt declined steadily between 2016 and 2018, from 104.9% to 99.8% of GDP, 
due to increasing primary surpluses and declining interest payments. In 2019, the debt ratio 
declined  further,  to  98.6%,  reflecting  the  debt-decreasing  effect  stemming  from  a  slight 
primary surplus, downward stock-flow adjustments and a downward snowball effect of 0.9% 
of GDP as a result of real GDP growth and the increase in prices (inflation effect). This was 
partly offset by, although decreasing, interest expenditure. 

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 98.6% of GDP in 2019 to 113.8% in 2020. 

Graph 1: Government debt-to-GDP ratio, Belgium, % of GDP 

Source: Commission services. 

The debt sustainability analysis has been updated with the Commission 2020 spring forecast. 
Overall,  the  debt  sustainability  assessment  indicates  that,  notwithstanding  risks,  the  debt 
position remains  sustainable over the medium  term, also  given important mitigating  factors 
(including the debt profile and the historically low level of interest rates). In particular, while 
the debt position deteriorates as a result of the COVID-19 crisis, the debt-to-GDP ratio in the 
baseline is expected to be on a sustainable (declining) trajectory over the medium term4. 

4 The baseline is based on the Commission 2020 spring forecast. Beyond 2021, a gradual adjustment of fiscal 
policy  is  assumed,  consistent  with  the  EU  economic  and  fiscal  coordination  and  surveillance  frameworks. 
Real  GDP  growth  is  projected  according  to  the  so-called  EPC/OGWG  T+10  methodology.  In  particular, 
(real) actual GDP growth is driven by its potential growth and affected by any additional fiscal adjustment 
considered  (through  the  fiscal  multiplier).  Inflation  is  assumed  to  converge  gradually  to  2%.  Interest  rates 
assumptions  are  set  in  line  with  financial  market  expectations.  Under  the  adverse  scenario,  higher  interest 
rates  (by  500  bps.)  and  lower  GDP  growth  (by  -0.5  pp.),  with  respect  to  the  baseline,  are  assumed 
(throughout the projection horizon). 

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4.5 

Other factors put forward by the Member State  

On  11  May  2020,  the  Belgian  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections  already  broadly  covers the key  factors put  forward by the authorities.  An 
additional  factor  not  yet  mentioned  above  is  the  caretaker  government’s  limited  leeway  to 
take deficit-reducing measures at the federal level.   

 5. 

CONCLUSIONS 

According  to  the  Stability  Programme,  Belgium’s  general  government  deficit  in  2020  is 
planned to increase to 7.5% of GDP, above and not close to the 3% of GDP Treaty reference 
value.  The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  but  not 
temporary.  

The general government gross debt stood at 98.6% of GDP at the end of 2019, above the 60% 
of GDP Treaty reference value. Belgium did not comply with the debt reduction benchmark 
in 2019.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors. As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance 
with the deficit criterion in 2020, since the government debt-to-GDP ratio exceeds the 60% 
reference value and the double condition is not met - i.e. that the deficit remains close to the 
reference  value  and  that  its  excess  over  the  reference  value  is  temporary  -  those  relevant 
factors cannot be taken into account in the steps leading to the decision on the existence of an 
excessive deficit on the basis of the deficit criterion for Belgium.  

As regards compliance with  the debt  criterion  in 2019, the relevant  factors, in  particular (i) 
the  observed  macroeconomic  conditions;  (ii)  the  implementation  of  growth-enhancing 
structural  reforms  in  past  years,  and  (iii)  the  significant  deviation  from  the  recommended 
adjustment path towards the medium term budgetary objective, lead to the conclusion that the 
debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not complied 
with.  

Overall, the analysis suggests that the deficit and debt criterion as defined in the Treaty and in 
Regulation (EC) No 1467/1997 are not fulfilled. 

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